S-1/A

As filed with the Securities and Exchange Commission on July 7, 2004

Registration No. 333-113915

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 2

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

EMPI, INC.

(Exact name of registrant as specified in its charter)

Minnesota	3845	41-1310335
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Number)	(IRS Employer Identification No.)

599 Cardigan Road

St. Paul, MN 55126

(651) 415-9000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

H. Philip Vierling

President and Chief Executive Officer

Empi, Inc.

599 Cardigan Road

St. Paul, MN 55126

(651) 415-9000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

David M. McPherson, Esq. Latham & Watkins LLP 555 Eleventh Street, N.W. Washington, D.C. 20004 (202) 637-2200 Kenneth B. Wallach, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017 (212) 455-2000

Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated                     , 2004

PROSPECTUS

             Shares

Common Stock

This is our initial public offering of common stock. We are offering              shares and the selling shareholders identified in this prospectus are offering              shares. No public market currently exists for our shares. We will not receive any proceeds from the sale of shares by the selling shareholders.

Application will be made to list our common stock on the New York Stock Exchange under the symbol “EMP.” We currently estimate that the initial public offering price will be between $             and $             per share.

Investing in the shares involves risks. See “ Risk Factors” beginning on page 8.

	Per Share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds to Empi, Inc. (before expenses)	$	$
Proceeds to selling shareholders	$	$

The selling shareholders have granted the underwriters a 30-day option to purchase up to an aggregate of              additional shares of common stock on the same terms and conditions set forth above solely to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state or foreign securities commission or regulatory authority has approved or disapproved of these securities, or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

Lehman Brothers Inc. and J.P. Morgan Securities Inc., on behalf of the underwriters, expect to deliver the shares on or about                     , 2004.

LEHMAN BROTHERS JPMORGAN

DEUTSCHE BANK SECURITIES PIPER JAFFRAY

                    , 2004

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	8
Cautionary Notice Regarding Forward-Looking Statements	23
Notice Regarding Arthur Andersen LLP	23
Use of Proceeds	24
Dividend Policy	24
Capitalization	25
Dilution	26
Selected Consolidated Financial Data	27
Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Business	46
Management	62

	Page
Certain Relationships and Related Transactions	67
Principal and Selling Shareholders	69
Description of Capital Stock	71
Description of Certain Indebtedness	75
United States Federal Income Tax Consequences to Non-United States Holders	77
Shares Eligible for Future Sale	80
Underwriting	82
Legal Matters	88
Experts	88
Where You Can Find More Information	88
Index to Financial Statements	F-1

ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus. We and the underwriters have not authorized anyone to provide you with different or additional information. This prospectus is not an offer to sell or a solicitation of an offer to buy our common stock in any jurisdiction where it is unlawful to do so. The information contained in this prospectus is accurate only as of its date, regardless of the date of delivery of this prospectus or of any sale of our common stock.

Through and including                     , 2004 (the 25th day after the date of this prospectus), all dealers effecting any transaction in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

TRADEMARKS

The following terms used in this prospectus are our trademarks: Empi^®, Empi Europe^TM, Ormed^®, Rehab Med+Equip^TM, Epix XL^®, Epix VT^®, Focus^®, 300PV^TM, Dupel^®, Dupel B.L.U.E.^®, Artromot^®, ActionPatch^® and Advance Dynamic ROM^®. All other trademarks appearing in this prospectus are the property of their holders.

INDUSTRY DATA

Information contained in this prospectus concerning our industry, the domestic and international markets for the products that we manufacture, sell and distribute and the historic growth rate of, and our position in, those markets, is based on estimates that we prepared using data from various sources (including industry publications, surveys and forecasts and our internal research), on assumptions that we have made that are based on that data and other similar sources and our knowledge of the markets for our products. We have not independently verified, market and industry data provided by third parties, or by industry or general publications. Similarly, while we believe our internal estimates are reliable, our estimates have not been verified by any independent sources.

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read the following summary together with the more detailed information regarding us and our common stock being sold in this offering, including our financial statements and the related notes, appearing elsewhere in this prospectus. Except as otherwise indicated by the context, in this prospectus “Empi,” “we,” “us,” and “our” refer to Empi, Inc. and its subsidiaries, taken as a whole.

Empi, Inc.

Our Business

We are a leading medical device company focused on products used for pain management, orthopedic rehabilitation and physical therapy. We develop, manufacture, market and distribute a diverse range of non-invasive medical devices and related accessories that are primarily used by patients for at-home therapy. We also provide physical therapy equipment and supplies to physicians, physical therapists and other healthcare professionals for use in their clinics. For the year ended December 31, 2003, our net revenues were $150.5 million, an 11.2% increase over the prior year, and our gross profits were $98.6 million, a 5.4% increase over the prior year. For the three months ended March 31, 2004, our net revenues were $38.9 million, an 8.2% increase over the three months ended March 31, 2003, and our gross profits were $24.8 million, a 4.0% increase over the three months ended March 31, 2003.

Our products are designed to provide non-invasive, lower-cost treatment alternatives to surgery and traditional methods of physical therapy and pain management. We are a leading provider of electrotherapy devices and accessories, including transcutaneous electrical nerve stimulation, or TENS, devices, which are used to treat chronic and post-surgical acute pain, and neuromuscular electrical stimulation, or NMES, devices, which are used to restore and maintain muscle function. We are also a leading provider of iontophoretic devices and accessories. Iontophoretic devices are non-invasive, needle-free, transdermal drug delivery systems that deliver anti-inflammatory medication and anesthesia. We are also a provider of continuous passive motion, or CPM, devices, which are used to reduce swelling, increase joint range-of-motion and reduce the incidence of complications after surgery or trauma. Our orthotics devices support, protect and rehabilitate joints with impaired range-of-motion and provide pain relief for certain spine conditions.

We estimate that we have the number one market share in the U.S. TENS and iontophoresis markets. We also believe we have a leading market position in both the U.S. orthotics and NMES markets. In 2003, approximately 75% of our net revenues were generated by products that we believe hold one of the top three positions in their respective markets.

We market, sell and distribute our products in the United States and Germany through our approximately 145-person direct sales force. In the United States, our approximately 120-person direct sales force calls primarily on physical therapists as well as physicians, clinics and hospitals. Our U.S. sales force has relationships with approximately 12,000 physical therapy clinics nationwide. In addition, we maintain a four-person dedicated national accounts group in the United States that focuses on developing relationships with managed care and national rehabilitation providers. We believe that our U.S. sales force represents the largest direct distribution network for physical rehabilitation products in the country. In Germany, our approximately 25-person direct sales force focuses primarily on educating physicians regarding the benefits of our products.

In addition to our direct sales force, we have approximately 130 internal sales representatives that provide sales support in both the United States and Germany. Our internal sales representatives assist patients in filing insurance claims, following prescribed therapies and purchasing supplies and accessories for our products. We believe that providing this extensive follow-on patient support helps to develop strong relationships with our patients and their treatment providers thus leading to increased use of our products.

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Physical Therapy Products Market

According to management estimates based on available industry data, the physical therapy products market generated sales of approximately $1.6 billion in 2002 and is expected to grow at approximately 7% per year through 2007. This market is comprised of orthopedic soft goods, pain management and electrotherapy devices, rehabilitation equipment and clinical products and supplies. This market is highly fragmented and characterized by competition among several multi-product companies with significant market share and numerous smaller niche competitors. We believe that we are the only company in the physical therapy products market that competes in each of the electrotherapy, iontophoresis, orthotics and continuous passive motion product categories. We believe that growth in the markets we target is driven by:

• a shift toward at-home therapy;

• the increasing awareness and use of non-invasive devices for treatment and rehabilitation;

• cost-containment initiatives by third-party payors;

• a growing emphasis on physical fitness and leisure sports, which has led to increased injuries; and

• a growing elderly population with broad medical coverage and longer life expectancy.

Competitive Strengths

We attribute our historic success to the following competitive strengths:

• Leading provider of physical rehabilitation products with a broad product offering.    We are a leading provider of TENS, NMES, iontophoretic devices and orthotic devices dispensed or purchased by physical therapy clinics. We also offer a broad variety of complementary products to satisfy the various needs of our physical therapy clinic customers. We believe these characteristics make us an attractive provider of non-invasive medical devices and physical therapy products and accessories for physical therapy clinics.

• Strong brand recognition and reputation for quality.    We have been marketing physical therapy products for over 27 years. We believe that our products have widely recognized brand names and enjoy a reputation for quality, durability and reliability among healthcare professionals.

• Successful track record of new product introductions.    We have a history of new product development and innovation. Since 1997, we have introduced 15 new products and expect to introduce several new products in 2004 and 2005. Most recently, in early 2004, we launched our ActionPatch self-contained, portable iontophoretic device.

• Leading direct distribution network.    We believe that our direct distribution network is the largest in our industry and provides us with a significant competitive advantage with respect to sales of our existing products and the introduction of new products. By using a direct sales force rather than third-party distributors, as most of our competitors do, we are able to establish direct relationships with healthcare providers, which allows us to effectively cross-sell and increase awareness of our products.

• Strong relationships with managed care organizations and national rehabilitation providers.    Our leading market position in our core product lines and the breadth of our product offering have enabled us to secure important preferred provider and managed care contracts. We currently have approximately 600 contracts with leading managed care providers, including over 40 preferred provider arrangements with regional and national operators of physical therapy clinics.

• Proprietary third-party billing system.    We have developed a proprietary third-party billing system that automatically tracks patients and inventory and manages payor profiles. This system has enabled us to bill payors more quickly, thereby improving our third-party reimbursement collection cycles.

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Business Strategy

Our strategy is to continuously improve the rehabilitative outcomes for physical therapy patients by developing, manufacturing and marketing innovative, cost-effective products for the physical therapy market. We intend to fulfill our strategy and increase our net revenues and profitability by:

• expanding our existing relationships;

• continuing to introduce new products and product enhancements;

• expanding the size and scope of our sales force;

• increasing penetration of national and regional provider networks;

• increasing awareness of our products among referring physicians;

• pursuing strategic acquisitions; and

• expanding our international presence.

Our Challenges

We face a number of challenges in capitalizing on our strengths and implementing our strategies. For example:

• We depend on third-party payors, chiefly governmental agencies, private insurers and managed care companies, to reimburse us for our medical products purchased or rented by patients. Cost-cutting efforts and other changes in the coverage of, and reimbursement for, our products by these third-party payors could have a material adverse affect on our results of operations.

• Healthcare reform and the expansion of managed care organizations and buying groups have put downward pressure on the prices of our products.

• Our future success depends, in part, on our ability to develop, license, distribute and acquire new products, enhance our existing products and find new applications for our existing products.

• The physical therapy market is highly competitive and fragmented and we compete with several large, diversified general physical therapy products companies with significant market share and numerous smaller niche competitors. Some of our competitors have significantly greater financial, marketing and other resources than we do and we may be at a competitive disadvantage with respect to these competitors.

• Our products are subject to extensive regulation, and our failure to comply with regulatory requirements in the United States or abroad could adversely affect our business.

For further discussion of these and other challenges that we face, see “Risk Factors.”

Our principal executive offices are located at 599 Cardigan Road, St. Paul, MN 55126. Our telephone number is (651) 415-9000, and our web site address is www.empi.com. The information contained or incorporated in our web site is not a part of this prospectus.

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The Offering

Common stock offered by us	shares
Common stock offered by the selling shareholders	shares
Common stock to be outstanding after this offering	shares
Use of proceeds from this offering	We intend to use approximately $         million of the proceeds that we receive from this offering to repay outstanding indebtedness under our term loan facility and the remainder of the net proceeds for general corporate purposes. We will not receive any proceeds from the sale of common stock by the selling shareholders.
Proposed New York Stock Exchange symbol	“EMP”

The number of shares of our common stock that will be outstanding after this offering is based on              shares outstanding as of March 31, 2004 and excludes:

• 855,435 shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2004, 539,685 of which options were then exercisable; and

• 25,167 shares of our common stock reserved for future grants under our existing stock option plan.

Unless we indicate otherwise, all information in this prospectus:

• assumes no exercise of the underwriters’ over-allotment option;

• assumes the exercise of options to purchase                  shares of our common stock immediately prior to the consummation of this offering;

• assumes an initial public offering price of $     per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus; and

• gives effect to a      for      stock split of our common stock, in the form of a stock dividend, that will occur immediately prior to the closing of this offering.

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Summary Consolidated Financial Data

The following table sets forth our summary historical consolidated and as adjusted financial data for the periods indicated. We derived the summary consolidated financial data presented below for each of the three years ended December 31, 2003, 2002, and 2001 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our consolidated statement of income data presented below for the years ended December 31, 2003 and 2002, and our balance sheet data as of December 31, 2003, from our consolidated financial statements, which were audited by Ernst & Young LLP, our independent auditors. We derived our consolidated statement of income data presented below for the year ended December 31, 2001 from our consolidated financial statements, which were audited by Arthur Andersen LLP, our independent auditors during that year. We derived the summary financial data as of and for the three months ended March 31, 2004 and 2003 from our unaudited consolidated interim financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited consolidated interim financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial information shown in these statements.

On November 24, 2003, we consummated a $169.4 million recapitalization. In connection with the recapitalization, we borrowed $165.0 million under our senior secured credit facility. Certain of the proceeds from the recapitalization were used to make $63.1 million in payments to shareholders and management. The as adjusted balance sheet data as of March 31, 2004 presented below give effect to the completion of this offering and the application of $         million of the net proceeds from this offering to repay indebtedness under our senior secured credit facility as if each had occurred as of March 31, 2004. The as adjusted earnings per share data for the three months ended March 31, 2004 and the year ended December 31, 2003 presented below give effect to:

• our November 2003 recapitalization;

• the completion of this offering; and

• the application of $       million of the net proceeds from this offering to repay indebtedness under our senior secured credit facility,

as if each had occurred as of January 1, 2004 for the three months ended March 31, 2004 and January 1, 2003 for the year ended December 31, 2003. The as adjusted summary financial data are not necessarily indicative of what our financial position or results of operations would have been if the recapitalization and this offering had been completed as of the dates indicated, nor are such data necessarily indicative of our financial position or results of operations for any future date or period.

Our historical results are not necessarily indicative of future operating results. You should read the information set forth below in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

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	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001
	(in thousands, except share and per share data)
Statement of Income Data:
Net revenues	$	38,893		$	35,950		$	150,525		$	135,586		$	121,555
Cost of goods sold		14,128			12,139			51,946			42,024			36,180
Gross profit		24,765			23,811			98,579			93,562			85,375
Operating expenses:
Selling, general, and administrative		15,502			15,045			58,831			53,071			56,491
Research and development		650			691			2,409			2,131			2,874
Recapitalization expense (1)		—			—			5,408			—			—
Total operating expenses		16,152			15,736			66,648			55,202			59,365
Earnings from operations		8,613			8,075			31,931			38,360			26,010
Interest income		32			35			164			195			305
Interest expense		(2,063	)		(2,124	)		(7,994	)		(8,781	)		(11,040	)
Other expense (2)		(101	)		218			(2,511	)		(1,176	)		(646	)
Earnings before income taxes and minority interest		6,481			6,204			21,590			28,598			14,629
Income tax expense		(2,419	)		(1,843	)		(8,180	)		(9,605	)		(7,896	)
Minority interest		(47	)		—			(127	)		(66	)		805
Net earnings	$	4,015		$	4,361		$	13,283		$	18,927		$	7,538
Net earnings per share:
Basic	$	0.65		$	0.70		$	2.15		$	3.06		$	1.22
Diluted	$	0.60		$	0.65		$	2.00		$	3.04		$	1.21
Weighted-average shares outstanding:
Basic		6,191,180			6,191,180			6,191,180			6,191,180			6,191,180
Diluted		6,643,226			6,661,455			6,653,092			6,220,495			6,220,248
Pro forma net earnings per share (3):
Basic	$						$
Diluted	$						$
Pro forma as adjusted net earnings per share unaudited (4):
Basic	$						$
Diluted	$						$

	At March 31, 2004			As Adjusted At March 31, 2004(5)
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	10,577		$
Total assets		113,328
Long-term debt, including current portion (6)		165,658
Shareholders’ deficit		(72,166	)

(1) Represents $5.1 million in bonuses paid to management and $0.3 million in other expenses incurred in connection with the November 2003 recapitalization.

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(2) In 2003, other expense included a $1.0 million write-off of deferred financing costs related to our previous credit facility, $1.2 million of fees paid on behalf of our shareholders in connection with the recapitalization and $0.6 million of management fees. These expenses were offset by $0.6 million of other income from Empi Europe. In 2002, other expense consisted primarily of a $0.6 million management fee and $0.2 million of bank charges.

(3) Pro forma net earnings per share is calculated by including in the weighted average share calculation              shares, which represents the number of shares, when multiplied by an offering price of $           per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, is equal to the excess of the 2003 dividends over 2003 net earnings.

(4) Pro forma as adjusted net earnings per share is calculated by increasing reported net income by the reduction in interest expense incurred for the year ended December 31, 2003 and for the quarter ended March 31, 2004 on the portion of the senior secured credit facility to be repaid with proceeds from this offering, and including in the weighted average shares outstanding calculation the shares expected to be sold in this offering and the shares used in the pro forma net earnings per share calculation in (3) above.

(5) Adjusted to reflect the sale of              shares of common stock at an offering price of $             per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, as if such sale had occurred on March 31, 2004 and the utilization of half the proceeds received by the Company in this offering to repay debt.

(6) Long-term debt excludes minority interest.

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RISK FACTORS

Investing in our common stock involves risk. You should carefully consider the following risks as well as the other information contained in this prospectus, including our financial statements and the related notes, before investing in our common stock.

Risks Related to Our Business

If we cannot successfully implement our business strategy, our business and results of operations will be adversely affected.

We may not be able to successfully implement our business strategy. Any such failure may adversely affect our business and results of operations. For example, our business strategy involves, among other things, increasing our sales by introducing new products, finding new applications for our existing products, educating physicians about the clinical and cost benefits of our products and thereby increasing the number of physicians that prescribe our products, and increasing the number of physical therapy clinics that dispense and use our products. A significant turnover in our existing sales force or our inability to recruit and train additional qualified members of our sales force would severely impair our ability to implement this strategy. Moreover, even if we successfully implement our business strategy, our operating results may not improve. We may decide to alter or discontinue aspects of our business strategy and may adopt different strategies due to business or competitive factors or factors not currently foreseen, such as the introduction of new products by our competitors or new medical technologies that would make our products obsolete.

We rely heavily on our relationships with healthcare professionals who prescribe and recommend our products, and our failure to maintain these relationships could adversely affect our business.

We have developed and maintain close relationships with a number of leading physicians, physical therapists and other healthcare professionals and we believe that sales of our products depend significantly on their prescription or recommendation of our products. Our failure to maintain these relationships or to develop similar relationships with other leading healthcare professionals could result in a decrease in the prescription and recommendation of our products, which may adversely affect our sales and profitability.

If we are unable to develop and market new products or product enhancements or find new applications for our existing products, we will not remain competitive.

Our future success and our ability to increase revenues and earnings depend, in part, on our ability to develop, license, distribute and acquire new products, enhance our existing products and find new applications for our existing products. However, we may not be able to:

• successfully develop or introduce new products or enhance existing products;

• find new applications for our existing products;

• manufacture, market and distribute products in a cost-effective manner;

• establish relationships with marketing partners;

• obtain reimbursement for our future products or product enhancements; or

• obtain required regulatory clearances and approvals.

Our failure to do any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. In addition, if any of our new or enhanced products contain undetected errors or design defects, especially when first introduced, or if new applications that we develop for existing products do not work as planned, our ability to market these products could be substantially delayed, resulting in lost revenue, potential damage to our reputation and/or delays in obtaining acceptance of the product by physicians, physical therapists and the other professionals that recommend and prescribe our products.

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Our results may be adversely affected by changes in third-party coverage of, and reimbursement for, our products.

In the United States, Germany and the other countries in which we operate, third-party payors, chiefly governmental agencies, private insurers and managed care companies, typically reimburse us for our medical products purchased or rented by patients. Changes in the coverage of, and reimbursement for, our products by these third-party payors could have a material adverse affect on our results of operations. For example, in the United States, private third-party payors frequently engage in efforts to contain costs, which may result in a reduction of coverage of, and reimbursement for, our products. We believe that physical therapists and physicians will be less likely to use, purchase or prescribe our products if their patients are unable to obtain sufficient reimbursement from third-party payors, which may adversely affect our sales and profitability. In addition, many other third-party payors model their coverage and reimbursement policies on Medicare policies. As a result, third-party payors’ coverage of, and reimbursement for, our products could be negatively impacted by legislative or regulatory measures that reduce Medicare coverage and reimbursement generally. For a more thorough discussion of these legislative and regulatory measures, please see the discussion under the heading “Risk Factors —Risks Related to Government Regulation.”

Our international sales also depend upon the eligibility of our products for reimbursement through third-party payors, the amount of reimbursement and the allocation of payments between the patient and third-party payors. Reimbursement practices vary significantly by country, with certain countries requiring products to undergo a lengthy regulatory review in order to be eligible for third-party reimbursement. In addition, healthcare cost containment efforts similar to those we face in the United States are prevalent in many of the foreign countries in which our products are sold, and these efforts are expected to continue in the future, possibly resulting in the adoption of more stringent reimbursement standards. Any developments in our foreign markets, including those discussed under the heading “Risk Factors—Risks Related to Government Regulation,” that eliminate, reduce or materially modify coverage of, and reimbursement rates for, our products could have an adverse effect on our ability to sell our products or cause our customers to use less expensive products in these markets.

Healthcare reform, managed care and buying groups have put downward pressure on the prices of our products.

Healthcare reform and the healthcare industry’s response to rising healthcare costs has caused a rapid expansion of managed care organizations and buying groups. The expansion of managed care has resulted in downward pressure on the prices of our products and greater attention to balancing the costs and benefits of using a particular product or treatment. One result of this cost-benefit analysis has been, and is expected to continue to be, a shift toward coverage and payments based on more cost-effective treatment alternatives, which could reduce the demand for our products and adversely affect our operating results.

A further result of healthcare reform and the related pressure on costs has been the advent of buying groups in the United States. These buying groups enter into preferred supplier arrangements with one or more manufacturers of medical products in return for price discounts. The extent to which these buying groups are able to obtain compliance by their members with such preferred supplier agreements varies considerably depending on the particular buying group. If we are not able to obtain new preferred supplier commitments for major buying groups or retain those commitments that we currently have, which are generally terminable by either party for any reason with two to six months written notice, our sales and profitability could be adversely affected. However, even if we are able to obtain and retain preferred supplier commitments from buying groups, they may not deliver high levels of compliance by their members, meaning that we may not be able to offset the negative impact of lower per-unit prices or lower margins with increases in unit sales or in market share.

In Germany and other international markets, we have also experienced downward pressure on product pricing and other effects of healthcare reform similar to that which we have experienced in the United States. For

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example, in Germany, orthopedic professionals have started to re-use certain of our post-operative bracing products on multiple patients in an effort to lower treatment costs, which could adversely impact our sales of these products. We cannot assure you that this practice will not be extended to our other products in Germany or elsewhere. We expect healthcare reform and managed care to continue to develop in these international markets, which we expect will result in further downward pressure on product pricing and may adversely affect our sales and profitability. We cannot predict the timing or impact on us of healthcare reform and the development of managed care in international markets.

Our international operations expose us to economic, regulatory and other risks in the countries in which we operate.

Approximately 27% of our net revenues for the three months ended March 31, 2004 were generated outside of the United States, primarily in Germany and elsewhere in Europe. The nature of our international business involves a number of risks, including:

• additional regulatory requirements;

• import restrictions and controls, tariffs and other trade barriers;

• difficulties in staffing and managing our foreign operations;

• fluctuations in currency exchange rates;

• changes in regulatory requirements which may affect, among other things, reimbursement for our products;

• changes in political and economic conditions;

• exchange controls; and

• exposure to additional and potentially adverse tax regimes.

In addition, we frequently depend on foreign distributors and sales agents for compliance and adherence to foreign laws and regulations and we cannot assure you that these distributors and agents will adhere to such laws and regulations. As we continue to expand our international business, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks. Our failure to manage these risks and grow our international operations may have a material adverse effect on our business and results of operations.

Fluctuations in foreign exchange rates may adversely affect our financial position and results of operations.

Our foreign operations expose us to currency fluctuations and exchange rate risks. For example, while our principal foreign subsidiary, Ormed GmbH & Co. KG (“Ormed”), which is incorporated in Germany, records the majority of its revenues and certain of its expenses in euros, its results are reflected in our consolidated financial statements in U.S. dollars. Therefore, our reported results are exposed to fluctuations in the exchange rates between the U.S. dollar and the euro because during a period in which the U.S. dollar strengthens versus the euro, our reported consolidated net revenues will be lower than they might otherwise have been because net revenues earned in euros will translate into fewer U.S. dollars.

In addition, Ormed purchases the majority of its product inventory in U.S. dollars, with the purchase translated into euros at the time of payment, and the inventory expense recognized in euros at the time of sale. However, the assets and liabilities of Ormed that are reflected on our consolidated balance sheet are translated into U.S. dollars at the exchange rate in effect at the balance sheet date, while the net revenues and operating expenses of Ormed that are reflected on our consolidated statement of income are translated into U.S. dollars at the weighted-average exchange rate for the reported period. The resulting translation adjustments are recorded in shareholders’ deficit as accumulated other comprehensive income or loss. Accordingly, changes in currency exchange rates will cause our net income and shareholders’ deficit to fluctuate.

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To protect us from the possible negative effects of exchange rate fluctuations on Ormed’s U.S. dollar purchases, we engage in hedging transactions on an ongoing basis and expect to obtain in the future one or more forms of currency protection in the form of forward exchange contracts, options or similar agreements. However, we cannot assure you that any hedging will adequately protect us from the adverse effects of changes in exchange rates or that counterparties under these agreements will honor their obligations thereunder.

Our reported results may be adversely affected by increases in our reserves for sales allowances, product returns, rental credits and uncollectible accounts receivable.

Our net revenues and profitability are affected by changes in our reserves to account for sales allowances, product returns, rental credits and uncollectible accounts receivable. The sales allowance reserve accounts for sales of our products below the invoice price. Such sales generally result from agreements that we have with certain insurance providers that permit them to reimburse us for our products in amounts that are below the invoice price of the product. The product return reserve accounts for patient returns of our products after purchase. Historically, patients have returned approximately 2% to 3% of the total products purchased. These returns are mainly attributable to the third-party payor’s refusal to provide a patient release or reimbursement for the product or the inability of the product to adequately address the patient’s condition. If we increase the percentage of our sales made pursuant to agreements providing for reimbursement below invoice price or if patients return devices at a higher than estimated rate, we may be required to increase our sales allowance and product return reserves beyond their current levels.

Our rental credit reserve accounts for a timing difference between billing of a purchase and processing of a rental credit. Many insurance providers require patients to rent our devices for a period of one to three months prior to purchase. If the patient has a long-term need for the device, these insurance companies may authorize purchase of the device after such time period. When the device is purchased, most providers require that rental payments previously made on the device be credited toward the purchase price. These credits are processed at the time the payment is received for the purchase of the device, which creates a time lag between billing of the purchase and processing of the rental credit. Our rental credit reserve accounts for unprocessed rental credits based on the number of devices converted to purchase. If the frequency of rental to purchase conversion increases, we may be required to increase our rental credit reserve beyond its current level.

We also have a large balance of receivables and have established a reserve for the portion of such receivables that we estimate will not be collected. We may experience changes in our rates of collection of current accounts receivable or past-due receivables recorded for previous fiscal periods. Changes in our collection rates can result from a number of factors, including turnover in personnel, changes in the reimbursement policies or practices of payors or changes in industry rates or pace of reimbursement. Historically, our reserve for uncollectible receivables has fluctuated and may continue to fluctuate in the future. Changes in rates of collection or fluctuations, even if they are small in absolute terms, could require us to increase our reserve for uncollectible receivables beyond its current level.

Any increase in our reserves for sales allowances, product returns, rental credits and uncollectible accounts receivable could adversely affect our reported financial results by reducing our net revenues and/or our profitability for the reporting period.

Our business plan relies on certain assumptions concerning demographic and other trends that impact the market for our products, which, if incorrect, may adversely affect our business plan and results of operations.

We believe that various demographics and industry specific trends will help drive growth in the sale of our products, including increased clinical acceptance of electrotherapy as a treatment regimen and the general increase in participation in exercise and sports, especially by women and older adults. However, these demographics and trends are beyond our control and if our assumptions regarding these factors prove to be incorrect, we may not successfully implement our strategy, which could adversely affect our business plan and

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results of operations. In addition, the perceived benefits of these trends may be offset by business or competitive factors or factors not currently foreseen, such as the introduction of new products by our competitors or the emergence of other countervailing trends.

We operate in a very competitive business environment.

The physical therapy market is highly competitive and fragmented. Our competitors include several large, diversified general physical therapy products companies with significant market share and numerous smaller niche competitors. Some of our competitors are part of corporate groups that have significantly greater financial, marketing and other resources than we do. Accordingly, we may be at a competitive disadvantage with respect to these competitors. In addition, we believe that competition in our core product markets is primarily based on quality and technical features of the products, pricing, contractual arrangements with third-party payors and national accounts, and relationships with physical therapists and prescribing physicians. Our competitors may compete on these and other bases more effectively than we do or may develop products that render our products uncompetitive, which could have a material adverse effect on our business and results of operations.

Our quarterly operating results are subject to substantial fluctuations and you should not rely on them as an indication of our future results.

Our quarterly operating results may vary significantly due to a combination of factors, including:

• demand for our products;

• our ability to meet the demand for our products;

• changes in pricing policies by us and our competitors and changes in coverage and reimbursement policies by third-party payors, including government healthcare agencies;

• increased competition;

• the number, timing and significance of new products and their introduction and enhancements by us and our competitors, including delays in obtaining government review and clearance of medical devices;

• the impact of acquisitions;

• the timing of significant orders and shipments;

• our loss of preferred provider status with managed care programs or buying groups;

• recalls of our products;

• work stoppages or strikes in the healthcare industry;

• changes in the U.S. or international economy; and

• termination of supply contracts.

Many of these factors are beyond our control. Accordingly, our quarterly operating results may vary significantly in the future and period-to-period comparisons of our results of operations may not be meaningful and should not be relied upon as indicators of our full year performance or future performance. Our share price may be subject to greater volatility due to these fluctuations in our operating results.

Additionally, while we do not believe that our results of operations are materially affected by seasonal changes, our fourth quarter has historically been our strongest. We believe that this strength is primarily due to increased spending during the fourth quarter by patients who desire to use funds remaining in flexible spending accounts prior to the end of the year and who are thus less reluctant to purchase products covered by insurance when their insurance deductibles have been satisfied. We cannot assure you that this strength in our fourth quarter results will continue in the future.

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We may not successfully make or integrate acquisitions or enter into strategic alliances.

As part of our growth strategy, we intend to pursue selected acquisitions and strategic alliances. We compete with other medical device companies for these opportunities and we cannot assure you that we will be able to effect strategic alliances or acquisitions on commercially reasonable terms or at all. Even if we enter into these transactions, we may experience:

• delays in realizing the benefits we anticipate or we may not realize the benefits we anticipate at all;

• difficulties in integrating any acquired companies and products into our existing business;

• attrition of key personnel from acquired businesses;

• costs or charges;

• higher costs of integration than we anticipated; or

• unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our existing operations.

Consummating these transactions could also result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, financial condition and results of operations. We may also issue additional equity in connection with these transactions, which would dilute our existing shareholders.

Our ability to operate our company effectively could be impaired if we lose key personnel.

We believe that our future success will depend, in part, on the continued services of our senior management team, including H. Philip Vierling, our President and Chief Executive Officer, Patrick D. Spangler, our Chief Financial Officer, Rudiger Hausherr, the President of Ormed, and H. Allen Hughes, Jr., the General Manager of Rehab Med+Equip, Inc., or RME. Our success also depends upon our sales force, including their sales and services expertise and relationships with customers in the marketplace. In order to maintain our success, we need to retain our key employees as well as the current members of our sales force, despite increasing competition for their services, and identify, recruit and train additional members to the sales force. Our failure to do so could have a material adverse effect on our business.

We rely heavily on our direct distribution network, which may result in higher fixed costs and may slow our ability to reduce costs in the face of a sudden decline in demand for our products.

We rely heavily on our direct distribution network to market and sell our products, which differentiates us from our competitors who predominately rely on independent sales agents and third-party distributors. Our direct distribution network may subject us to higher fixed costs than our competitors, due to costs associated with employee benefits, training and managing sales personnel, which could put us at a competitive disadvantage. Additionally, these fixed costs may slow our ability to reduce costs in the face of a sudden decline in demand for our products, which could have a materially adverse affect on our profitability.

We rely on a sole-source supplier for some of our products, which makes us susceptible to supply shortages of these products.

Medireha GmbH, which is 50% owned by us, is our single source supplier for passive motion devices. Our distribution agreement with Medireha grants us exclusive rights to the distribution of products that Medireha manufactures. The distribution agreement, which expires on June 30, 2005, also provides that we are required to purchase, and Medireha is required to produce, a certain amount of product annually. If we encounter a cessation, interruption or delay in the supply of the products that we purchase from Medireha, we may be unable to obtain such products through other sources, on acceptable terms, within a reasonable amount of time or at all. Any such cessation, interruption or delay may impair our ability to meet scheduled product deliveries to our customers, hurt our reputation or cause customers to cancel orders.

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If a natural or man-made disaster strikes our manufacturing facilities, we may be unable to manufacture our products for a substantial amount of time and our sales and results of operations may be adversely affected.

Nearly all of our products are manufactured or refurbished at our facilities in Clear Lake, South Dakota and our 50%-owned facility in Umkirch, Germany. If one or both of these facilities were affected by a natural or man-made disaster, we would be forced to rely on third-party manufacturers, shift production to another manufacturing facility or be unable to manufacture our products at all. Any such disaster may have a material adverse effect on our business, results of operations and financial position. In addition, our insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms.

We rely on intellectual property to develop and manufacture our products and our business could be adversely affected if we lose our intellectual property rights.

Our operations involve the use of non-patented proprietary know-how, trade secrets, processes and other proprietary information. We employ various methods to protect our proprietary information, including confidentiality agreements and proprietary information agreements with vendors, employees, consultants and others. Despite these precautions, our proprietary information may become known to, or be independently developed by, competitors, or our proprietary rights in intellectual property may be challenged, any of which could have a material adverse effect on our business, financial condition and results of operations.

We also hold U.S. and foreign patents relating to a number of our components and products and have patent applications pending with respect to other components and products. We also apply for additional patents in the ordinary course of our business as we deem appropriate. We cannot assure you, however, that our existing or future patents, if any, will afford us adequate protection or any competitive advantage, that any future patent applications will result in issued patents or that our patents will not be circumvented or invalidated.

Our operating results and financial condition could be adversely affected if we become involved in litigation regarding our patents or other intellectual property rights.

We or our products may become subject to patent infringement claims or litigation or interference proceedings declared by the U.S. Patent and Trademark Office, or USPTO, or the foreign equivalents thereto to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings or the foreign equivalents thereto and related legal and administrative proceedings are both costly and time consuming. An adverse determination in litigation or interference proceedings to which we may become a party could:

• subject us to significant liabilities to third parties;

• require disputed rights to be licensed from a third party for royalties that may be substantial; or

• require us to cease using such technology.

Any of these outcomes could have a material adverse effect on us. We are currently not aware of any material intellectual property infringement claims that may be brought against us.

Product liability claims may harm our business if our insurance proves inadequate or the number of claims increases significantly.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in adverse effects. If there is a significant increase in the number or amount of product liability claims, our business could be adversely affected. Even if we are successful in defending against any liability claims, such claims could nevertheless distract our management, result in substantial costs, harm our reputation and otherwise harm our business and results of operations.

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We maintain product liability insurance with coverage that we believe to be adequate and are not currently aware of any product liability claims that could reasonably be expected to exceed our insurance coverage if we were found to be liable. Our insurance policy is provided on an occurrence basis and is subject to annual renewal. We cannot assure you that liability claims will not exceed the coverage limit of such policy or that such insurance will continue to be available on commercially reasonable terms or at all. If we do not or cannot maintain sufficient liability insurance, our ability to market our products may be significantly impaired.

Risks Related to Government Regulation

Changes in coverage and reimbursement policies for our products by Medicare or reductions in reimbursement rates for our products could adversely affect our business and results of operations.

In the United States, our products are prescribed by physicians whose patients may receive reimbursement for the cost of our products from Medicare, Medicaid and other governmental programs. Congress and state legislatures routinely consider reforms in the healthcare industry that may modify coverage and reimbursement methodologies and practices, including controls on healthcare spending of the Medicare and Medicaid programs. It is not clear at this time what proposals, if any, will be adopted or, if adopted, what effect the proposals would have on our business. Congressional or regulatory measures that restrict coverage of our products or reimbursement rates could have an adverse effect on our ability to sell our products or cause physical therapists and physicians to dispense and prescribe lower-cost products introduced by us or our competitors.

With the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, a number of changes have been mandated to the Medicare payment methodology and conditions for coverage of our orthotic devices and durable medical equipment, including our TENS and NMES devices. These changes include a freeze in payments for our durable medical equipment from 2004 through 2008, a payment freeze for our orthotic devices from 2004 through 2006, competitive bidding requirements, new clinical conditions for payment and quality standards. Although these changes affect our products generally, specific products may be affected by some but not all of the Medicare Modernization Act’s provisions.

Off-the-shelf orthotic devices and certain durable medical equipment, including TENS devices, may become subject to competitive bidding. Under competitive bidding, which will be phased in beginning in 2007, Medicare will change its approach to reimbursing certain items and services covered by Medicare from the current fee schedule amount to an amount established through a bidding process between the government and suppliers. Competitive bidding may reduce the number of suppliers providing certain items and services to Medicare beneficiaries and the amounts paid for such items and services. Also, Medicare payments in regions not subject to competitive bidding may be reduced using payment information from regions subject to competitive bidding. Any payment reductions or the inclusion of certain of our products in competitive bidding, in addition to the other changes to Medicare reimbursement and standards contained in the Medicare Modernization Act, could have a material adverse effect on our results of operations.

The Medicare Modernization Act also requires that new clinical conditions for payment of durable medical equipment be established. Our TENS and NMES products could be impacted by this requirement if and when applicable conditions are established. At this time, we cannot predict what standards will be adopted, the timing of such adoption or the impact any standards that are adopted may have on our business.

In addition, in 2003, the Centers for Medicare and Medicaid Services, or CMS, the agency responsible for administering the Medicare program, made effective an interim final regulation implementing “inherent reasonableness” authority, which allows adjustments to payment amounts for certain items and services covered by Medicare when the existing payment amount is determined to be grossly excessive or grossly deficient. The regulation lists factors that may be used to determine whether an existing reimbursement rate is grossly excessive or grossly deficient and to determine what is a realistic and equitable payment amount. Also, under the

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regulation, a payment amount will not be considered grossly excessive or grossly deficient if an overall payment adjustment of less than 15% would be necessary to produce a realistic and equitable payment amount. The regulation remains in effect after the enactment of the Medicare Modernization Act, although the new legislation precludes the use of inherent reasonableness authority for payment amounts established under competitive bidding. Medicare and Medicaid accounted for approximately 5% of our net revenues in 2002 and 2003 and approximately 4% in 2001. When using the inherent reasonableness authority, CMS may reduce reimbursement levels for certain of our products, which could have a material adverse effect on our results of operations.

Audits or denials of our claims by government agencies could reduce our revenues or profits.

As part of our business operations, we submit claims on behalf of patients directly to and receive payments directly from the Medicare and Medicaid programs. Therefore, we are subject to extensive government regulation, including requirements for maintaining certain documentation to support our claims. Medicare contractors and Medicaid agencies periodically conduct pre- and post-payment reviews and other audits of claims, and are under increasing pressure to more closely scrutinize healthcare claims and supporting documentation. We have been subject to pre-payment and post-payment reviews as well as audits of claims and may experience such reviews and audits of claims in the future. We cannot assure you that such reviews and/or similar audits of our claims will not result in material delays in payment, as well as material recoupments or denials, which could reduce our net revenues and profitability. We have not been subject to any reviews or audits that have resulted in any material delays in payments or material reductions in our net revenues or profitability.

Changes in international regulations regarding coverage and reimbursement for our products could adversely affect our business and results of operations.

Similar to our domestic business, our success in international markets also depends upon the eligibility of our products for reimbursement through government sponsored healthcare payment systems. Reimbursement practices vary significantly by country, with certain countries requiring products to undergo a lengthy regulatory review in order to be eligible for government reimbursement. In addition, healthcare cost containment efforts similar to those we face in the United States are prevalent in many of the foreign countries in which our products are sold, and these efforts are expected to continue in the future, possibly resulting in the adoption of more stringent measures for coverage and reimbursement. Any developments in our foreign markets that eliminate or reduce reimbursement rates for our products could have an adverse effect on our ability to sell our products or cause our customers to use less expensive products in these markets. Additionally, in Germany, our largest foreign market, new regulations generally require adult patients to pay between five and ten euros for each medical technical device prescribed. This may adversely affect our sales and profitability by making it more difficult for patients in Germany to afford our products.

Our failure to comply with regulatory requirements or receive regulatory clearance or approval for our products or operations in the United States or abroad could adversely affect our business.

Our products are subject to extensive regulation in the United States by the Food and Drug Administration, or FDA, and by the foreign equivalents thereto in countries where we do business. The FDA regulates virtually all aspects of a medical device’s testing, manufacture, safety, labeling, storage, record keeping, reporting, promotion and distribution. The FDA also regulates the export of medical devices to foreign countries. In general, unless an exemption applies, a medical device must receive either pre-market approval or pre-market clearance from the FDA before it can be marketed in the United States. Despite the time, effort and expense expended, there can be no assurance that a particular device will be approved or cleared by the FDA through either the pre-market clearance process or the pre-market approval process. For more information about the pre-market clearance and pre-market approval processes, see “Business—Government Regulation.”

Additionally, we may be required to obtain pre-market approvals, pre-market approval supplements or pre-market clearances to market modifications to our existing products or market our existing products for new

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indications. The FDA requires device manufacturers themselves to make and document a determination of whether or not a modification requires an approval, supplement or clearance; however, the FDA can review a manufacturer’s decision. We have applied for, and received, a number of such approvals in the past. We cannot assure you that we will be successful in receiving approvals in the future or that the FDA will agree with our decisions not to seek approvals, supplements or clearances for particular device modifications. The FDA may require approval or clearances for past or any future modifications or new indications for our existing products. Such submissions may require the submission of additional clinical or preclinical data and may be time consuming and costly, and may not ultimately be cleared or approved by the FDA.

If the FDA requires us to obtain pre-market approvals, pre-market approval supplements or pre-market clearances for any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing the modified device or to recall such modified device until we obtain FDA clearance or approval and we may be subject to significant regulatory fines or penalties. In addition, there can be no assurance that the FDA will clear or approve such submissions in a timely manner, if at all. Any of the foregoing could adversely affect our business.

The FDA also may change its policies, adopt additional regulations, or revise existing regulations, each of which could prevent or delay pre-market approval or pre-market clearance of our devices, or could impact our ability to market a device that was previously cleared or approved. For instance, on August 22, 2000, the FDA issued a proposed rule that, if finalized, could rescind the pre-market clearances for our iontophoretic devices. We cannot predict the likelihood that the FDA will finalize the proposed rule. However, in order to allow us to continue marketing our iontophoretic devices in the event this rule is finalized, we have filed a new drug application, or NDA, with the FDA for the use of a lidocaine/epinephrine solution with certain of our iontophoretic devices. The NDA is currently pending before the FDA, and the FDA has indicated that we may be required to provide additional data to support approval of the NDA. We cannot predict if or when the FDA will ultimately approve our NDA.

Our failure to comply with the regulatory requirements of the FDA and other applicable U.S. regulatory requirements may subject us to administrative or judicially imposed sanctions, which could have a material adverse effect on our business, financial condition and results of operations. These sanctions include warning letters, civil penalties, criminal penalties, injunctions, product seizure or detention, product recalls and total or partial suspension of production.

In many of the foreign countries in which we market our products, we are subject to extensive regulations that are comparable to those of the FDA, including those in Europe, our largest foreign market. The regulation of our products in Europe falls primarily within the European Economic Area, which consists of the fifteen member states of the European Union, as well as Iceland, Liechtenstein and Norway. Only medical devices that comply with certain conformity requirements are allowed to be marketed within the European Economic Area. Failure to receive, or delays in the receipt of, relevant foreign qualifications in the European Economic Area or other foreign countries could have a material adverse effect on our business.

Our products are subject to recalls even after receiving FDA or foreign clearance or approval, which would harm our reputation and business.

We are subject to medical device reporting regulations that require us to report to the FDA or respective governmental authorities in other countries if our products cause or contribute to a death or serious injury or malfunction in a way that would be reasonably likely to contribute to death or serious injury if the malfunction were to recur. The FDA and similar governmental authorities in other countries have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacturing. A government mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects, including defects in labeling. We have undertaken voluntary recalls of our products in the past. Any recall would divert managerial and financial resources and could harm our reputation with customers. We cannot

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assure you that we will not have product recalls in the future or that such recalls would not have a material adverse effect on our business. We have not undertaken any voluntary recalls that have had a material adverse effect on our business.

If we fail to comply with the FDA’s Quality System Regulation, our manufacturing could be delayed, and our product sales and profitability could suffer.

Our manufacturing processes are required to comply with the FDA’s Quality System Regulation, which covers the procedures concerning the design, testing, production processes, controls, quality assurance, labeling, packaging, storage and shipping of our devices. We also are subject to state requirements and licenses applicable to manufacturers of medical devices. In addition, we must engage in extensive recordkeeping and reporting and must make available our manufacturing facilities and records for periodic unscheduled inspections by governmental agencies, including the FDA, state authorities and comparable agencies in other countries. Failure to pass a Quality System Regulation inspection or to comply with these and other applicable regulatory requirements could result in disruption of our operations and manufacturing delays. Failure to take adequate corrective action could result in, among other things, significant fines, suspension of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions. We cannot assure you that the FDA or other governmental authorities would agree with our interpretation of applicable regulatory requirements or that we have in all instances fully complied with all applicable requirements. Any failure to comply with applicable requirements could adversely affect our product sales and profitability.

We may need to change our business practices to comply with healthcare fraud and abuse laws and regulations.

We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state healthcare programs. Healthcare fraud and abuse regulations are complex and even minor, inadvertent irregularities in submissions can potentially give rise to claims that a fraud and abuse law or regulation has been violated. Any violations of these laws or regulations could result in a material adverse effect on our business, financial condition and results of operations. If there is a change in law, regulation or administrative or judicial interpretation, we may have to change our business practices or our existing business practices could be challenged as unlawful.

Medicare laws mandating new supplier standards and conditions for coverage could adversely impact our business.

Medicare regulations now require entities or individuals submitting claims and receiving payment for purchase of our products to obtain a supplier number, which in turn is predicated on compliance with a number of supplier standards. We currently have such a supplier number. Under the Medicare Modernization Act, any entity or individual that bills Medicare for our durable medical equipment and orthotics, including our TENS and NMES units, and that has a supplier number for submission of such bills will be subject to new quality standards as a condition of receiving payment from the Medicare program. These new standards required under the Medicare Modernization Act are to be developed by CMS and applied by independent accreditation organizations. The Medicare Modernization Act also authorizes CMS to establish clinical conditions for payment for durable medical equipment. These new supplier standards and clinical conditions for payment could limit or reduce the number of entities or individuals who can sell or provide our products and could restrict coverage for our products. Our failure to meet any new supplier standards could affect our ability to bill, which could have a material adverse effect on our business, financial condition and results of operations.

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Risks Related to Our Indebtedness

Our substantial debt may adversely affect our financial condition and operating activity.

We have, and after the completion of this offering will continue to have, substantial debt and substantial debt service obligations. At March 31, 2004, as adjusted to give effect to this offering and the application of the proceeds therefrom, we would have had approximately $         million of outstanding indebtedness. In addition, we had $25.0 million of available borrowings under our revolving credit facility at March 31, 2004. In the future, we may borrow more money, subject to the limitations imposed on us by our senior secured credit facility.

Our level of indebtedness has important consequences to you, including:

• requiring us to use a substantial portion of our cash flow from operations to pay interest and principal on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

• limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other general corporate purposes;

• subjecting us to the risk of interest rate increases on our indebtedness with variable interest rates;

• subjecting us to the possibility of an event of default under the financial and operating covenants contained in our senior secured credit facility; and

• limiting our ability to adjust to rapidly changing market conditions, reducing our ability to withstand competitive pressures and making us more vulnerable to a downturn in general economic conditions than our competitors with less debt.

Our inability to generate cash flow may require us to seek additional financing.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to refinance all or a portion of our existing debt, sell assets, borrow more money or raise capital through sales of our equity securities. If these or other kinds of additional financing become necessary, we cannot assure you that we could arrange such financing on terms that are acceptable to us or at all.

We are subject to restrictive debt covenants, which may restrict our operational flexibility.

Our senior secured credit facility contains various financial and operating covenants, including, among other things, restrictions on our ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other restricted payments, make investments, sell our assets or enter into consolidations, mergers and transfers of all or substantially all of our assets. These restrictions could limit our ability to take actions that require funds in excess of those available to us.

Our senior secured credit facility also requires us to maintain specified financial ratios and satisfy financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control and we cannot assure you that we will meet those ratios and tests. A breach of any of these covenants, ratios, tests or restrictions could result in an event of default under our senior secured credit facility. If an event of default exists under our senior secured credit facility, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable. If the lenders under our senior secured credit facility accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay in full that indebtedness.

Our obligations under our senior secured credit facility are secured by substantially all of our assets.

Our obligations under our senior secured credit facility are secured by liens on substantially all of our and our subsidiaries’ assets. If we become insolvent or are liquidated, or if repayment under our senior secured credit facility is accelerated, the lenders will be entitled to exercise the remedies available to a secured lender under applicable law and the applicable agreements and instruments, including the right to foreclose on all of our assets.

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Risks Related to Our Common Stock and this Offering

We cannot assure you that an active trading market will develop for our stock.

Since we became a private company in September 1999, there has not been a public market for our common stock. While we intend to file an application for the listing of our common stock on the New York Stock Exchange, an active public market for our common stock may not develop or be sustained after this offering. If a market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you or at all.

Future sales of shares of our common stock by existing shareholders in the public market, or the possibility or perception of such future sales, could adversely affect the market price of our stock.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell your shares of common stock at a time and at a price which we deem appropriate.

At March 31, 2004, there were 6,191,180 shares of our common stock outstanding. The          shares of common stock sold in this offering (         shares if the underwriters exercise their over-allotment option in full) will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, by persons other than our affiliates within the meaning of Rule 144 under the Securities Act.

Following this offering, Carlyle will beneficially own          shares of our common stock, or          shares if the underwriters exercise their over-allotment option in full. Carlyle will be able to sell its shares in the public market from time to time, subject to certain limitations on the timing, amount and method of those sales imposed by SEC regulations. Carlyle and the underwriters have agreed to a “lock-up” period, meaning that Carlyle may not sell any of its shares without the prior consent of Lehman Brothers Inc. and J.P. Morgan Securities Inc. for 180 days after the date of this prospectus. Carlyle has the right to cause us to register the sale of shares of common stock owned by it and to include its shares in future registration statements relating to our securities. If Carlyle were to sell a large number of its shares, the market price of our stock could decline significantly. In addition, the perception in the public markets that sales by Carlyle might occur could also adversely affect the market price of our common stock.

In addition to Carlyle’s lock-up period, sales of our common stock are also restricted by lock-up agreements that our directors and executive officers and the selling shareholders have entered into with the underwriters. The lock-up agreements restrict our directors and executive officers and the other selling shareholders, subject to specified exceptions, from selling or otherwise disposing of any shares for a period of 180 days after the date of this prospectus without the prior consent of Lehman Brothers Inc. and J.P. Morgan Securities Inc. Although there is no present intention or arrangement to do so, all or any portion of the shares may be released from the restrictions in the lock-up agreements and those shares would then be available for resale in the market. Any release would be considered on a case-by-case basis.

After this offering, approximately 855,435 shares will also be issuable upon the exercise of presently outstanding stock options and approximately 25,167 shares have been reserved for future issuance under our existing stock option plan. Pursuant to Rule 701 of the Securities Act as currently in effect, and subject to the lock-up agreements described below, any of our employees, consultants or advisors who purchases shares of our common stock from us pursuant to options granted prior to the completion of this offering under our existing stock option plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. Additionally, following the consummation of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the sale of shares issued or issuable upon the exercise of all these stock options. Subject to the exercise of issued and outstanding options and

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contractual restrictions, shares to which Rule 701 is applicable or those shares that are registered under the registration statement on Form S-8 will be available for sale into the public market after the expiration of the 180-day lock-up agreements.

In the future, we may issue our securities in connection with acquisitions or other investments. The amount of our common stock issued in connection with any acquisition or other investment could constitute a material portion of our then outstanding common stock. Such issuances could result in dilution of our common shareholders.

You will incur immediate and substantial dilution.

The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our outstanding common stock. Accordingly, if you purchase common stock in this offering, you will suffer immediate and substantial dilution of your investment. Based upon the issuance and sale of          million shares of common stock by us at an assumed initial public offering price of $         per share (the midpoint of the initial public offering price range indicated on the cover of this prospectus), you will incur immediate dilution of approximately $         in the net tangible book value per share. We also have a large number of outstanding stock options to purchase common stock with exercise prices that are below the estimated initial public offering price of our common stock. To the extent that these options are exercised, you will experience further dilution.

The Carlyle Group controls us and may have conflicts of interest with our other shareholders in the future.

Entities controlled by Carlyle hold substantially all of the voting power of MPI Holdings, L.L.C., our largest shareholder. After this offering, Carlyle will beneficially own         % of our common stock, or         % if the underwriters exercise their over-allotment option in full. As a result, Carlyle will continue to be able to control the election and removal of our directors and determine our corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales and other significant corporate transactions. In addition, pursuant to agreements with Carlyle, we have agreed to nominate for election as directors each year two individuals designated by Carlyle so long as Carlyle owns at least 20% of our voting stock. Currently two of our six directors are affiliated with Carlyle. This concentration of ownership and agreement to nominate directors may delay or deter possible changes in control of our company, which may reduce the market price of our stock. We cannot assure you that the interests of Carlyle will coincide with the interests of other holders of our common stock. Any conflict of interest, or perceived conflict of interest, between Carlyle and the other holders of our common stock could result in an actual or perceived conflict of interest on the part of our directors affiliated with Carlyle. The existence or perception of such a conflict could materially limit the ability of these directors to participate in consideration of the matter.

The market price of our common stock may be volatile, which could cause the value of your investment to decline.

Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors, and in response, the market price of our common stock could decrease significantly. You may be unable to resell your shares of our common stock at or above the initial public offering price. The initial public offering price of our common stock will be determined through negotiations between the underwriters, us and the selling shareholders and may not be indicative of the price that will prevail in the open market following this offering.

Because we do not intend to pay dividends, shareholders will benefit from an investment in our common stock only if it appreciates in value.

We currently intend to retain our future earnings, if any, to finance the further expansion and continued growth of our business and do not expect to pay any cash dividends in the foreseeable future even if permitted to

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do so under our senior secured credit facility. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which shareholders have purchased their shares.

We have opted out of certain provisions of Minnesota law that might otherwise discourage takeover attempts.

In our articles of incorporation, we have opted out of certain provisions under Minnesota law regarding “control share acquisitions” and “business combinations” that serve to discourage hostile takeover attempts. These statutory provisions are intended to discourage an unsolicited takeover if our board of directors determines that such a takeover is not in the best interests of our shareholders and to cause potential acquirors to negotiate with the board of directors to insure that shareholders receive fair value for their shares. However, these statutory provisions could also have the effect of discouraging certain attempts to acquire us that could deprive our shareholders of opportunities to sell their shares of our stock at higher values. Our decision to opt out of these provisions may encourage an unsolicited purchaser to acquire a substantial ownership position in our voting stock without our consent and allow them to gain control of our company without paying a sufficient market premium. For more information regarding these Minnesota law provisions, please see “Description of Capital Stock—Anti-Takeover Provisions of Minnesota Law.”

Arthur Andersen LLP, the auditor for our audited financial statements for the year ended December 31, 2001 that are included in this prospectus, has been found guilty of federal obstruction of justice charges and you are unlikely to be able to exercise effective remedies against them in any legal action.

On June 15, 2002, a jury in Houston, Texas found our former independent public accountant, Arthur Andersen LLP, guilty of federal obstruction of justice charges arising from the federal government’s investigation of Enron Corp. As a result, Arthur Andersen has ceased practicing before the SEC and substantially all of Arthur Andersen’s personnel have left the firm, including the individuals responsible for auditing our audited financial statements for the year ended December 31, 2001 that are included in this prospectus. Arthur Andersen was our independent auditor for the years ended 2000 through 2001, however, on November 13, 2002 we dismissed Arthur Andersen and appointed Ernst & Young LLP as our independent auditors. Arthur Andersen is currently in the process of liquidating its assets. The ability of Arthur Andersen to satisfy any judgments obtained against them is in great doubt and, therefore, you are unlikely to be able to exercise effective remedies or collect judgments against them.

Moreover, as a public company, we are required to file with the SEC financial statements audited or reviewed by an independent public accountant. The SEC issued a statement that it will continue to accept financial statements audited by Arthur Andersen on an interim basis if Arthur Andersen is able to make certain representations to its clients concerning audit quality controls. Arthur Andersen has made such representations to us in the past. However, for the reasons noted above, Arthur Andersen will be unable to make these representations in the future or to provide other information or documents that would customarily be received by us or the underwriters in connection with this offering, including consents and “comfort letters.” In addition, Arthur Andersen will be unable to perform procedures to assure the continued accuracy of its report on our audited financial statements included in this prospectus. Arthur Andersen will be unable to provide such information and documents and perform such procedures in future financings and other transactions. As a result, we may encounter delays, additional expense and other difficulties in this offering, future financings or other transactions.

In reliance on Rule 437a under the Securities Act, we have not filed a written consent of Arthur Andersen to the inclusion in this prospectus of their reports regarding our financial statements for the year ended December 31, 2001. Because we have not filed the written consent of Arthur Andersen with respect to the inclusion of their reports in this prospectus, you may not be able to recover against Arthur Andersen under Section 11 of the Securities Act for any untrue statements of material fact contained in the financial statements audited by Arthur Andersen or any omissions to state a material fact required to be stated therein.

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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made under the headings “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus may contain forward-looking statements which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “seek,” “predict,” “intend,” “plan,” “estimate,” “anticipate” or the negative version of those words or other comparable words. Any forward-looking statements contained in this prospectus are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to those described under “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read in this prospectus reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, financial condition, growth strategy and liquidity. You should specifically consider the factors identified in this prospectus that could cause actual results to differ before making an investment decision.

NOTICE REGARDING ARTHUR ANDERSEN LLP

Section 11(a) of the Securities Act provides that if any part of a registration statement at the time it becomes effective contains an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement or as having prepared or certified any report or valuation which is used in connection with the registration statement with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant.

Our financial statements for the year ended December 31, 2001 were audited by Arthur Andersen LLP. Prior to the date of this prospectus, the Arthur Andersen partners who audited those financial statements resigned from Arthur Andersen. As a result, after reasonable efforts, we have been unable to obtain Arthur Andersen’s written consent to the inclusion in this registration statement of its audit reports with respect to our financial statements for the year ended December 31, 2001. Under these circumstances, Rule 437a under the Securities Act permits us to file this registration statement without written consents from Arthur Andersen. Accordingly, Arthur Andersen may not be liable to you under Section 11(a) of the Securities Act because it has not consented to being named as an expert in the registration statement.

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USE OF PROCEEDS

Assuming an initial public offering price of $         per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, we estimate that we will receive net proceeds from this offering of approximately $         million, after deducting underwriting discounts and commissions and other estimated expenses. We will not receive any of the proceeds from the sale of shares by the selling shareholders.

We are required to use 50% of the net proceeds of this offering to repay indebtedness under our term loan facility and are permitted to make additional repayments without penalty. We intend to use approximately $         million of the net proceeds from this offering to repay outstanding indebtedness under that facility. JPMorgan Chase Bank, a lender under our term loan facility, is an affiliate of J.P. Morgan Securities Inc., who is acting as an underwriter in this offering. At March 31, 2004, we had approximately $164.6 million outstanding under our term loan facility. The interest rates per annum applicable to loans under our term loan facility are, at our option, the Base Rate or Eurodollar Rate plus, in each case, an applicable margin. Our effective interest rate at March 31, 2004 was 4.24%. Our term loan facility requires, beginning March 31, 2004 and ending November 24, 2009, quarterly principal repayments of $412,500 for each of the first 20 installments and quarterly principal repayments of approximately $39.2 million for each of the final four installments.

We anticipate using the remaining proceeds from this offering for general corporate purposes, including repaying or refinancing debt or other corporate obligations, acquisitions, working capital, capital expenditures, general and administrative expenses and/or any other purpose permitted under our senior secured credit facility. We will retain broad discretion in determining how we will allocate net proceeds from this offering remaining after the repayment of indebtedness under our term loan facility. Pending these uses, we intend to invest the net proceeds in short-term, interest-bearing instruments or other investment-grade securities.

DIVIDEND POLICY

In connection with our November 2003 recapitalization, we paid a $58.0 million dividend to our shareholders. We do not expect that any dividends will be paid to our shareholders in the foreseeable future. Instead, we currently intend to retain all future earnings, if any, for use in the operation of our business and to fund future growth. Any future decision to declare and pay dividends will be at the discretion of our board of directors, after taking into account our financial results, capital requirements and other factors they may deem relevant. Our senior secured credit facility limits our ability to pay dividends or make other distributions in respect of our common stock.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and consolidated capitalization as of March 31, 2004, on an actual basis and on an as adjusted basis to give effect to this offering and our use of proceeds therefrom.

You should read this table in conjunction with our consolidated financial statements and the related notes, “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	As of March 31, 2004,
	Actual			As Adjusted
	(unaudited)
	(in thousands)
Cash and cash equivalents	$	10,577		$
Long-term debt:
Senior secured credit facility, including current portion	$	164,588		$
Other		1,070
Total long-term debt, including current portion		165,658
Shareholders’ equity (deficit):
Common stock, par value $0.01 per share (10,000,000 shares authorized; 6,191,180 shares issued and outstanding) (                 shares authorized as adjusted;          shares issued and outstanding as adjusted)		62
Additional paid-in capital		(132,428	)
Retained earnings		55,351
Accumulated other comprehensive gain		5,834
Officers’ stock notes receivable		(985	)
Total shareholders’ deficit		(72,166	)
Total capitalization	$	93,492		$

The table above includes          shares that will be issued upon exercise of outstanding options immediately prior to consummation of this offering, but does not reflect:

•             shares of our common stock issuable upon the exercise of options under our existing stock option plan with a weighted-average exercise price of $         per share at March 31, 2004, of which          were then exercisable; and

• 25,167 shares of our common stock available for issuance under our existing stock option plan.

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DILUTION

Dilution is the amount by which the offering price paid by the purchasers of the common stock to be sold in this offering exceeds the net tangible book value per share of common stock after this offering. The net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets (total assets less intangible assets) and dividing the difference by the number of shares of our common stock outstanding at that date.

Our net tangible book value as of March 31, 2004 was a deficit of $105.0 million, or $16.96 per share. After giving effect to the receipt and our intended use of approximately $         million of estimated net proceeds from our sale of          shares of common stock in this offering at an assumed offering price of $         per share (the midpoint of the initial public offering price range indicated on the cover of this prospectus) our as adjusted net tangible book value as of March 31, 2004 would have been a deficit of approximately $         million, or $         per share. This represents an immediate increase in net tangible book value of $         per share to existing shareholders and an immediate dilution of $         per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this substantial and immediate per share dilution to new investors:

	Per Share
Assumed initial public offering price				$
Net tangible book value before this offering	$	(16.96	)
Increase attributable to investors in this offering
As adjusted net tangible book value after this offering
Dilution to new investors				$

The following table gives effect to a          for          stock split which will occur prior to the completion of this offering and summarizes on an as adjusted basis as of March 31, 2004:

• the total number of shares of common stock purchased from us;

• the total consideration paid to us, assuming an initial public offering price of $         per share (the midpoint of the initial public offering price range indicated on the cover of this prospectus); and

• the average price per share paid by existing shareholders and by new investors purchasing shares in this offering:

	Shares Purchased			Total Consideration			Average Price Per Share
	Number	Percent		Amount	Percent
Existing shareholders			%	$		%	$
New investors			%			%
Total		100	%	$	100	%	$

The table and discussion above assumes no exercise of any stock options after March 31, 2004. As of March 31, 2004, there were outstanding options to purchase a total of 855,435 shares of our common stock at a weighted average exercise price of $9.70 per share. To the extent that all of these options are exercised, there will be dilution of $             per share.

If the underwriters exercise their over-allotment option in full, the following will occur:

• the percentage of shares of our common stock held by existing shareholders will decrease to approximately         % of the total number of as adjusted shares of our common stock outstanding after this offering;

• the number of shares of our common stock held by new public investors will increase to                 , or approximately         % of the total pro forma as adjusted number of shares of our common stock outstanding after this offering; and

• the immediate dilution to new investors will be $             per share.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected consolidated statement of income and balance sheet data for the periods indicated. We derived our consolidated statement of income data for the years ended December 31, 2003, 2002 and 1999, and our balance sheet data as of December 31, 2003, 2002 and 1999, from our consolidated financial statements, which were audited by Ernst & Young LLP, our independent auditors. We derived our consolidated statement of income data for the years ended December 31, 2001 and 2000, and our balance sheet data as of December 31, 2001 and 2000, from our consolidated financial statements, which were audited by Arthur Andersen LLP, our independent auditors during those years. We derived the selected financial data as of and for the three months ended March 31, 2004 and 2003 from our unaudited consolidated interim financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited consolidated interim financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial information shown in these statements.

On November 24, 2003, we consummated a $169.4 million recapitalization. In connection with the recapitalization, we borrowed $165.0 million under our senior secured credit facility. Certain of the proceeds from the recapitalization were used to make $63.1 million in payments to shareholders and management. The as adjusted balance sheet data as of March 31, 2004 presented below give effect to the completion of this offering and the application of $         million of the net proceeds from this offering to repay indebtedness under our senior secured credit facility as if each had occurred as of March 31, 2004. The as adjusted earnings per share data for the three months ended March 31, 2004 and the year ended December 31, 2003 presented below give effect to:

• our November 2003 recapitalization;

• the completion of this offering; and

• the application of $             million of the net proceeds from this offering to repay indebtedness under our senior secured credit facility,

as if each had occurred as of January 1, 2004 for the three months ended March 31, 2004 and January 1, 2003 for the year ended December 31, 2003. The as adjusted summary financial data are not necessarily indicative of what our financial position or results of operations would have been if the recapitalization and this offering had been completed as of the dates indicated, nor are such data necessarily indicative of our financial position or results of operations for any future date or period.

Our historical results are not necessarily indicative of future operating results. You should read the information set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

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	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001			2000			1999
	(in thousands, except share and per share data)
Statement of Income Data:
Net revenues	$	38,893		$	35,950		$	150,525		$	135,586		$	121,555		$	96,533		$	76,319
Cost of goods sold		14,128			12,139			51,946			42,024			36,180			26,547			18,712
Gross profit		24,765			23,811			98,579			93,562			85,375			69,986			57,607
Operating expenses:
Selling, general, and administrative		15,502			15,045			58,831			53,071			56,491			44,104			33,658
Research and development		650			691			2,409			2,131			2,874			2,770			3,197
Recapitalization expense (1)		—			—			5,408			—			—			—			—
Total operating expenses		16,152			15,736			66,648			55,202			59,365			46,874			36,855
Earnings from operations		8,613			8,075			31,931			38,360			26,010			23,112			20,752
Interest income		32			35			164			195			305			871			502
Interest expense		(2,063	)		(2,124	)		(7,994	)		(8,781	)		(11,040	)		(13,034	)		(4,117	)
Other expense (2)		(101	)		218			(2,511	)		(1,176	)		(646	)		(666	)		(7,597	)
Earnings before income taxes and minority interest		6,481			6,204			21,590			28,598			14,629			10,283			9,540
Income tax expense		(2,419	)		(1,843	)		(8,180	)		(9,605	)		(7,896	)		(4,358	)		(6,288	)
Minority interest		(47	)		—			(127	)		(66	)		805			—			—
Net earnings	$	4,015		$	4,361		$	13,283		$	18,927		$	7,538		$	5,925		$	3,252
Net earnings per share:
Basic	$	0.65		$	0.70		$	2.15		$	3.06		$	1.22		$	0.96		$	0.53
Diluted	$	0.60		$	0.65		$	2.00		$	3.04		$	1.21		$	0.95		$	0.53
Weighted-average shares outstanding:
Basic		6,191,180			6,191,180			6,191,180			6,191,180			6,191,180			6,181,896			6,091,180
Diluted		6,643,226			6,661,455			6,653,092			6,220,495			6,220,248			6,208,785			6,119,906
Pro forma net earnings per share (3):
Basic	$						$
Diluted	$						$
Pro forma as adjusted net earnings per share unaudited (4):
Basic	$						$
Diluted	$						$

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	At March 31,			As Adjusted At March 31,	At December 31,
	2004			2004(5)	2003			2002			2001			2000			1999
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	10,577		$	$	3,115		$	6,732		$	6,069		$	1,903		$	1,816
Total assets		113,328				107,652			104,354			89,220			86,748			47,975
Long-term debt, including current position (6)		165,658				166,099			121,357			120,963			125,615			110,500
Shareholders’ deficit		(72,166	)			(75,963	)		(35,250	)		(57,305	)		(63,703	)		(69,457	)

(1) Represents $5.1 million in bonuses paid to management and $0.3 million in other expenses incurred in connection with the November 2003 recapitalization.

(2) In 2003, other expense included a $1.0 million write-off of deferred financing costs related to our previous credit facility, $1.2 million of fees paid on behalf of our shareholders in connection with the recapitalization and $0.6 million of management fees. These expenses were offset by $0.6 million of other income from Empi Europe. In 2002, other expense consisted primarily of a $0.6 million management fee and $0.2 million of bank charges.

(3) Pro forma net earnings per share is calculated by including in the weighted average share calculation              shares, which represents the number of shares, when multiplied by an offering price of $           per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, is equal to the excess of the 2003 dividends over 2003 net earnings.

(4) Pro forma as adjusted net earnings per share is calculated by increasing reported net income by the reduction in interest expense incurred for the year ended December 31, 2003, and for the quarter ended March 31, 2004, on the portion of the senior secured credit facility to be repaid with proceeds from this offering, and including in the weighted average shares outstanding calculation the shares expected to be sold in this offering from the date of the November 2003 recapitalization to December 31, 2003, and March 31, 2004 respectively, and the shares used in the pro forma net earnings per share calculation in (3) above.

(5) Adjusted to reflect the sale of              shares of common stock at an offering price of $              per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, as if such sale had occurred on March 31, 2004 and the utilization of half the proceeds received by the Company in this offering to repay debt.

(6) Long-term debt excludes minority interest.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included in this prospectus. The discussion in this prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this prospectus should be read as applying to all related forward-looking statements wherever they appear in this prospectus. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” as well as those discussed elsewhere. You should read “Risk Factors” and “Cautionary Notice Regarding Forward-Looking Statements.”

Overview

We are a leading medical device company focused on products used for pain management, orthopedic rehabilitation and physical therapy. We develop, manufacture, market and distribute a diverse range of non-invasive medical devices and accessories that are primarily used by patients for at-home therapy. We also provide physical therapy equipment and supplies to physicians, physical therapists and other healthcare professionals for use in their clinics.

Our net revenues, which we record in one reportable segment, are derived primarily from sales of our electrotherapy devices and accessories, orthotics and CPM devices, and iontophoretic devices and accessories, which comprised 48.6%, 26.3% and 13.3% of our net revenues, respectively, in 2003. The remainder of our net revenues is primarily derived from RME, our catalog distribution company that sells and distributes medical supplies used in physical therapy clinics. The mix of our net revenues has changed over the past three years primarily as a result of the addition of RME’s catalog sales, which accounted for 6.8% of our net revenues in 2003 as compared to none in 2001, along with slight increases in the percentage contribution of orthotics and continuous passive motion devices. Approximately 75.8% and 24.2% of our net revenues in 2003 were from U.S. and European sales, respectively. The majority of our European sales are made by our German subsidiary, Ormed, which manufactures and markets our continuous passive motion devices and markets and sells our electrotherapy and orthotics products in Europe. Less than 1% of our net revenues in 2003 were from sales in Canada and Asia. The geographic distribution of our net revenues has remained relatively stable during the past three fiscal years, with slight increases in the percentage of our net revenues derived from our international operations, which has been driven by increased sales in Europe by Ormed and the strengthening of the euro. Over the last three years, we have become more sensitive to the risks associated with our international operations, as their contribution to our net revenues has increased. These risks include adverse fluctuations in exchange rates and additional regulatory requirements, each of which could affect our business and results of operations in the future.

We derive revenues from wholesale and retail businesses. Our wholesale business involves the sale of iontophoretic devices and accessories and medical supplies to clinics, hospitals, large buying groups and distributors. Our retail business involves providing our products to patients for rent or purchase, the sale of accessories to patients for the ongoing use of such products, and billing the patient’s third-party payor for the products or accessories. Due to contracted price concessions or negotiated rate adjustments with certain insurance providers, we often will receive reimbursement at less than invoice price and record the difference as a sales allowance. These sales allowances, allowances for products returned by patients and reserves for rental credits are provided for by reducing gross revenues by a portion of the invoice amount resulting in our reported net revenues.

We have achieved average annual net revenue growth of approximately 11.3% since 2001, and our earnings from operations grew at an average annual rate of approximately 10.8% over that period. Excluding $5.4 million in expenses related to our November 2003 recapitalization, our earnings from operations from 2001 through 2003

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would have grown by an average annual rate of 19.8%. Our net revenue growth during the past three years was primarily driven by:

• a 17.9% average annual increase in our international net revenues;

• our acquisition of RME in July 2002 and the inclusion thereafter of its catalog sales in our net revenues; and

• an 8.5% average annual increase in net revenues generated by sales of our electrotherapy devices and accessories and orthotics.

Increases in our international net revenues over the last three years have been driven in part by the strengthening of the euro against the U.S. dollar. In periods in which the euro strengthens against the U.S. dollar, our international net revenues increase because our euro denominated net revenues will translate into a greater number of U.S. dollars. Conversely, in periods in which the euro weakens against the U.S. dollar, our international revenues decrease because our euro denominated net revenues will translate into fewer U.S. dollars.

During the past three years, the growth of our profitability has been tempered by an increase in our cost of goods sold as a percentage of our net revenues, driven by an increase, particularly during 2003, in sales of lower margin CPM and catalog products. Our net revenues and profitability have also been affected by declines in certain reimbursement rates and increases in expenses associated with our direct sales force, which has historically been our largest operating expense. While we expect to increase the size of our sales force and continue to introduce new products in 2004, we do not anticipate that this will have a material impact on our SG&A or research and development expenses as a percentage of net revenues in 2004.

We believe that our net revenues and profitability may be particularly sensitive to changes in reimbursement policies of government entities and private healthcare companies, changes in government regulations and changes in certain key demographic trends such as the growth of an aging population. In particular we believe that our business could be adversely impacted by a trend in our third-party payors toward adopting lower reimbursement levels based on the reimbursement levels provided by Medicare.

Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality of and potential variability of our earnings and cash flows. These key performance indicators include:

• net revenues, which are an indicator of our overall business growth;

• gross profit, which is an indicator of both our product mix, general pricing and competitive pressures and our cost of our products;

• operating expenses as a percentage of revenue, which is an indicator of the efficiency of our business and our ability to manage our business to budget; and

• collection of receivables, which is an indicator of our success in collecting the revenue from our sales and is used by management to plan for cash needs and establish proper reserves.

Recapitalization

On November 24, 2003, we consummated a $169.4 million recapitalization. As a result of the recapitalization, we entered into a senior secured credit facility consisting of a $165.0 million six-year term loan facility and a $25.0 million five-year revolving credit facility. The proceeds from the term loan facility and $4.4 million of cash on hand were used as follows: (1) $75.0 million for the repayment of our previous credit facility; (2) $27.3 million for repayment of our then outstanding senior subordinated debt; (3) $58.0 million in dividends to shareholders; (4) $5.4 million in recapitalization expenses, consisting of a $5.1 million in special management bonuses and $0.3 million of other expenses; and (5) $4.3 million in fees related to the recapitalization which have been capitalized as deferred financing costs. Approximately $0.6 million of the recapitalization expenses were accrued at December 31, 2003.

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Acquisitions

On July 31, 2002, we acquired 100% of the net assets of RME for an aggregate purchase price of $2.4 million consisting of a $1.5 million cash payment and a $0.9 million promissory note. The note is payable in two payments of $469,000 each in August 2005 and August 2008. The results of operations of the acquired entity have been included in our consolidated financial statements since the date of acquisition.

In 2000, we acquired a 77% interest in Ormed through a stock acquisition for $18.8 million. In January 2002, we acquired the remaining 23% of the outstanding capital stock of Ormed for $4.4 million in cash plus additional consideration of $8.6 million based on Ormed’s earnings performance for the year ended December 31, 2000. We paid $31.8 million in total consideration for Ormed. Ormed’s assets include a 50% interest in Medireha GmbH, which manufactures the CPM devices that we distribute in the United States and in Germany. The results of operations of the acquired entity have been included in our consolidated results since June 2000. We reflect our partial ownership of Medireha on our consolidated balance sheet in minority interest, and on our consolidated statements of income by reducing our net earnings to account for the portion of Medireha’s earnings allocable to its other equity holders.

Enterprise Resource Program

In 2002, we began a phased implementation of a new enterprise resource program, or ERP, to standardize on an integrated computer platform all of the critical systems of our U.S. operations including financial reporting, accounts payable, accounts receivable, manufacturing, inventory management, order entry and shipping. In each phase of the implementation, we have expanded the ERP’s functionality to fulfill the unique requirements of our business. We accomplish this through a combination of adding new hardware and generally available software modules that are designed to provide a specific functionality and customized programming of the ERP software and related modules to meet the particular needs of our operations. The first phase included purchase of the ERP software and related hardware and implementation of the finance and manufacturing modules. This phase was completed in November 2002 at a cost of $4.3 million. The second phase, completed in July 2003, added the RME acquisition and Ormed’s U.S. CPM business onto the system at a cost of $0.6 million. The next phase of the implementation will add wholesale order entry functions and invoice processing and has a targeted completion date of October 2004. Retail order entry and invoice processing will be the final phase with completion expected by third quarter of 2006. We expect that the cost of implementing these remaining phases will be between $4.0 and $5.0 million in the aggregate. We capitalize the costs associated with the implementation of the ERP during the period in which such costs are incurred. Costs associated with the hardware necessary to support the ERP are capitalized or depreciated over their expected useful life. Costs associated with software and software modules, consultant expenses for project management and software development, and compensation of our employees directly involved in the implementation of the ERP are capitalized and depreciated over their expected useful life pursuant to the Association of Independent Certified Public Accountants’ Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. As of March 31, 2004, we have capitalized an aggregate of $6.3 million in connection with the implementation of the ERP.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including those related to contractual allowances, bad debts, inventories, income taxes, long-lived assets and intangibles. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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The accounting policies we believe to be most critical to understanding our financial results and condition and that require complex and subjective management judgments are discussed below.

Revenue Recognition

We recognize wholesale revenue when we ship our products to our wholesale customers. We recognize retail revenue, both rental and purchase, when our product has been dispensed to the patient and the patient’s insurance has been verified. For retail products that are sold from our inventories consigned at clinic locations, we recognize revenue when we receive notice that the device has been prescribed and dispensed to the patient and the insurance has been verified or preauthorization from the insurance company has been obtained when required.

Reserves for Sales Allowances, Product Returns and Rental Credits

We have established reserves to account for sales allowances, product returns and rental credits. Sales allowances generally result from agreements that we have with certain insurance providers that permit them to reimburse us for our products in amounts that are below the invoice price of the product. This reserve is provided for by reducing our gross revenue by a portion of the amount invoiced during the relevant period. We estimate the amount of the reduction based on historical experience and invoices generated in the period in question, and consider the impact of new contract terms or modifications of existing arrangements with insurance providers. As we have refined our accounting information systems, we have become able to provide for sales allowances for invoices based on individual payors’ payment characteristics.

The product return reserve accounts for patient returns of our products after purchase. This reserve is provided for by reducing gross revenue by an amount based on our historical rate of returns.

Rental credits result when patients purchase products that they previously rented. Many insurance providers require patients to rent our devices for a period of one to three months prior to purchase. If the patient has a long-term need for the device, these insurance companies may authorize purchase of the device by these patients. When the device is purchased, most insurance providers require that rental payments previously made on the device be credited toward the purchase price. These credits are processed at the time the payment is received for the purchase of the device, which creates a time lag between billing of the purchase and processing of the rent credit. This reserve is provided for by reducing our gross revenue by assessing the number of our products being rented during the relevant period and our historical conversion rate of rentals to sales. The cost to refurbish rented products is expensed as incurred as part of cost of goods sold.

During 2003, 2002 and 2001, gross revenue was reduced by 17.5%, 17.2% and 14.5%, respectively, as a result of our sales allowances, product returns and rental credits. We believe that these increases have resulted primarily from the greater percentage of our sales that are made pursuant to contracts with insurance providers that provide for sales below invoice. A change in the percentage of sales made pursuant to such contracts, a change in the percentage of rentals converted to sales or a change in the number or type of our products that are returned could cause the level of these reserves to vary in the future.

Reserve for Uncollectible Accounts Receivable

In addition to the reserves for sales allowances, returns and rental credits, we have also established a reserve for uncollectible accounts receivable. These uncollectible accounts are a result of nonpayment from patients who have been direct billed for co-payments or deductibles or lack of appropriate insurance coverage and disallowances of charges by third-party providers. The reserve is based on historical trends and current relationships with providers and internal process improvements. During 2003, 2002 and 2001, our provision for uncollectible accounts receivable was 2.9%, 2.1% and 3.7%, respectively, of net revenues. If there is a change to a material insurance provider contract, a decline in the economic condition of patients or significant turnover of company personnel, the current level of the reserve for uncollectible accounts receivable may not be adequate and result in our increasing these levels in the future.

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Reserve for Inventory

We consign a large amount of inventory to clinics and other healthcare provider locations to allow our products to be immediately dispensed to patients. Since this inventory is not in our possession, we reserve for those devices that are not accounted for during periodic inventory counts conducted by our sales representatives. The reserve is based on historical trends. We also reserve for raw material and finished goods inventory in the warehouse based on analysis of slow or obsolete inventory. Although this reserve has historically been very small, a significant turnover of sales personnel, new product launches, increased competition or increased consigned inventory in clinics could adversely affect the adequacy of the current level of the inventory reserve and materially affect our profitability.

Goodwill and Other Intangibles

Effective January 1, 2002, we adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), which addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets at acquisition. Under Statement 142, goodwill is no longer amortized, but is subject to annual impairment tests. Statement 142 requires that goodwill for each reporting unit be reviewed for impairment at least annually. In addition, upon adoption of Statement 142, we had to complete a transitional impairment test. This transitional impairment test completed in the first quarter of 2002, indicated no goodwill impairment. At December 31, 2003, we had two reporting units, consisting of our U.S. and European operations. We test goodwill for impairment using the two-step process prescribed in Statement 142. In the first step, we compare the fair value of each reporting unit, as computed primarily by present value cash flow calculations, to its book carrying value, including goodwill. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and we would then complete step two in order to measure the impairment loss. In step two, we would calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting unit (as determined in step 1). If the implied fair value of goodwill is less than the carrying value of goodwill, we would recognize an impairment loss equal to the difference. Goodwill was tested for impairment during the fourth quarters of 2003 and 2002. We concluded that there was no impairment of goodwill. Had SFAS No. 142 been in effect as of January 1, 2001, our earnings per share of our common stock for that year would have been higher by approximately $0.84 on both a basic and diluted basis.

Impairment of Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount and fair market value less costs to sell. As of December 31, 2003, we concluded there was no impairment of long-lived assets.

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Net Revenues Data

The following table sets forth the amount of net revenues and the percentage of net revenues derived from the United States and international sources, primarily Europe, for the three months ended March 31, 2004 and 2003, and for the years ended December 31, 2003, 2002 and 2001.

	Three Months Ended March 31,								Year Ended December 31,
(dollars in thousands)	2004				2003				2003				2002				2001
United States	$	28,399	73.0	%	$	26,674	74.2	%	$	114,165	75.8	%	$	104,420	77.0	%	$	95,385	78.5	%
International		10,494	27.0	%		9,276	25.8	%		36,360	24.2	%		31,166	23.0	%		26,170	21.5	%

The following table sets forth the amount of net revenues and the percentage of net revenues derived from each of our product categories for the three months ended March 31, 2004 and 2003 and for the the years ended December 31, 2003, 2002 and 2001.

	Three Months Ended March 31,								Year Ended December 31,
	2004				2003				2003				2002				2001
	(dollars in thousands)
Electrotherapy (TENS, NMES and accessories)	$	18,299	47.1	%	$	17,171	47.8	%	$	73,211	48.6	%	$	69,707,	51.4	%	$	64,696	53.2	%
Orthotics and continuous passive motion		11,056	28.4	%		9,969	27.7	%		39,635	26.3	%		35,371	26.1	%		31,165	25.6	%
Iontophoresis		4,674	12.0	%		4,864	13.5	%		20,030	13.3	%		20,996	15.5	%		20,399	16.8	%
RME catalog and other products		4,864	12.5	%		3,946	11.0	%		17,649	11.7	%		9,512	7.0	%		5,295	4.4	%
Total	$	38,893	100	%	$	35,950	100	%	$	150,525	100	%	$	135,586	100	%	$	121,555	100	%

Results of Operations

Comparison of Quarter Ended March 31, 2004 to Quarter Ended March 31, 2003

The following summary table presents a comparison of our results of operations for the quarters ended March 31, 2004 and 2003 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

	Three Months Ended March 31,				Percent Change
	2004		2003
	(In Thousands)
Net revenues	$	38,893	$	35,950	8.2	%
Gross profit		24,765		23,811	4.0	%
Selling, general, and administrative expenses		15,502		15,045	3.0	%
Research and development		650		691	(5.9	)%
Interest expense		2,063		2,124	(2.9	)%
Income tax expense		2,419		1,843	31.3	%
Net earnings		4,015		4,361	(7.9	)%

Net Revenues.    Our net revenues increased 8.2% to $38.9 million for the quarter ended March 31, 2004, compared to net revenue of $36.0 million for the quarter ended March 31, 2003. Of the $2.9 million increase, $1.1 million was due primarily to increased sales of our electrotherapy products, an additional $1.1 million resulted from market share gains for our orthotics and CPM product lines, mainly due to growth in our U.S. CPM

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business, and $0.9 million of the increase was due to increased sales of our RME catalog and other products, primarily due to increased market penetration. Net revenues generated by our iontophoresis product line decreased by $0.2 million from lower sales volumes due to increased competition. International sales, primarily by Ormed, accounted for approximately 27.0% and 25.8% of net revenues for the first quarter 2004 and 2003, respectively. Favorable foreign currency translation rates accounted for $1.6 million of the increase in net revenues for our product lines distributed by our European operations.

Gross Profit.    Our gross profit increased to $24.8 million, or 63.7% of net revenues, for the quarter ended March 31, 2004, compared to $23.8 million, or 66.2% of net revenues, for the quarter ended March 31, 2003. The reduction in gross profit as a percentage of net revenues was due to declines in profitability in our orthotic and CPM, iontophoresis and RME catalog product lines resulting from competitive pricing pressures. Gross profit as a percentage of net revenues also declined for our electrotherapy product lines due to a decrease in the proportion of reimbursement resulting from workers compensation claims and an increase in the proportion of reimbursement from Medicare. Foreign currency translation fluctuations had a positive effect on gross profit of $0.8 million.

Selling, General and Administrative Expenses.    Our SG&A expenses for the quarter ended March 31, 2004 were $15.5 million, or 39.9% of net revenues, compared to $15.0 million, or 41.8% of net revenues, for the quarter ended March 31, 2003. Of the $0.5 million increase, $0.5 million was attributable to foreign currency impact of the strong euro and $0.3 million was due to expansion of our direct sales force and additional depreciation arising from the continued implementation of our ERP systems. These increases were partially offset by lower international tradeshow expenses.

Research and Development.    Our research and development expenses were $0.7 million for each of the quarters ended March 31, 2004 and March 31, 2003. As a percentage of net revenues, research and development expenses were 1.7% and 1.9% for the quarters ended March 31, 2004 and March 31, 2003, respectively. This decrease is attributable to the completion of the ActionPatch iontophoretic product, which was launched in February 2004.

Interest Expense.    Our interest expense decreased to $2.0 million for the quarter ended March 31, 2004 compared to $2.1 million for the quarter ended March 31, 2003. The decrease in interest expense resulted from lower effective interest rates despite our higher level of indebtedness following our November 2003 recapitalization.

Provision for Income Taxes.    Our effective worldwide income tax rate for the quarter ended March 31, 2004 was 37.7% of earnings before income tax compared to 29.7% for the quarter ended March 31, 2003. The higher effective rate in 2004 was due to our European operations.

Net Earnings.    Our net earnings decreased 7.9% to $4.0 million for the quarter ended March 31, 2004 compared to $4.4 million for the quarter ended March 31, 2003. This decrease resulted from a $0.4 million increase in operating expenses, a $0.3 million increase in other expense and a $0.6 million increase in income tax expense due to a higher effective tax rate partially offset by a $1.0 increase in gross profits.

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Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002

The following summary table sets forth a comparison of our results of operations for the years ended December 31, 2003 and 2002 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

	Year Ended December 31,				Percent Change
	2003		2002
	(dollars in thousands)
Net revenues	$	150,525	$	135,586	11.0	%
Gross profit		98,579		93,562	5.4	%
Selling, general and administrative expenses		58,831		53,071	10.9	%
Research and development		2,409		2,131	13.0	%
Recapitalization expense		5,408		—	—
Interest expense		7,994		8,781	(9.0	)%
Income tax expense		8,180		9,605	(14.8	)%
Net earnings		13,283		18,927	(29.8	)%

Net Revenues.    Our net revenues increased 11.0% to $150.5 million for the year ended December 31, 2003, compared to net revenues of $135.6 million for the year ended December 31, 2002. This increase was primarily attributable to a $6.4 million increase in net revenues generated by sales of RME catalog products in part as a result of owning it for the full year, an increase of $3.5 million in electrotherapy sales due to volume increases partially offset by a decrease in the proportion of reimbursement resulting from workers compensation claims and an increase in the proportion of reimbursement from Medicare, and a $4.2 million increase in orthotics and CPM product sales, which was primarily driven by increased volume of our U.S. CPM sales and sales of our Hometrac product, which was introduced during 2003. These increases were partially offset by a $1.0 million decrease in net revenues derived from sales of our iontophoretic devices due to a decrease in sales volume and competitive pricing pressures. International sales, primarily by Ormed, accounted for approximately 24.2% and 23.0% of net revenues in 2003 and 2002, respectively. The strengthening of the euro against the dollar during 2003 resulted in $5.7 million increase in net revenues over 2002 on the product lines sold by our European operations.

Gross Profit.    Gross profit as a percentage of net revenues declined to 65.5% in 2003 from 69.0% in 2002. Despite an overall decline in gross profit as a percentage of net revenue, the gross profit margin for electrotherapy products increased due to manufacturing efficiencies resulting in lower cost of sales for those products. Orthotic and CPM product gross profit margin decreased due to higher material costs for orthotic products and competitive pricing pressures on U.S. CPM products. The decline in gross profit as a percentage of net revenue for the iontophoresis product line and RME catalog was due primarily to competitive pricing pressures. Foreign currency translation fluctuations had a positive effect on gross profit of $3.1 million.

Selling, General and Administrative Expenses.    Our SG&A expenses for the year ended December 31, 2003 were $58.8 million, or 39.1% of net revenue, compared to $53.1 million, or 39.1% of net revenue, for the year ended December 31, 2002. Of the $5.7 million increase, $2.1 million was the result of the strengthening euro over the dollar, $1.2 million was due to the inclusion of a full year of RME’s SG&A expenses in our results, $1.2 million resulted from the addition of sales representatives worldwide and $1.1 million was due to depreciation expense from the continued ERP system implementation.

Research and Development Expenses.    Our research and development expenses increased to $2.4 million in 2003 from $2.1 million in 2002. As a percentage of net revenues, research and development expenses were 1.6% in both 2003 and 2002. The $0.3 million increase in 2003 was attributable to our increased focus on development of our new products, such as ActionPatch, and the development of new applications for existing technologies.

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Recapitalization Expense.    We recorded a recapitalization expense of $5.4 million for the year ended December 31, 2003 in connection with our November 2003 recapitalization. This recapitalization expense consists primarily of $5.1 million of special bonuses distributed to certain directors and members of our management and $0.3 million for other expenses incurred in connection with the recapitalization.

Interest Expense.    Our interest expense decreased to $8.0 million for the year ended December 31, 2003 compared to $8.8 million for the year ended December 31, 2002. The decrease in interest expense resulted from lower interest rates during 2003 and the approximately $20.0 million decrease in our indebtedness due to principal repayments on our previous credit facility.

Provision for Income Taxes.    Our effective worldwide income tax rate for the year ended December 31, 2003 was 37.9% compared to 33.6% for the year ended December 31, 2002. The lower effective rate in 2002 was primarily due to our use in that year of a reversal in the valuation allowance for foreign net operating losses.

Net Earnings.    Our net earnings decreased 29.8% to $13.3 million for the year ended December 31, 2003 compared to $18.9 million for the year ended December 31, 2002. The $5.6 million decrease resulted primarily from $5.4 million in recapitalization expenses and management fees associated with our November 2003 recapitalization, and a $5.9 million increase in SG&A expenses. These fees and expenses were partially offset by a $5.0 million increase in gross profits, a $1.4 million decrease in income tax expense due to lower pretax earnings and a $0.8 million reduction in interest expense due to lower interest rates and outstanding debt.

Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001

The following summary table sets forth a comparison of our results of operations for the years ended December 31, 2002 and 2001 with respect to certain of our key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

	Year Ended December 31,				Percent Change
	2002		2001
	(dollars in thousands)
Net revenues	$	135,586	$	121,555	11.5	%
Gross profit		93,562		85,375	9.6	%
Selling, general and administrative expenses		53,071		56,491	(6.1	)%
Research and development		2,131		2,874	(25.9	)%
Interest expense		8,781		11,040	(20.5	)%
Income tax expense		9,605		7,896	21.6	%
Net earnings		18,927		7,538	151.1	%

Net Revenues.    Our net revenues increased 11.5% to $135.6 million for the year ended December 31, 2002 compared to net revenues of $121.6 million for the year ended December 31, 2001. Of the $14.0 million increase, $3.9 million was due to net revenues generated by sales of RME catalog products after we acquired it in July 2002, $5.0 million was due to an increase in electrotherapy sales due to increased penetration of the German market, $4.2 million was due to an increase in orthotics and CPM product sales resulting primarily from increased penetration of the U.S. CPM market and German orthotics market as well as slight price increases, and $0.6 million was due to an increase in iontophoresis product sales from increased market share and stabilized pricing. International sales, primarily by Ormed, accounted for approximately 23% and 21.5% of net revenues in 2002 and 2001, respectively. The strengthening of the euro against the dollar in 2002 resulted in a $1.6 million increase in net revenues over 2001 for all product lines sold by our European operations.

Gross Profit.    Gross profit as a percentage of revenue declined to 69.0% in 2002 compared to 70.2% in 2001. The decline was primarily due to growth in the orthotic and CPM product line and RME catalog which have lower gross margins than our higher margin electrotherapy devices and accessories. Our electrotherapy and

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iontophoresis product lines experienced gross margin increases due to an increase in the proportion of reimbursement resulting from workers compensation claims, and a decrease in the proportion of reimbursement from Medicare, as well as a reduction in costs of sales resulting from manufacturing efficiencies.

Selling, General and Administrative Expenses.    SG&A expenses for the year ended December 31, 2002 decreased to $53.1 million, or 39.1% of net revenue, from $56.5 million, or 46.5% of net revenue, for the year ended December 31, 2001. The decrease in SG&A expense was primarily due to the adoption of SFAS No. 142 and the resulting elimination of goodwill amortization and a reduction in bad debt expense, partially offset by expenses associated with an increase in the size of our direct sales force, five months of SG&A expenses associated with the RME catalog acquisition and SG&A expenses for marketing sponsorships and trade shows.

Research and Development Expenses.    Our research and development expenses decreased to $2.1 million, or 1.6% of net revenues, for the year ended December 31, 2002 compared to $2.9 million, or 2.4% of net revenues, for the year ended December 31, 2001. The higher research and development expenses in 2001 were mainly a result of costs associated with the development of our new NMES product, 300PV, which was launched in late 2002 and consulting expenses incurred in 2001 in connection with regulatory filings for a new drug application on our iontophoretic product line.

Interest Expense.    Our interest expense decreased to $8.8 million for the year ended December 31, 2002, compared to $11.0 million for the year ended December 31, 2001. Our interest expense during these periods was primarily related to our then-outstanding bank debt and senior subordinated debt. The interest expense decrease in 2002 was due primarily to our retirement of $13.4 million of our then-outstanding bank debt and a general decrease in interest rates.

Provision for Income Taxes.    Our effective worldwide income tax rate for the year ended December 31, 2002 was 33.6% compared to 54.0% for the year ended December 31, 2001. The higher rate in 2001 was the result of the non-deductibility of goodwill for Ormed. In addition, the 2002 rate was lower due to a reversal in the valuation allowance for foreign net operating losses.

Net Earnings.    Our net earnings increased 151.1% to $18.9 million for the year ended December 31, 2002 compared to $7.5 million for the year ended December 31, 2001. This increase resulted primarily from an increase in gross profit of $8.2 million and a reduction in operating expenses of $3.6 million due to the elimination of goodwill amortization and a reduction in bad debt expense.

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, including cash generated in this offering to the extent it is not used to repay our indebtedness under our term loan facility, internally generated cash flow and borrowings under our senior secured credit facility. We believe that these sources will provide sufficient liquidity for us to meet our working capital, capital expenditure and other cash requirements for the foreseeable future. We expect that the costs associated with implementing our business strategy, including, for example, the costs associated with increasing the size of our sales force and the continued introduction of new products, will not materially impact our liquidity and we anticipate that we will fund such costs from our internally generated cash flow. However, we may require additional liquidity to execute our acquisition strategy. Additionally, our liquidity and our ability to fund our capital requirements is also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control, including trends in coverage and reimbursement policies discussed elsewhere in this prospectus. If those factors significantly change, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available under our revolving credit facility to meet our liquidity needs. We anticipate that to the extent additional liquidity is necessary as a result of these factors or in order to execute our acquisition strategy, it would be funded through borrowings under our revolving credit facility, the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms or at all.

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In assessing our liquidity, our management reviews and analyzes our current cash on-hand, the number of days our sales are outstanding, the contractual rates that we have established with our payors, inventory turns, the interest rates on our floating-rate indebtedness, foreign exchange rates, capital expenditure commitments, income tax rates and payments and our required debt payments. Our principal liquidity requirements are to service our debt and meet our working capital and capital expenditure needs.

Cash Flows

The following table sets forth our consolidated cash flows for the years ended December 31, 2003, 2002 and 2001 and for the three-month periods ended March 31, 2004 and 2003.

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001
	(in thousands)
Cash flows provided from operating activities	$	9,608		$	8,844		$	17,570		$	21,070		$	11,521
Cash flows provided from (used in) investing activities		(1,828	)		(1,743	)		(4,251	)		(21,205	)		(1,615	)
Cash flows provided from (used in) financing activities		(437	)		(6,601	)		(17,579	)		319			(4,869	)
Effect of currency exchange rates on cash		119			8			643			479			(871	)
Net increase (decrease) in cash and cash equivalents during the period	$	7,462		$	508		$	(3,617	)	$	663		$	4,166

Cash Flows Provided From (Used In) Operating Activities

Net cash provided from operating activities in the three months ended March 31, 2004 increased to $9.6 million from $8.8 million for the three months ended March 31, 2003. The $0.8 million increase was attributable to a net increase in accounts payable, other accrued expenses and other changes in operating assets and liabilities of $1.6 million, an increase of $0.2 million in depreciation offset by a $0.3 million decrease in net earnings and a combined reduction of $0.8 million in income taxes payable and deferred taxes.

Net cash provided from operating activities in 2003 decreased to $17.6 million from $21.1 million in 2002. The decrease was mainly attributable to a $5.6 million reduction in net earnings, offset by increased depreciation of $1.3 million and a $1.0 million write-off of deferred financing costs related to the recapitalization.

Net cash provided from operating activities in 2002 increased to $21.1 million from $11.5 million in 2001. The increase was attributable to a $10.4 million increase in gross margin and improved collection of accounts receivable offset by expenses for RME from the date of its acquisition.

Cash Flows Provided From (Used In) Investing Activities

Net cash used in investing activities during the first three months of 2004 increased to $1.8 million from $1.7 million during the first three months ended March 31, 2003. The primary uses of cash during the first quarter of 2004 were $0.7 million for the purchase of rental equipment for the European market and $0.7 million on the continued development of our ERP system and related computers and software.

Net cash used in investing activities during 2003 decreased to $4.3 million from $21.2 million in 2002. The primary uses of cash were $1.7 million for the purchase of rental equipment for the European market, $2.0 million on the continued development of our ERP system and related computers and software, and $0.2 million on a telephone system upgrade, which will be completed in 2004.

Net cash used in investing activities during 2002 increased to $21.2 million from $1.6 million in 2001. This increase was primarily the result of the use of $1.5 million for our purchase of RME, $13.0 million to complete

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our acquisition of Ormed, and capital expenditures of $6.5 million, including $2.0 million for rental equipment for the European market and $4.6 million for development and implementation of our ERP system. Net cash used in 2001 included $2.4 million for rental equipment for the European market, $0.6 million for development and implementation of our ERP system and $0.6 million for equipment and furniture for our European headquarters in Freiburg, Germany.

Cash Flows Provided From (Used In) Financing Activities

Net cash used in financing activities for the three months ended March 31, 2004 was $0.4 million, compared to net cash used in financing activities of $6.6 million during the three months ended March 31, 2003. Cash flows for the three months ended March 31, 2004 primarily reflected the scheduled quarterly payments on our November 2003 term loan facility.

Net cash used in financing activities during 2003 was $17.6 million, compared to net cash provided from financing activities of $0.3 million during 2002. Cash flows used in financing activities in 2003 primarily consisted of costs related to our November 2003 recapitalization and $20.0 million in mandatory payments on our previous credit facility and $0.4 million in payments on European borrowings. These recapitalization costs included: (1) $74.5 million for repayment of the outstanding principal amount on our previous credit facility, (2) $25.5 million for the outstanding principal amount on our senior subordinated debt, (3) $58.0 million in dividends to shareholders, and (4) $4.3 million in fees related to the recapitalization transaction. To fund these payments, we entered into the $165.0 million term loan facility described elsewhere in this prospectus.

Net cash provided from financing activities during 2002 increased to $0.3 million from $4.9 million cash used in 2001. In 2002, cash flows used in financing activities were $5.9 million of mandatory debt repayments under our previous term loan facility, $7.5 million of repayments under our previous revolving credit facility, and $0.3 million of other short-term debt repayments for foreign operations. In 2002 cash flow provided from financing activities was generated by $14.0 million in borrowings under our previous revolving credit facility. Cash flows used in financing activities for 2001 were $2.2 million of mandatory debt repayment under our previous term loan facility, $5.0 million of repayments under our previous revolving credit facility, and $0.2 million of dividends to the 50% shareholders of Medireha, partially offset by $2.5 million in borrowings under our previous revolving credit facility to fund short-term operating needs.

Cash Position and Indebtedness

As of March 31, 2004, our total cash and cash equivalents were $10.6 million and we had total indebtedness of approximately $165.7 million. Our long-term debt was $164.0 million at March 31, 2004 and $104.4 million at March 31, 2003.

On November 24, 2003, we consummated a $169.4 million recapitalization. As a result of the recapitalization, we entered into a new senior secured credit facility consisting of a $165.0 million term loan facility and a $25.0 million revolving credit facility, each of which require periodic principal and interest payments. The term loan facility has a maturity of six years with principal payments due quarterly beginning March 31, 2004. Principal payments during the first five years are approximately $0.4 million per quarter, and increase in the final year to approximately $39.2 million per quarter. The term loan facility bears interest, at our option, at either the Eurodollar rate plus 3.0% or the greater of prime or the federal funds effective rate plus 2.0%. The effective interest rate as of March 31, 2004 was 4.24%. Interest is generally payable on a quarterly basis. As of March 31, 2004, the outstanding balance on the term loan facility was approximately $164.6 million.

We also have a $25.0 million revolving credit facility that expires November 28, 2008 and is available to fund working capital and general corporate purposes, including financing of acquisitions, investments and strategic alliances. Outstanding borrowings bear interest, at our option, at either the Eurodollar rate plus 2.5% or the greater of prime or the federal funds effective rate plus 1.5%. Interest is generally payable on a quarterly

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basis. There is a commitment fee equal to 0.5% of the average daily amount of the available revolving commitment payable quarterly. As of March 31, 2004, there were no outstanding borrowings under our revolving credit facility.

The following table sets forth the amounts owing under the term loan facility and the revolving credit facility, the effective interest rates on such outstanding amounts, and amounts available for additional borrowing thereunder, as of March 31, 2004:

Senior Secured Credit Facility	Effective Interest Rate		Amount Outstanding		Amount Available for Additional Borrowing
			(dollars in thousands)
Revolving credit facility	—			—	$	25,000
Term loan facility	4.24	%	$	164,588		—
Total			$	164,588	$	25,000

Our senior secured credit facility requires us to use 50% of the net proceeds we receive from this offering to repay outstanding indebtedness under our term loan facility. Starting at the end of this year, our term loan facility requires us to make an annual prepayment of the term loan facility equal to 50% of any excess cash flow. For the purposes of this prepayment, excess cash flow is defined for each fiscal year as the difference between (1) the sum of our consolidated net income, with certain permitted adjustments, the amount of any decrease in the amount of our consolidated current assets less our consolidated current liabilities, and the net amount of any non-cash losses in any disposition of our assets, minus (2) the sum of the amount of actual capital expenditures and asset sales that are permitted under our senior secured credit facility, any prepayments of our revolving loans under our senior secured credit facility, but only if that prepayment is accompanied by a decrease in the revolving loan commitment amount, the amount of any scheduled payments of indebtedness permitted under our senior secured credit facility, and the net amount of any non-cash gain in the disposition of property. The excess cash flow payment must be made no later than 95 days after year end or 125 days after year end if there is a permitted acquisition within the year. Our senior secured credit facility also places certain restrictions on us, including restrictions on our ability to incur indebtedness, grant liens, pay dividends, sell all of our assets or any subsidiary, use funds for capital expenditures other than ERP or rental pool expenditures, make investments, make optional payments or modify debt instruments, or enter into sales and leaseback transactions. In addition, our senior secured credit facility requires us to maintain compliance with financial covenants. While we do not anticipate the need to raise additional debt financing at this time, certain of these restrictions could limit our ability to undertake certain types of debt financing in the future. These restrictions place a limit on the total amount of indebtedness we may incur and, subject to certain exceptions, these restrictions would prevent us from incurring any indebtedness that is senior to, or pari passu with, our indebtedness under the senior secured credit facility. We do not anticipate that this limitation will materially affect our financial condition of operating performance. As of March 31, 2004, we were in compliance with all such covenants. The indebtedness under our senior secured credit facility is secured by substantially all of our assets, including our real and personal property, inventory, accounts receivable, intellectual property and other intangibles.

In connection with the recapitalization and entering into our senior secured credit facility, we incurred fees and costs of $5.3 million including a $1.0 million write-off of financing costs capitalized in connection with our previous credit facility. Approximately $4.3 million of these expenses have been capitalized as deferred financing costs and are being amortized over the term of the related debt instruments.

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Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other commercial commitments as of December 31, 2003:

	Payments due by period
Contractual Obligations:	Total		Less than 1 Year		1 to 3 Years		4 to 5 Years		More than 5 Years
	(in thousands)
Long-term debt obligations(1)	$	166,099	$	1,718	$	3,864	$	3,767	$	156,750
Capital lease obligations		—		—		—		—		—
Operating lease obligations		8,636		1,558		2,857		2,048		2,173
Purchase obligations		—		—		—		—		—
Other long-term liabilities		—		—		—		—		—
Total	$	174,735	$	3,276	$	6,721	$	5,815	$	158,923

(1) We have not included interest payable on our term loan facility in these amounts because it is calculated based on a variable rate.

As described in “Certain Relationships and Related Transactions,” we are party to a management agreement with TC Group Management, L.L.C., a Carlyle affiliate, and GE Capital Equity Investments, Inc., or GE Capital, pursuant to which we paid an aggregate annual management fee of $0.6 million for each of 2003, 2002 and 2001. This management agreement was amended and the management fee reduced to $0.3 million after the date of our recapitalization. In addition, in connection with the November 2003 recapitalization, we paid a fee of $1.2 million to Carlyle and GE Capital for their investment banking and consulting services.

Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Seasonality

Our results of operations are not materially affected by seasonal changes. However, our fourth quarter has historically been our strongest. We believe that this strength in our fourth quarter has been due, at least in part, to increased spending during the fourth quarter by patients who desire to use funds remaining in flexible spending accounts prior to the end of the year and who are less reluctant to spend on products covered by insurance because their insurance deductibles have been satisfied.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, or FIN 46, Consolidation of Variable Interest Entities. FIN 46 requires companies to determine whether a financing or other arrangement constitutes a “variable interest entity.” If a company concludes that such an arrangement is a variable interest entity, the company must then evaluate whether it is the primary beneficiary. The primary beneficiary of a variable interest entity is required to consolidate the entity for financial statement purposes. Variable interest entities are those that have insufficient equity investment at risk to finance their activities without additional subordinated support or lack essential characteristics of a controlling financial interest including, among others, the obligation to absorb expected losses, or the right to receive expected residual

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returns, of the entity. The primary beneficiary is the enterprise that is obligated to absorb the expected losses or has a right to receive the expected residual returns. FIN 46 was effective immediately for variable interest entities created, or in which we obtain an interest, after January 31, 2003. For all variable interest entities created on or before January 31, 2003, the FASB delayed the initial effective date of the provisions until the quarter ending December 31, 2003, but encouraged early adoption. The adoption of FIN 46 did not have an effect on us.

In May 2003, FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for issuer classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Instruments that fall within the scope of SFAS 150 must be classified as a liability, and the statement is effective for financial instruments entered into or modified after May 31, 2003. For financial instruments issued prior to June 1, 2003, SFAS 150 is effective for us in the second quarter of fiscal year 2004. Adoption is not expected to have an impact on our consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to interest rate risk in connection with our term loan facility and any borrowings under the revolving credit facility, which bear interest at floating rates based on eurodollar or the greater of prime rate or the federal funds rate plus an applicable borrowing margin. For variable rate debt, interest rate changes generally do not affect the fair value of the debt instrument, but do impact future earnings and cash flows, assuming other factors are held constant.

We entered into a senior secured credit agreement in November 2003 and repaid our prior bank debt. Our senior secured credit facility provides a term loan, under which approximately $164.6 million was outstanding as of March 31, 2004. We also have available up to $25.0 million under a revolving credit facility. As of March 31, 2004, we did not have any amount outstanding under the revolving bank credit facility. Based on the balance outstanding under our term loan as of March 31,2004, an immediate change of one percentage point in the applicable interest rate would cause an increase or decrease in interest expense of approximately $1.6 million on an annual basis. Our term loan facility requires us to use derivative financial instruments to hedge our interest rate risk on at least 40% of the outstanding indebtedness under the term loan facility until March 2006. However, as a matter of policy, we do not enter into other derivative or other financial investments for trading or speculative purposes. Prior to entering into our senior secured credit agreement, we had interest rate cap agreements in place, which limited the LIBOR interest rate on a portion of the term loan facility B to 3.5%. As of March 31, 2004, those interest rate cap agreements remained in place. The unrealized gain on the interest rate cap contracts at the time of the refinancing will be recognized in earnings over the interest period of the new debt. As of March 31, 2004, we had derivative-related balances totaling $0.7 million representing the fair value of the interest rate cap contract recorded in long-term liabilities, and $0.5 million recorded in accumulated other comprehensive loss. The interest rate cap contracts were designated as a cash flow hedge in relation to the new debt on the recapitalization date. Any ineffectiveness subsequent to the recapitalization transaction will be recognized in each subsequent reporting period over the life of the new debt.

Foreign Exchange Risk Management

A part of our risk management strategy is our currency hedging program, under which we enter into forward foreign exchange and currency option contracts to hedge a portion of our forecasted cash receipts and payments denominated in currencies other than the U.S. dollar. We categorize these instruments as entered into for purposes other than trading. We do not utilize derivative instruments for trading or speculative purposes. These contracts are entered into to reduce the risk that our earnings and cash flows, resulting from certain forecasted transactions, will be affected by changes in foreign currency exchange rates. However, we may be impacted by changes in foreign exchange rates related to the unhedged portion of the forecasted transactions. The success of the hedging program depends, in part, on forecasts of our transactions in the euro. Hedges are placed for periods

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consistent with identified exposures, but generally no longer than the end of the year for which we have substantially completed our annual business plan. We may experience unanticipated foreign currency exchange gains or losses to the extent that there are timing differences between forecasted and actual activity during periods of currency volatility. However, since the critical terms of contracts designated as cash flow hedges are the same as the underlying forecasted transaction, changes in fair value of contracts should be highly effective in offsetting the present value of changes in the expected cash flows from the forecasted transaction. The ineffective portion of any changes in the fair value of option contracts designated as hedges, if any, is recognized immediately in earnings. We did not recognize material gains or losses resulting from either hedge ineffectiveness or changes in forecasted transactions during the three months ended March 31, 2004.

As a matter of policy, we will only enter into currency contracts with counterparties that have at least an investment grade or equivalent credit rating from a major rating agency. We do not have significant exposure to any one counterparty. We believe the risk of loss related to counterparty default is remote and would only consist of the net market value gain, if any, of the underlying instrument. The contracts have varying maturities with none exceeding eighteen months. Costs associated with entering into contracts are not expected to be material to our financial results.

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BUSINESS

Overview

We are a leading medical device company focused on products used for pain management, orthopedic rehabilitation and physical therapy. We develop, manufacture, market and distribute a diverse range of non-invasive medical devices and related accessories that are primarily used by patients for at-home therapy. We also provide physical therapy equipment and supplies to physicians, therapists and other healthcare professionals for use in their clinics. We have a leading market share in our core product markets with approximately 75% of our 2003 net revenues derived from products that we believe hold the first, second or third position in their respective markets.

Our products are designed to provide non-invasive, lower-cost treatment alternatives to surgery and traditional methods of physical therapy and pain management. We are a leading provider of electrotherapy devices and accessories, including transcutaneous electrical nerve stimulation, or TENS, devices, which are used to treat chronic and post-surgical acute pain, and neuromuscular electrical stimulation, or NMES, devices, which are used to restore and maintain muscle function. We are also a leading provider of iontophoretic devices and accessories. Iontophoretic devices are non-invasive, needle-free, transdermal drug delivery systems that deliver anti-inflammatory medication and anesthesia. We are also a provider of continuous passive motion, or CPM, devices, which are used to reduce swelling, increase joint range-of-motion and reduce the incidence of complications after surgery or trauma. Our orthotic devices support, protect and rehabilitate joints with impaired range-of-motion and provide relief for certain spine conditions.

For the three months ended March 31, 2004, our net revenues were $38.9 million, an 8.2% increase over the three months ended March 31, 2003. In 2003 our net revenues were $150.5 million, an 11.0% increase over the prior year. The following table sets forth the percentage of our 2003 and first quarter 2004 net revenues provided by each of our core product categories.

Core Product Categories	Percentage of First Quarter 2004 Net Revenues		Percentage of 2003 Net Revenues
Electrotherapy (TENS, NMES and accessories)	47.1	%	48.6	%
Orthotic and continuous passive motion devices	28.4	%	26.3	%
Iontophoresis	12.0	%	13.3	%
RME catalog and other products	12.5	%	11.7	%

We market, sell and distribute our products in the United States and Germany through our approximately 145-person direct sales force. In the United States, our approximately 120-person direct sales force calls primarily on physical therapists as well as physicians, clinics and hospitals. Our U.S. sales force has relationships with approximately 12,000 physical therapy clinics nationwide. In addition, we maintain a four-person dedicated national accounts group in the United States that focuses on developing relationships with managed care and national rehabilitation providers. We believe that our U.S. sales force represents the largest direct distribution network for physical rehabilitation products in the country. In Germany, our approximately 25-person direct sales force focuses primarily on educating physicians regarding the benefits of our products.

In addition to our direct sales force, we have approximately 130 internal sales representatives that support our direct sales force in both the United States and Germany. Our internal sales representatives assist patients in filing insurance claims, following prescribed therapies and purchasing supplies and accessories for our products. We believe that providing this extensive follow-on patient support, helps to develop strong relationships with our patients and their treatment providers thus leading to increased use of our products.

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Competitive Strengths

We attribute our historic success to the following competitive strengths:

Leading provider of physical rehabilitation products with a broad product offering.    We are a leading provider of TENS, NMES, iontophoretic devices, CPM and orthotic devices dispensed or purchased by physical therapy clinics. We also offer a broad variety of complementary products to satisfy the various needs of our physical therapy clinic customers. We believe these characteristics make us an attractive provider of non-invasive medical devices and physical therapy products and accessories for physical therapy clinics and will help us to continue to expand our penetration into a greater number of these clinics domestically and internationally.

The following table outlines our estimated U.S. market share and position for our core product lines. These estimates are based on management’s assessments of each of the markets for our product lines as derived from available third-party industry analyses, the reported results of our publicly traded competitors and management’s estimates based on industry experience.

Product Lines	Our Estimated U.S. Market Share		Our Estimated U.S. Market Position
Iontophoresis	62	%	1
Electrotherapy—TENS	32	%	1
Orthotics	20	%	2
Electrotherapy—NMES	13	%	3

Strong brand recognition and reputation for quality.    We have been marketing physical therapy products for over 27 years. Our products are marketed under what we believe to be some of the most well-established and widely recognized brand names in the physical rehabilitation products industry. We believe that our products enjoy a reputation for quality, durability and reliability among healthcare professionals.

Successful track record of new product introductions.    We have a history of new product development and innovation. Since 1997, we have introduced 15 new products and expect to introduce several new products in 2004 and 2005. Most recently, in early 2004, we launched our ActionPatch self-contained, portable iontophoretic device. We believe that new product introductions have helped us to maintain our reputation for innovation and our leading market share.

Leading direct distribution network.    We believe that our direct distribution network is the largest in our industry and provides us with a significant competitive advantage with respect to sales of our existing products and the introduction of new products to the market. Our sales force is highly trained in the use and benefits of our products and is focused on educating physical therapists and physicians to use our products to improve patient outcomes. By using a direct sales force rather than third-party distributors and sales agents, as most of our competitors do, we are able to establish direct relationships with healthcare providers. We believe that this allows us to control our sales channels and use the relationships developed by our sales force to effectively cross-sell and increase the visibility of our products.

Strong relationships with managed care organizations and national rehabilitation providers.    Our leading market position in our core product lines and the breadth of our product offering have enabled us to secure important preferred provider and managed care contracts. We currently have approximately 600 contracts with leading managed care providers, including over 40 preferred provider arrangements with regional and national operators of physical therapy clinics. Due to the importance of our relationships with national and regional payor groups, we have a national accounts group dedicated to managing these accounts and negotiating favorable reimbursement levels. We seek out preferred provider status to increase the likelihood that our products will be dispensed to members of these various networks.

Proprietary third-party billing system.    We have developed a proprietary third-party billing system that automatically tracks patients, manages more than 80,000 payor profiles and tracks inventory. This system has enabled us to bill payors more quickly and, as a result, we have improved our reimbursement collection cycles.

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Business Strategy

Our strategy is to continuously improve rehabilitative outcomes for physical therapy patients by developing, manufacturing and marketing innovative, cost-effective products for the physical therapy market. We intend to fulfill our strategy and increase our net revenues and profitability by:

Expanding our existing relationships.    We seek to use our existing relationships with physical therapists to increase the use of our products. We anticipate that we will continue to see increased acceptance and use of our products by managed care organizations and national rehabilitation providers. We also anticipate that as third-party payors continue to seek lower-cost alternatives to expensive rehabilitation programs and our direct sales force continues to educate healthcare providers and payors about the benefits of our products, use of our products will increase. We believe that our leading direct distribution network and broad product portfolio will allow us to increase penetration into our existing markets and benefit disproportionately from the growing shift to at-home physical rehabilitation.

Continuing to introduce new products and product enhancements.     We have a history of successfully introducing new products and product enhancements into the marketplace. We intend to continue to introduce innovative and cost-effective products that meet the latest rehabilitative needs through focused internal research and development, by forming new strategic partnerships and by working closely with healthcare professionals to meet patient and clinic needs. For example, we are currently working to develop enhancements to our NMES and iontophoretic devices that we believe will expand the application of, and market for, these product lines.

Expanding the size and scope of our sales force.    Our sales force currently works with approximately 12,000 physical therapy clinics. We intend to increase the size of our direct sales force in an effort to broaden our coverage of the physical rehabilitation products market. We believe that additional sales representatives will allow us to improve penetration with referring physicians and physical therapists through a larger and more focused calling and product education effort and provide more effective customer service and after-market support. By expanding our sales force, we believe that we can service a larger percentage of the physical rehabilitation market and allow our sales representatives to spend more time with existing customers to educate them on the benefits of our products.

Increasing penetration of national and regional provider networks.    Our success in establishing relationships with managed care networks and large physical rehabilitation providers has been due in part to the outreach efforts of our national accounts team. We intend to capitalize on our leading market position in our core product categories, the breadth of our product offering and our reputation for quality by continuing to employ our national accounts team to negotiate preferred supplier arrangements with national and regional managed care networks. We believe that this will support favorable reimbursement rates and increase the likelihood of our products being the first choice of national and regional provider networks.

Increasing product awareness among referring physicians.    Our relationship with physicians, in particular pain specialists, orthopedic surgeons and occupational health specialists, is of increasing importance to us as we continue to develop and introduce new and innovative products. We intend to continue to use our direct sales force to establish relationships with physicians and to educate them about the clinical and cost benefits of our products. We believe that this approach will increase physicians’ awareness of our products and their advantages and encourage physicians to prescribe our current and future products more frequently.

Pursuing strategic acquisitions.    We expect to benefit and derive growth from consolidation in the fragmented physical therapy market. In recent years, we have successfully acquired and integrated several complementary businesses into our operations. For example, in June 2000 we acquired Ormed, the largest provider of continuous passive motion devices in Europe. In 2000, Ormed had annual net revenues of approximately $23.3 million. Through successful cross-selling efforts, Ormed’s net revenues grew to $34.8 million in 2003. We believe acquisitions will be an important part of our future growth. We intend to

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pursue strategic acquisitions of both product lines and companies that will provide us with additional products and distribution channels that will complement our product portfolio, enhance our revenue growth and help us to diversify geographically.

Expanding our international presence.    In 2003, international sales accounted for approximately 24% of our consolidated net revenues. The majority of these sales were made in Germany by Ormed. We believe that there is a significant opportunity to increase sales throughout Europe. With Ormed as a platform, we intend to grow our European net revenues both organically and through strategic alliances and acquisitions.

Corporate History

We were incorporated in Minnesota in October 1977. We became a public company in 1980 and shares of our common stock were publicly traded on the Nasdaq National Market System until August 1999.

At that time, MPI Holdings, L.L.C. and GE Capital Equity Investments, Inc. acquired us pursuant to a tender offer in which shareholders received cash for their shares and we issued a combination of debt and equity to MPI Holdings and GE Capital Equity Investments. As a result of the acquisition, MPI Holdings and GE Capital Equity Investments owned 91.67% and 8.33% of us, respectively.

We have decided to become a public company again in light of several changes in both our business and the larger business and regulatory environment in which we operate. Since we became a private company in August 1999, we have grown dramatically in size and have increased our revenues and profitability. Additionally, we believe that there has been an improvement in the reimbursement and regulatory environment as it relates to our business since 1999.

U.S. Physical Therapy Products Market

According to management estimates based on available industry data, the U.S. physical therapy products market generated sales of approximately $1.6 billion in 2002 and is expected to grow at approximately 7% per year through 2007. This market is comprised of orthopedic soft goods, pain management and electrotherapy devices, rehabilitation equipment and clinical products and supplies. This market is highly fragmented and characterized by competition among several multi-product companies with significant market share and numerous smaller niche competitors. We believe that we are the only company in the U.S. physical therapy products market that competes in each of the electrotherapy, iontophoresis, orthotics and continuous passive motion product categories.

We believe that the growth of our targeted markets is being driven by the following factors:

Shift toward at-home therapy.    The physical rehabilitation market is shifting toward home treatment alternatives. This shift has been driven by several factors, including payor cost containment efforts that seek to reduce clinic visits and patients’ preference for therapies that can be conveniently administered at home. We believe that because our products are designed for home use with an emphasis on quality, cost-effectiveness and convenience, they will allow us to capitalize on this shift toward home therapy. We believe that currently only a small portion of physical therapy products are prescribed for home-care and that there remains significant growth potential for the home-care market.

Increasing awareness and use of non-invasive devices for treatment and rehabilitation.    The growing awareness and clinical acceptance by patients and healthcare professionals of the benefits of non-invasive solutions continues to drive demand for our products. While some therapists prefer to focus on traditional muscle stretching and strengthening regimes and view the TENS device as a last resort that should only be used if all other therapy fails to achieve pain control, we believe that growth in the TENS and NMES markets will be driven by increasing awareness among referring physicians about the benefits of electrotherapy and the acceptance of

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new applications for electrotherapy devices and accessories. Similarly, we believe that growth in sales of iontophoretic devices will be driven by increased awareness of the benefits of this drug delivery system over invasive delivery systems for certain joint inflammation and anesthesia delivery applications. However, clinicians may decide to use other devices or methods that have a higher reimbursement value or that are inexpensive to administer such as ultrasound, friction massage, ice or conventional pain medications.

Cost containment initiatives by third-party payors.    With the rising cost of healthcare in the United States and internationally, third-party payors are challenged to seek more cost-effective therapies without reducing the quality of care. We believe that our products offer lower-cost alternatives to surgery and traditional forms of physical therapy and pain management while providing positive clinical outcomes for patients.

Growing emphasis on physical fitness and leisure sports has led to an increase in injuries.    A U.S. Consumer Product Safety Commission survey determined that from 1990 to 1996 there was an 18% increase in the number of sports-related injuries among people aged 25 to 64. From 1991 to 1998, baby boomers likewise experienced significant increases in sports-related injuries: 64% for those who lift weights, 140% for golfers and more than four times for those that engage in general exercise and running. Increases in sports-related injuries have led to a steady rise in physical therapy.

Growing elderly populations with broad medical coverage and longer life expectancy.    People 65 years of age and older currently represent approximately 13% of the U.S. population, yet are estimated to account for nearly 40% of healthcare expenditures. This population segment is entitled to reimbursement for physical rehabilitation either through private third-party payors and/or the federal Medicare program and is the fastest growing segment of the U.S. population.

Products

Since our founding in 1977, we have introduced and commercialized many products with features that have improved physical rehabilitation outcomes for patients. Innovation in transcutaneous electrical nerve stimulation, neuromuscular electrical stimulation, iontophoretic transdermal drug delivery, dynamic range-of-motion splinting, and further enhancements to our company’s physical therapy and pain management systems, have driven our market leadership.

Electrotherapy

We are a leading manufacturer and supplier of electrotherapy devices, supplies and accessories. Electrotherapy devices and accessories accounted for approximately 47.1% of our net revenues for the first three months of 2004.

Transcutaneous Electrical Nerve Stimulation.    Our TENS devices are battery-powered units about the size of a pager that send low-voltage electrical impulses through electrodes placed on or near the patient’s site of pain. The electrical impulses travel through the skin to the underlying peripheral nerves to relieve both chronic and post-surgical acute pain. TENS devices are most frequently used to treat persistent orthopedic conditions such as lower back pain, joint stiffness, carpal tunnel syndrome, shoulder and neck pain and muscle spasms. Physicians also prescribe TENS devices for pain arising from a variety of conditions resulting from abdominal surgery, post-operative pain, arthritis, tendonitis, phantom limb pain and childbirth. The conditions that are treated using these products have expanded over the last two decades. We believe we are the leading provider of TENS devices in the United States with an estimated market share of 32%.

Since our founding in 1977, we have marketed TENS devices for the treatment of pain. We currently market our TENS devices under our Epix XL and Epix VT brands. These products feature Empi waveform and pre-programmed therapy regimens. Epix VT, an advanced digital TENS unit, has become one of the leading TENS devices in the United States. It features pushbutton control of all functions, 12 pre-programmed therapy regimens, an integrated pain scale, digital output and patient usage measurement and outcomes reporting.

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Neuromuscular Electrical Stimulation.    Our NMES devices are battery-powered units about the size of a pager that send low-voltage electrical impulses through electrodes that stimulate a patient’s muscle nerves to produce an involuntary muscle contraction in order to re-educate muscles. This type of stimulation has proven effective in, and is prescribed for, maintaining strength and mobility of a limb or preventing deterioration of muscle tissues in patients who are unable to perform voluntary muscle contraction. NMES devices are also prescribed for muscle re-education, relaxation of muscle spasm, maintaining or increasing range-of-motion and increasing local blood circulation. We believe that we are the third leading provider of NMES devices in the United States with an estimated market share of 13%.

We market our NMES devices under our Focus and 300PV brands. Focus is a portable NMES device that has customized pre-programmed therapy regimens that have been clinically devised for specific applications and can be readily selected and implemented. 300PV is a multi-functional electrotherapy system that offers all the flexibility and power of larger, more expensive clinical devices in a portable package. 300PV has the ability to function as a NMES or a TENS device.

Electrotherapy Supplies and Accessories.    Our electrotherapy devices use certain consumable components such as electrodes, lead wires and batteries. We sell a full line of replacement components which provides us with a strong recurring revenue stream. We carefully manage our relationships with our electrotherapy customers using our proprietary third-party billing system that allows our sales representatives to anticipate customers’ supply and accessory needs and assist with the reimbursement process. We continue to introduce new accessories and supplies to address our customer needs.

Iontophoresis

We are a leading manufacturer and distributor of iontophoretic drug delivery systems and accessories. These products accounted for approximately 12.0% of our net revenues for the first three months of 2004.

Iontophoresis is a non-invasive, needle-free, transdermal drug delivery system. By applying a low-level electrical current to a similarly charged solution, iontophoresis propels drug ions through the skin to the underlying tissue. In contrast to passive transdermal patch drug delivery, iontophoresis is an active, electrically driven method that allows for the delivery of water-soluble ionic drugs that would not otherwise be effectively absorbed through the skin. For many applications, iontophoresis has an advantage over drug delivery via syringe as it allows medications to be delivered without invading the joint space. In addition, while regulations require physical therapists to send patients to a licensed physician to administer invasive joint injections, physical therapists may administer iontophoresis to patients at the time of their visit to the physical therapy clinic. Iontophoresis also avoids many of the systemic and other side effects frequently associated with oral medications or injections. We believe that we are the leading provider of iontophoretic products in the United States with an estimated market share of 62%.

We currently market our iontophoretic products under the Dupel and Dupel B.L.U.E. brands. Dupel offers two independent delivery channels that allow the treatment of two sites simultaneously. Dosage on each channel is variable and a microprocessor provides clinicians with automatic calculation of treatment time to ensure delivery of the proper dosage. Dupel B.L.U.E. electrodes feature sophisticated ion-exchange buffering technology that is only available from Empi. This technology controls the pH changes that can occur during iontophoresis, minimizing the risk of skin problems. Dupel B.L.U.E. electrodes are available in a variety of sizes to meet each patient’s needs and feature an adhesive border that secures the electrode on the skin and prevents the leakage of medication. We recently introduced the ActionPatch, which is a self-contained iontophoretic device with an integrated power supply. The self-contained design allows patients to leave the physical therapy clinic immediately after its application allowing patients to spend less time at the physical therapy clinic and allowing physical therapists to see more patients. We believe the portability, convenience and time-saving attributes of the ActionPatch give it significant advantages over other patch technologies.

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Orthotic and Continuous Passive Motion Devices

Orthotic and CPM devices accounted for approximately 28.4% of our net revenues for the first three months of 2004.

An orthotic device, or orthosis, is an orthopedic device that is applied externally to the limb or body to support, protect and rehabilitate joints with impaired range-of-motion and provide pain relief for certain spine conditions. We provide two types of orthotic devices to the physical therapy market: dynamic splinting and cervical and lumbar traction devices. We believe we are the second leading provider of orthotic devices in the United States with an estimated market share of 20%.

Orthotics—Dynamic Splinting.    Our dynamic range-of-motion, or ROM, products compete primarily in a subset of the orthotics category comprised of therapeutic orthoses that use active components to increase patients’ range-of-motion. A common cause for range-of-motion limitation is a shortening of soft tissue, known as “contracture,” that prevents normal joint motion. The most common causes of contracture are scarring and lack of use resulting from surgery or trauma. For a variety of reasons, some patients do not adequately respond to the traditional exercise and stretching regimens utilized in physical therapy clinics. For these patients, dynamic ROM orthotic devices using an adjustable tension spring integrated into a brace apply a low load, prolonged stretch on the restricted joint to effect tissue remodeling to extend range-of-motion.

We market our dynamic splinting devices under our Advance Dynamic ROM brand. The Advance Dynamic ROM product line is used to correct range-of-motion or contractures and is available in both extension and flexion models for the wrist, elbow, knee and ankle.

Orthotics—Traction Devices.    Traction is the application of a mild stretch to the muscles, ligaments and tissue components of the spine to provide pain relief. Traction promotes separation of the invertebral joint space that contains spinal discs and may reduce “bulge” or impingement of the structures within this area. Traction devices may be used to treat various segments of the spine and are widely accepted as part of the physical therapy program for spine injuries.

We offer two cervical traction devices under the Pronex and Saunders brands. Pronex and Saunders Cervical HomeTrac are lightweight, portable cervical traction devices designed to provide separation of the intervertebral joint space in the neck region of the spine. These devices promote patient mobility and allow the chronic cervical pain patient to resume normal lifestyle activities while maintaining ongoing treatment as prescribed. We also distribute a lumbar traction device called the Saunders Lumbar HomeTrac that provides traction therapy in the lumbar region of the spine.

Continuous Passive Motion Devices.    CPM devices are machines that are used following orthopedic surgery or trauma that provide controlled, continuous movement to affected joints and limbs without requiring the patient to exert muscular effort. CPM devices reduce swelling, increase joint range-of-motion, reduce the length of hospital stay and reduce the incidence of post-surgical or post-trauma complications. The primary use of CPM devices occurs in the hospital or home environments, but CPM devices are also used in skilled-nursing facilities, sports medicine clinics and rehabilitation centers. CPM is a widely accepted treatment for the rehabilitation of surgical knee procedures such as total knee replacement and anterior cruciate ligament reconstruction. We estimate that our share in the CPM device market is approximately 17% in the United States.

Ormed manufactures primarily two types of CPM devices: the Artromot-K series, designed for knee rehabilitation, and the Artromot-S series, designed for shoulder rehabilitation. Artromot-K series devices are designed to treat most injuries and diseases of the knee joint and post-operative swelling and features a true anatomical hip axis, enabling precise adjustment of the device to the patient’s hip and knee pivot. Artromot-S series devices are designed to treat most injuries and diseases of the shoulder joint and address postoperative shoulder therapy after fractures, joint distortions and rupture of the rotator cuff. Our CPM devices feature therapist-controlled lockouts to ensure patient compliance with prescribed treatment regimens.

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The Sales Process

Our primary direct customers are patients and physical therapy clinics (including hospital physical therapy departments, sports medicine clinics and pain management centers), which represented 55% and 36%, respectively, of our net revenues for the three months ended March 31, 2004 and the year ended December 31, 2003. We sell our orthotics and electrotherapy devices and accessories primarily to patients through consignment arrangements with physical therapy clinics and our iontophoretic devices primarily to clinics. Therapies that use our electrotherapy and orthotics products are generally prescribed to patients by a physician, such as an orthopedic surgeon. The physician will typically direct the patient to a physical therapy clinic to meet with a trained physical therapist who provides the patient with the prescribed product from our consigned inventory at the clinic. This sales process is bolstered by our strong relationships with third-party payors, such as managed care organizations, who ultimately pay us for the products prescribed to patients. For these reasons, we view physical therapists, physicians and third-party payors as key decision makers in product selection and patient referral.

As of May 31, 2004, we had approximately 465 sales and sales support personnel and believe that having the largest dedicated field and internal sales forces provides us with a significant competitive advantage. These sales and sales support personnel can be broken into several categories:

• We employ approximately 120 U.S. field sales representatives and approximately 25 international field sales representatives. Our field sales representatives are trained to educate key decision makers—the physicians who prescribe therapies, and the physical therapists who select treatment approaches and device brands for the patient and the clinic—on the relative benefits and proper use of our products. This is accomplished in part by frequent sales calls to on-site locations and a solutions-based sales approach to patient rehabilitation. Our solutions-based approach is designed to work with physicians and physical therapists to establish a treatment regimen with the goal of raising the patient’s overall comfort level.

• We employ an internal sales staff of approximately 130 employees (100 domestic and 30 international) who work with patients to handle insurance and third-party payor reimbursement, provide follow-up coverage and sell accessories after the initial sale.

– Our domestic internal sales staff includes approximately 50 patient care service representatives who work with patients after they have been prescribed one or more of our products. Patient care service representatives contact patients monthly or bimonthly to ensure continued satisfaction with our products and, in the case of electrotherapy devices, arrange for replenishment of electrodes and other components.

– We employ a four-person national accounts group that works to develop and negotiate preferred provider relationships with managed care organizations. Under these preferred provider and managed care contracts, we are designated a pre-approved or ancillary provider or preferred supplier in exchange for set fee reductions on our products. Fee reductions are mutually agreed upon by us and the managed care organization. These reductions vary greatly depending on the size of the preferred provider or managed care organization and their historical purchasing levels. Generally, either party may terminate these agreements for any reason by providing two to six months written notice.

Our payor base is diversified with no individual payor, other than Medicare and Medicaid, accounting for more than 5% of net revenues for the three months ended March 31, 2004. During 2003, Medicare and Medicaid together accounted for only approximately 5.2% of net revenues. Since no other individual payor accounts for more than 5% of net revenues, we believe that our exposure to an adverse reimbursement decision by any individual payor with respect to our products is limited. In the United States, we currently have over 40 preferred provider arrangements with third-party payors and approximately 600 managed care contracts.

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Research and Development

Our current research and development efforts, 1.7% of net revenues for the first quarter of 2004, are principally directed towards the development of next-generation products and technologies related to our orthotics, electrotherapy and iontophoretic drug delivery product lines, enhancement of existing products, and manufacturing process developments to improve product performance and reduce manufacturing costs.

Manufacturing

We manufacture our electrotherapy and dynamic ROM orthotic devices, as well as some components and related accessories, at our Clear Lake, South Dakota facility. Manufacturing activities at the Clear Lake facility include electronic and mechanical assembly, electrode fabrication and assembly, and fabric sewing processes. Our products are comprised of a variety of components including die cast metal parts, injection-molded plastic parts, printed circuit boards, electronic components, batteries and battery chargers, lead wires, electrodes and other components. Parts for these components are purchased from outside suppliers and are, in some instances, manufactured on a custom basis. Many of the component parts and raw materials we use in our manufacturing and assembly operations are available from more than one supplier. However, several component parts and accessory products are currently purchased from a single supply source. Medireha GmbH, which is 50% owned by us, is our single source supplier for passive motion devices. Our distribution agreement with Medireha grants us exclusive rights to the distribution of products that Medireha manufactures. The distribution agreement, which expires on June 30, 2005, also provides that we are required to purchase, and Medireha is required to produce, a certain amount of product annually. If we encounter a cessation, interruption or delay in the supply of the products that we purchase from Medireha, we may be unable to obtain such products through other sources, on acceptable terms, within a reasonable amount of time or at all. Any such cessation, interruption or delay may impair our ability to meet scheduled product deliveries to our customers, hurt our reputation or cause customers to cancel orders.

Facilities

Our corporate headquarters and center of domestic operations are in St. Paul, Minnesota, and our European headquarters are in Freiburg, Germany. We operate manufacturing locations in Clear Lake, South Dakota and Umkirch, Germany and warehouses and distribution centers in Clear Lake, South Dakota, Chattanooga, Tennessee and Freiburg, Germany. Additional information about our facilities is set forth in the following table.

Location	Use	Owned/ Leased	Lease Termination Date	Size in Square Feet
Clear Lake, South Dakota	Manufacturing Facility	Owned	n/a	34,000
Clear Lake, South Dakota	Warehouse	Owned	n/a	10,000
St. Paul, Minnesota	Corporate Headquarters	Leased	October 2006 (1)	93,666
Chattanooga, Tennessee	Distribution Center for RME Products	Leased	July 2008	50,000
Freiburg, Germany	European Headquarters, Warehouse and Distribution Facility	Leased	May 2012	33,000
Umkirch, Germany	Administrative Facility (2)	Leased	August 2014	8,000
Umkirch, Germany	Ormed CPM Manufacturing and Research & Development Facilities (2)	Leased	August 2009	5,000

(1) Renewable, at our option, for two five-year terms.

(2) These facilities are leased by Medireha.

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Competition

The physical therapy products market is highly competitive and fragmented. Our competitors in the CPM market include several multi-product companies with significant market share and numerous smaller niche competitors. Some of our competitors are part of corporate groups that have significantly greater financial, marketing and other resources than we do. In the United States, our primary competitors in the TENS and NMES markets are Compex Technologies, Inc. and International Rehabilitation Sciences, Inc., our primary competitors in the CPM market are AbilityOne Products Corp. and Encore Medical Corporation, our primary competitor in the iontophoresis market is IOMED, Inc., and our primary competitors in the orthotics market are Dynasplint Systems, Inc., Ultraflex Systems, Inc. and Saunders Group, Inc. In Europe, our primary competitors in the TENS and NMES markets are Schwa-Medico GmbH and BMR Neurotech, Inc., our primary competitor in the CPM market is Kinetec (a subsidiary of AbilityOne Products Corp.), and our primary competitors in the orthotics market are Bauerfeind, dj Orthopedics, Inc. and Aircast, Inc.

Competition in these product markets is primarily based on the quality and technical features of products, product pricing and contractual arrangements with third-party payors and national accounts.

Intellectual Property

We currently own 57 U.S. and worldwide patents issued between 1988 and 2001. These patents cover various aspects and features of our electrotherapy devices and associated electrodes, dynamic ROM orthotic devices and CPM devices. In addition, patent applications have been filed on various aspects of electrotherapy devices and iontophoretic electrodes. The initial life of each of our patents is either 14 or 17 years from the date of issuance. Although we generally seek patent protection when possible, we do not consider patent protection to be a significant competitive advantage in the marketplace for electrotherapy devices. However, patent protection may be of significance with various aspects of our orthotics technology. We have also registered, and filed applications to register, various trademarks with the USPTO and appropriate offices in foreign countries.

Legal Proceedings

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

Employees

As of May 31, 2004, we had approximately 790 employees. Of these, approximately 215 were engaged in production and production support, 15 in research and development, 170 in field sales, 130 in internal sales operations, 165 in other sales and support and 95 in various administrative capacities. None of our domestic employees are represented by a labor union.

Government Regulation

Medical Device Regulation

United States.    Our products and operations are subject to regulation by the Food and Drug Administration, or FDA, state authorities and comparable authorities in foreign jurisdictions. The FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, premarket clearance or approval, promotion, distribution and production of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. In addition, the FDA regulates the export of medical devices manufactured in the United States to international markets.

Under the Federal Food, Drug, and Cosmetic Act, or FFDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. Classification of a device is important because the class to which a device is assigned determines, among other things, the type of premarketing

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submission and application process required for FDA clearance to market the device. Class I includes devices with the lowest risk to the patient (and subject to the least regulatory control), while Class III includes devices with the greatest risk to the patient (and strictest regulatory control).

Our currently marketed orthotic products are Class I medical devices. Both our currently marketed TENS products and our NMES products are Class II medical devices. Our currently marketed iontophoretic devices are Class III medical devices.

Class I devices.    Class I devices are low-risk devices subject to the least regulatory control. In general, a company can market a Class I device as long as it adheres to a set of guidelines called “General Controls,” which sufficiently assure the safety and effectiveness of the device. General Control requirements include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some Class I devices also require premarket clearance by the FDA through the 510(k) premarket notification process, which is discussed below.

Class II devices.    Class II devices are medium-risk devices subject to greater regulatory control than Class I devices. In addition to complying with General Controls, Class II devices are also subject to “Special Controls,” including special labeling requirements, mandatory performance standards and postmarket surveillance. Most Class II devices are also required to obtain FDA clearance under Section 510(k) of the FFDCA (known as “premarket notification”) before they can be marketed. When compliance with Section 510(k) is required, the company must submit to the FDA a premarket notification submission demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976 (the date upon which the Medical Device Amendments of 1976 were enacted) or another commercially available, similar device that was subsequently cleared through the 510(k) process.

If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device. By regulation, the FDA is required to clear a 510(k) premarket notification within 90 days of submission of the application. As a practical matter, clearance often takes longer; however, our products have generally been cleared within the 90-day time period. If the FDA determines that the device, or its intended use, is not “substantially equivalent” to a previously cleared device or use, the FDA will place the device, or the particular use of the device, into Class III, and the device sponsor must then fulfill more rigorous premarketing requirements.

Class III devices.    Class III devices are high-risk devices which have a new intended use or use advanced technology that is not substantially equivalent to a use or technology with respect to a legally marketed device, and are subject to the greatest amount of regulatory control. In general, a Class III device cannot be marketed unless the FDA approves the device after submission of a premarket approval application, or PMA. However, Class III devices that are substantially equivalent to devices that were in commercial distribution prior to the Medical Device Amendments of 1976 may be cleared for marketing under the 510(k) process until the FDA publishes a final regulation requiring the submission of a PMA for such devices. Our Class III iontophoretic devices are currently cleared for marketing pursuant to this mechanism.

The PMA process is much more demanding than the 510(k) premarket notification process. A PMA application, which is intended to demonstrate that the device is safe and effective, must be supported by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of the device and its components, a full description of the methods, facilities and controls used for manufacturing, and proposed labeling. Following receipt of a PMA application, once the FDA determines that the application is sufficiently complete to permit a substantive review, the FDA will accept the application for review. The FDA, by statute and by regulation, has 180 days to review an “accepted” PMA application, although the review of an application more often occurs over a significantly longer period of time, and can take up to several years. In approving a PMA application or clearing a 510(k) application, the FDA may also require some form of post-market surveillance when necessary to protect the public health or to provide additional safety

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and effectiveness data for the device. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. We have not been subject to any post-market surveillance efforts that have resulted in a determination that one or more of our products are unsafe or ineffective.

Medical devices can be marketed only for the indications for which they are cleared or approved. Modifications to a previously cleared or approved device that could significantly affect its safety or effectiveness or that would constitute a major change in its intended use, design or manufacture require a 510(k) clearance, premarket approval supplement or new premarket approval. We have applied for, and received, a number of such approvals in the past. We cannot assure you that we will be successful in receiving approvals in the future or that the FDA will agree with our decisions not to seek approvals, supplements or clearances for particular device modifications. The FDA may require approval or clearances for past or any future modifications or new indications for our existing products. Such submissions may require the submission of additional clinical or preclinical data and may be time consuming and costly, and may not ultimately be cleared or approved by the FDA.

The FDA may change its policies, adopt additional regulations, or revise existing regulations, each of which could prevent or delay pre-market approval or pre-market clearance of our devices, or could impact our ability to market a device that was previously cleared or approved. For instance, on August 22, 2000, the FDA issued a proposed rule that, if finalized, could rescind the pre-market clearances for our iontophoretic devices. We cannot predict the likelihood that the FDA will finalize the proposed rule. However, in order to allow us to continue marketing our iontophoretic devices in the event this rule is finalized, we have filed a new drug application, or NDA, with the FDA for the use of a lidocaine/epinephrine solution with certain of our iontophoretic devices. Like a PMA, an NDA must be accompanied by extensive data, including data from preclinical studies and human clinical trials to demonstrate that the drug is safe and effective for its intended use. The NDA must also undergo extensive review by the FDA. Obtaining a NDA can be a lengthy, uncertain, and expensive process and approval by FDA is never guaranteed. If we ultimately obtain approval of our NDA, we will be subject to extensive regulation by the FDA and other regulatory authorities in the United States and abroad over the manufacturing, labeling and marketing of our approved drug product.

Our manufacturing processes are required to comply with the applicable portions of the QSR, which covers the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of our products. The QSR also, among other things, requires maintenance of a device master record, device history record, and complaint files. Our manufacturing facilities in the United States and Germany record and manufacturing processes are subject to periodic unscheduled inspections by the FDA. Based on internal audits of our domestic and German facilities, we believe that our facilities are in substantial compliance with the applicable QSR regulations. We are also required to report to the FDA if our products cause or contribute to a death or serious injury or malfunction in a way that would likely cause or contribute to death or serious injury were the malfunction to recur. The FDA and authorities in other countries can require the recall of products in the event of material defects or deficiencies in design or manufacturing. The FDA can also withdraw or limit our product approvals or clearances in the event of serious, unanticipated health or safety concerns.

The FDA has broad regulatory and enforcement powers. If the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure or recall of our products, total or partial shutdown of production, withdrawal of approvals or clearances already granted, and criminal prosecution. The FDA can also require us to repair, replace or refund the cost of devices that we manufactured or distributed. If any of these events were to occur, it could materially adversely affect us. We have not been subject to or undertaken a recall for a material defect or deficiency in the design or manufacture of any of our products.

Legal restrictions on the export from the United States of any medical device that is legally distributed in the United States are limited. However, there are restrictions under U.S. law on the export from the United States of

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medical devices that cannot be legally distributed in the United States. If a Class I or Class II device does not have 510(k) clearance, and the manufacturer reasonably believes that the device could obtain 510(k) clearance in the United States, then the device can be exported to a foreign country for commercial marketing without the submission of any type of export request or prior FDA approval, if it satisfies certain limited criteria relating primarily to specifications of the foreign purchaser and compliance with the laws of the country to which it is being exported (Importing Country Criteria). We believe that all of our current products which are exported to foreign countries currently comply with these restrictions.

An unapproved Class III device can be exported if: (1) it is in substantial compliance with the QSR or an FDA-recognized foreign standard; (2) the device satisfies the Importing Country Criteria; (3) the device is being exported to certain listed countries or the importing country has accepted the marketing authorization of one of those listed countries; and (4) the device is not being exported for investigational use. Otherwise, the unapproved Class III device may be exported if the FDA determines that the exportation would not be contrary to public health, approval is obtained from an appropriate authority in the importing country, and the device satisfies the Importing Country Criteria. We do not currently export any unapproved Class III devices.

International.    In many of the foreign countries in which we market our products, we are subject to regulations essentially similar to those of the FDA, including those in Germany, our largest foreign market. The regulation of our products in Europe falls primarily within the European Economic Area, which consists of the fifteen member states of the European Union as well as Iceland, Liechtenstein and Norway. The legislative bodies of the European Union have adopted three directives in order to harmonize national provisions regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices: the Actives Implantables Directive, the Medical Device Directive and the In-Vitro-Diagnostics Directive. The member states of the European Economic Area have implemented the directives into their respective national law. Medical devices that comply with the essential requirements of the national provisions and the directives will be entitled to bear a CE marking. Unless an exemption applies, only medical devices which bear a CE marking may be marketed within the European Economic Area. The European Commission has adopted numerous guidelines relating to the medical devices directives to ensure their uniform application. The method of assessing conformity varies depending on the class and type of the medical device and can involve a combination of self-assessment by the manufacturer and a third-party assessment by a Notified Body, which is an independent and neutral institution appointed by the member states to conduct the conformity assessment. This third-party assessment may consist of an audit of the manufacturer’s quality system and specific testing of the manufacturer’s devices. An assessment by a Notified Body in one country within the European Economic Area is generally required in order for a manufacturer to commercially distribute the product throughout the European Economic Area.

The European Standardization Committees have adopted numerous harmonized standards for specific types of medical devices. Compliance with relevant standards establishes the presumption of conformity with the essential requirements for a CE marking. All of our product that we export or manufacture for sale in Europe bear the CE mark.

Post market surveillance of medical devices in the European Economic Area is generally conducted on a country-by-country basis. The requirement within the member states of the European Economic Area vary. Due to the movement towards harmonization of standards in the European Union and the expansion of the European Union, we expect a changing regulatory environment in Europe characterized by a shift from a country-by-country regulatory system to a European Union-wide single regulatory system. The timing of this harmonization and its effect on us cannot currently be predicted.

In many countries, the national health or social security organizations require our products to be qualified before they can be marketed with the benefit of reimbursement eligibility. To date, we have not experienced difficulty in complying with these regulations. Due to the movement towards harmonization of standards in the European Union, we expect a changing regulatory environment in Europe characterized by a shift from a country-by-country regulatory system to a European Union-wide single regulatory system. The timing of this harmonization and its effect on us cannot currently be predicted.

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Third-Party Reimbursement

Our products generally are prescribed by physicians and are eligible for third-party reimbursement by government payors, such as Medicare and Medicaid, and private payors. An important consideration for our business is whether third-party payment amounts will be adequate, since this is a factor in our customers’ selection of our products. We believe that third-party payors will continue to focus on measures to contain or reduce their costs through managed care and other efforts. Medicare policies are important to our business because third-party payors often model their policies after the Medicare program’s coverage and reimbursement policies. Further, during 2003, approximately 5.2% of our direct billings were from Medicare revenues.

Healthcare reform legislation in the Medicare area has focused on containing healthcare spending. Most recently, on December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act. This legislation provides for revisions to payment methodologies and other standards for durable medical equipment and orthotic devices under the Medicare program. First, beginning in 2004 and continuing through 2008, the payment amounts for durable medical equipment will no longer be increased on an annual basis. This payment freeze also affects orthotic devices beginning in 2004 and continuing through 2006. Second, beginning in 2007, a competitive bidding program will be phased in to replace the existing fee schedule payment methodology. Off-the-shelf orthotic devices and other non-Class III devices, including TENS devices, will be subject to the program. The competitive bidding program will begin in 2007 in ten high population metropolitan statistical areas and in 2009 will be expanded to 80 metropolitan statistical areas (and additional areas thereafter). Payments in regions not subject to competitive bidding may also be adjusted using payment information from regions subject to competitive bidding. Third, supplier quality standards are to be established which will be applied by independent accreditation organizations. Fourth, clinical conditions for payment will be established for certain products.

On February 11, 2003, the Centers for Medicare and Medicaid Services, or CMS, made effective an interim final regulation implementing “inherent reasonableness” authority, which allows the agency and contractors to adjust payment amounts by up to 15% per year for certain items and services when the existing payment amount is determined to be grossly excessive or grossly deficient. The regulation lists factors that may be used by CMS and its contractors to determine whether an existing reimbursement rate is grossly excessive or grossly deficient and to determine a realistic and equitable payment amount. CMS may make a larger adjustment each year if it undertakes prescribed procedures. The regulation remains in effect after the Medicare Modernization Act, although the use of inherent reasonableness authority is precluded for payment amounts established under competitive bidding. We do not know what impact inherent reasonableness and competitive bidding will have on us or the reimbursement of our products.

Fraud and Abuse

We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state healthcare programs, including Medicare, Medicaid, Veterans Administration health programs and TRICARE. We have never been challenged by a governmental authority under any of these laws and believe that our operations are in material compliance with such laws. However, because of the far-reaching nature of these laws, there can be no assurance that we would not be required to alter one or more of our practices to be in compliance with these laws. In addition, there can be no assurance that the occurrence of one or more violations of these laws or regulations, or the challenge of our operations by a governmental authority under these laws, would not result in a material adverse effect on our financial condition and results of operations.

Anti-Kickback and Fraud Laws.    Our operations are subject to federal and state anti-kickback laws. Certain provisions of the Social Security Act, which are commonly known collectively as the Medicare Fraud and Abuse Statute, prohibit persons from knowingly and willfully soliciting, receiving, offering or providing remuneration directly or indirectly to induce either the referral of an individual, or the furnishing, recommending, or arranging for

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a good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value, including such items as gifts, discounts, waiver of payments, and providing anything at less than its fair market value. The U.S. Department of Health and Human Services, or HHS, has issued regulations, commonly known as safe harbors, that set forth certain provisions which, if fully met, will assure healthcare providers and other parties that they will not be prosecuted under the Medicare Fraud and Abuse Statute. Although full compliance with these provisions ensures against prosecution under the Medicare Fraud and Abuse Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the Medicare Fraud and Abuse Statute will be pursued. The penalties for violating the Medicare Fraud and Abuse Statute include imprisonment for up to five years, fines of up to $25,000 per violation and possible exclusion from federal healthcare programs such as Medicare and Medicaid. Many states have adopted prohibitions similar to the Medicare Fraud and Abuse Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not only by the Medicare and Medicaid programs.

The Health Insurance Portability and Accountability Act of 1995, or HIPAA, created two new federal crimes effective as of August 21, 1996: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing or attempting to execute a scheme or artifice to defraud any healthcare benefit program, including private payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for healthcare benefits, items or services. This statute applies to any health benefit plan, not just Medicare and Medicaid. Additionally, HIPAA granted expanded enforcement authority to HHS and the U.S. Department of Justice, or DOJ, and provided enhanced resources to support the activities and responsibilities of the OIG and DOJ by authorizing large increases in funding for investigating fraud and abuse violations relating to healthcare delivery and payment. In addition, HIPAA mandates the adoption of standards for the electronic exchange of health information, as described below in greater detail.

Physician Self-Referral Laws.    We also may be subject to federal and state physician self-referral laws. Federal physician self-referral legislation (commonly known as the Stark Law) prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member has any financial relationship with the entity. The Stark Law also prohibits the entity receiving the referral from billing any good or service furnished pursuant to an unlawful referral, and any person collecting any amounts in connection with an unlawful referral is obligated to refund such amounts. A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to $100,000 for each such arrangement or scheme. The penalties for violating the Stark Law also include civil monetary penalties of up to $15,000 per referral and possible exclusion from federal healthcare programs such as Medicare and Medicaid. Various states have corollary laws to the Stark Law, including laws that require physicians to disclose any financial interest they may have with a healthcare provider to their patients when referring patients to that provider. Both the scope and exceptions for such laws vary from state to state.

False Claims Laws.    Under separate statutes, submissions of claims for payment that are “not provided as claimed” may lead to civil money penalties, criminal fines and imprisonment, and/or exclusion from participation in Medicare, Medicaid and other federally funded state health programs. These false claims statutes include the federal False Claims Act, which prohibits the knowing filing of a false claim or the knowing use of false statements to obtain payment from the federal government. When an entity is determined to have violated the False Claims Act, it must pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals (known as “relators” or, more commonly, as “whistleblowers”) may share in any amounts paid by the entity to the government in fines or settlement. In addition, certain states have enacted laws modeled after the federal False Claims Act. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action, pay fines or be excluded from the Medicare, Medicaid or other federal or state healthcare programs as a result of an investigation arising out of such action.

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Governmental Audits

Because we participate in governmental programs as a supplier of medical devices, our operations are subject to periodic surveys and audits by governmental entities or contractors to assure compliance with Medicare and Medicaid standards and requirements. To maintain our billing privileges, we are required to comply with certain supplier standards, including, by way of example, licensure and documentation requirements for our claims submissions. From time to time in the ordinary course of business, we, like other healthcare companies, are audited by or receive claims documentation requests from governmental entities, which may identify certain deficiencies based on our alleged failure to comply with applicable supplier standards or other requirements. We review and assess such audits or reports and attempt to take appropriate corrective action. We also are subject to surveys of our physical location for compliance with supplier standards. The failure to effect corrective action to address identified deficiencies, or to obtain, renew or maintain any of the required regulatory approvals, certifications or licenses could adversely affect our business, results of operations or financial condition and could result in our inability to offer our products and services to patients insured by the programs.

We have not been subject to any governmental audits or claims documentation requests that have resulted in the identification of any currently existing material deficiencies.

Federal Privacy and Transaction Law and Regulations

Other federal legislation requires major changes in the transmission and retention of health information by us. HIPAA mandates, among other things, the adoption of standards for the electronic exchange of health information that may require significant and costly changes to current practices. Sanctions for failure to comply with HIPAA include civil and criminal penalties. HHS has released three rules to date mandating the use of new standards with respect to certain healthcare transactions and health information. The first rule requires the use of uniform standards for common healthcare transactions, including healthcare claims information, plan eligibility, referral certification and authorization, claims status, plan enrollment and disenrollment, payment and remittance advice, plan premium payments, and coordination of benefits. The second rule released by HHS imposes new standards relating to the privacy of individually identifiable health information. These standards not only require our compliance with rules governing the use and disclosure of protected health information, but they also require us to obtain satisfactory assurances that any business associate of ours to whom such information is disclosed will safeguard the information. The third rule released by HHS establishes minimum standards for the security of electronic health information. We were required to comply with the transaction standards by October 16, 2003 and the privacy standards by April 14, 2003, and are required to comply with the security standards by April 21, 2005.

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MANAGEMENT

Directors, Executive Officers and Other Key Employees

The following table sets forth information concerning our directors and executive officers as of March 31, 2004:

Name	Age	Position
H. Philip Vierling	48	President, Chief Executive Officer and Director
Patrick D. Spangler	48	Executive Vice President of Finance and Chief Financial Officer
Rudiger Hausherr	43	President of Ormed
Robert W. Clapp	54	Vice President of Manufacturing
H. Allen Hughes, Jr.	47	General Manager of RME
Gregory J. Meidt	43	Vice President of Information Systems
Barbara Hutto	56	Vice President of Human Resources/Facilities
Joseph E. Laptewicz	55	Chairman of the Board of Directors
W. Robert Dahl	47	Director
Gerald H. Schulze	56	Director
Steven J. Warner	34	Director
Glenn Youngkin	37	Director

H. Philip Vierling has been our President and Chief Executive Officer since January 2001 and has been a director since 2002. From March 1999 to December 2000, Mr. Vierling was our President and Chief Operating Officer. From February 1998 to February 1999, Mr. Vierling was our Vice President of Sales and Marketing and, prior to that, he was our Vice President of Marketing and has served in various other capacities for us since 1986. Mr. Vierling also sits on the Board of Trustees of the Foundation for Physical Therapy, a non-profit foundation supporting the clinical research efforts of the American Physical Therapy Association.

Patrick D. Spangler has served as our Executive Vice President of Finance and Chief Financial Officer since July 1997. Prior to joining us, Mr. Spangler was employed by Medtronic, Inc., a publicly held medical technology and device company since 1986, where he last served as its Director of Treasury Operations.

Rudiger Hausherr has served as the President of Ormed since September 1994. From 1991 through 1993, Mr. Hausherr was President of Ormed’s U.S. division.

Robert W. Clapp has served as our Vice President of Manufacturing since March 1993. Prior to joining us, Mr. Clapp served as Vice President of Manufacturing at Dacomed Corp., a medical products manufacturer and distributor, from February 1987 to February 1993.

H. Allen Hughes, Jr. has served as the General Manager of RME since July 2002, at which time we acquired RME. From 1999 through July 2002, Mr. Hughes served as Chief Executive Officer of RME. Prior to 1999, Mr. Hughes was employed by Dynatronics Corporation, a medical supply company.

Gregory J. Meidt has served as our Vice President of Information Systems since August, 2002. From August 2001 until he joined us, Mr. Meidt was an Assistant Director of the technology team supporting the mutual funds operations of the Hartford Financial Services Group, Inc., a publicly held insurance and investment company. From 1996 until he joined the Hartford, Mr. Meidt was a Senior Director at Orion Consulting, a technology consulting firm.

Barbara Hutto has served as our Vice President of Human Resources/Facilities since January 1999 and Director of Human Resources from July 1996 to December 1998. Prior to joining us, Ms. Hutto was Vice President of Human Resources and International for Symphony Rehabilitation, a division of Integrated Health, from February 1994 to June 1996.

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Joseph E. Laptewicz has served as the chairman of our board of directors since March 1999 and as our Technical Advisor since January 1, 2003. Prior to that, from October 1994 through March 1999, Mr. Laptewicz was our President and, from October 1994 through January 2001, our Chief Executive Officer. Before joining us, Mr. Laptewicz had been President and Chief Executive Officer of Schneider (USA), Inc., a manufacturer of products for interventional medicine and a subsidiary of Pfizer, Inc. Mr. Laptewicz also serves on the board of directors and the audit committee of Advanced Neuromodulation Systems, Inc., a publicly held company.

W. Robert Dahl has served as a member of our board of directors since September 1999 and is a member of the board’s audit and compensation committees. He has been a Managing Director of Carlyle since 1999. At Carlyle, he focuses on the healthcare sector and is the head of the Carlyle global healthcare team. Prior to joining Carlyle, Mr. Dahl was Co-Head of the U.S. healthcare group at Credit Suisse First Boston. Mr. Dahl is also currently a board member and member of the compensation committee of InteliStaf, Inc., MedPointe, Inc. and ConnectiCare and a board member of Panolam, Inc.

Gerald H. Schulze has served as a member of our board of directors since December 1999 and is a member of the board’s audit committee. He is a retired healthcare executive with U.S. and international experience in pharmaceuticals, medical devices and consumer medicinals.

Steven Warner has served as a member of our board of directors since 2003. Mr. Warner is a Vice President with GE Capital Financial Services and is responsible for the firm’s private equity operations. Prior to joining GE in 1998, Mr. Warner was an investment banker with Wasserstein Perella’s healthcare group.

Glenn Youngkin has served as a member of our board of directors since August 1999 and is a member of the board’s compensation committee. He has been a Managing Director of Carlyle since 1999. Based in Carlyle’s London office, Mr. Youngkin heads and is responsible for the European buyout operations in the United Kingdom. Mr. Youngkin is also a board member and member of the audit and compensation committees of KEC Acquisition, Imagitas, and QinetiQ Group Holdings Limited and a board member of Firth Rixson.

Board of Directors and Officers

Upon the closing of this offering, the number of directors will be set at six. At each annual meeting our shareholders will elect the successors to our directors. Our executive officers and key employees serve at the discretion of our board of directors. Directors may be removed with or without cause by the affirmative vote of the holders of a majority of the common stock. Messrs. Dahl, Warner and Youngkin serve on our board of directors pursuant to an agreement between us, Carlyle and GE Capital described under “Certain Relationships and Related Transactions—Shareholder Voting and Control Agreements.”

Committees of our Board of Directors

Our board of directors directs the management of our business and affairs, as provided by Minnesota law, and conducts its business through meetings of the board of directors and its audit and compensation committees. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues. We do not have a nominating committee or any similar committee.

Audit Committee

Our audit committee is responsible for, among other things, engaging our independent public accountants, reviewing with the independent public accountants the plans and results of the audit engagement, approving professional services provided by the independent public accountants, reviewing the independence of the independent public accountants, considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls. Messrs. Schulze and Dahl currently sit on our audit committee.

We plan to nominate three independent members to our audit committee shortly after consummation of this offering so that all of our audit committee members will be independent, as such term is defined in

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Rule 10A-3(b)(i) under the Securities Exchange Act of 1934, as amended. In addition, one of them will be an “audit committee financial expert” as such term is defined in Item 401(h) of Regulation S-K.

Compensation Committee

Our compensation committee is responsible for determining compensation for our executive officers and other key employees and administering our existing stock option plan, our executive bonus plan and other compensation programs. Messrs. Dahl and Youngkin currently sit on our compensation committee.

Director Compensation

Prior to this offering, no fees were paid to our directors who are employed by us or to any of our outside directors other than Mr. Schulze, who is paid an annual retainer of $5,000 per meeting for all services rendered and reimbursed for his expenses in attending board meetings and Mr. Laptewicz who receives a fee of $50,000 annually for serving as our chairman and is reimbursed for his expenses in attending board meetings.

In January 2003, we entered into a technical advisory agreement with Joseph E. Laptewicz. The agreement requires Mr. Laptewicz to offer us technical support on project development and new technologies, industry expertise and assistance with operational and integration issues. Under the agreement, Mr. Laptewicz is entitled to an annual advisory fee of $45,000. The agreement also provides that Mr. Laptewicz may participate in our medical, dental and 401(k) plans. The agreement will automatically terminate upon the completion of this offering. Mr. Laptewicz was paid a special bonus of $76,800 in 2003 in connection with our recapitalization and performance bonus in November 2003 under our bonus plan of $1,686,281 in connection with our recapitalization. We granted Mr. Laptewicz 10,000 stock options in 2003 with an exercise price of $9.85 per share.

Executive Compensation

The following table sets forth the cash and non-cash compensation paid or incurred on our behalf to our Chief Executive Officer and each of the four other most highly compensated executive officers, or the named executive officers, that earned more than $100,000 during the last fiscal year:

Summary Compensation Table

Name and Principal Position	Year	Annual Compensation					All Other Compensation (2)
		Salary		Bonuses
H. Philip Vierling President and Chief Executive Officer	2003	$	250,000	$	1,228,542	(3)	$	6,000
Patrick D. Spangler Executive Vice President of Finance and Chief Financial Officer	2003		215,000		982,089	(4)		6,000
Rudiger Hausherr(1) President of Ormed	2003		227,616		170,076	(5)		11,610
Robert W. Clapp Vice President of Manufacturing	2003		139,720		120,453	(6)		6,000
H. Allen Hughes, Jr. General Manager of RME	2003		103,600		15,771	(7)		3,581

(1) Mr. Hausherr’s salary and bonus were paid to him in euros and are presented above in dollars based, in the case of his salary, on a weighted-average conversion rate for 2003 of $1.13 per euro, and in the case of his bonus, a spot conversion rate on March 31, 2003 (the date of the bonus payment to Mr. Hausherr) of $1.09 per euro.

(2) Amounts represent contributions to the executive’s 401(k) account pursuant to our 401(k) plan or, with respect to Mr. Hausherr, the Ormed retirement savings plan.

(3) Comprised of a special bonus of $1,072,234 paid in connection with our recapitalization and a performance bonus under our bonus plan of $156,308.

(4) Comprised of a special bonus of $846,335 paid in connection with our recapitalization and a performance bonus under our bonus plan of $135,754.

(5) Comprised of a performance bonus under the Ormed bonus plan.

(6) Comprised of a special bonus of $93,703 paid in connection with our recapitalization and a performance bonus under our bonus plan of $26,750.

(7) Comprised of a performance bonus under our bonus plan.

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2003 Options Values

The following table sets forth information regarding options to purchase our common stock unexercised and outstanding as of December 31, 2003. We did not grant any options to our named executive officers in the year ended December 31, 2003 nor did any of them exercise any options during that year. Also included is the value and number of unexercised options held as of December 31, 2003 by such named executive officers:

• The value of the unexercised options is based on an assumed offering price of $         per share.

• “Exercise” means an employee’s acquisition of shares of common stock which have already vested, “exercisable” means options to purchase shares of common stock which are subject to exercise and “unexercisable” means all other options to purchase shares of common stock.

	Number of Securities Underlying Unexercised Options(#)		Value of Unexercised Options($)
Name	Exercisable	Unexercisable	Exercisable	Unexercisable
H. Philip Vierling	114,429	60,000
Patrick D. Spangler	90,321	60,000
Rudiger Hausherr	25,000	25,000
Robert W. Clapp	10,000	10,000
H. Allen Hughes, Jr.	—	—

Bonus Plan

We sponsor the Empi Corp. officer, manager and director level incentive plan, which is effective through December 31, 2004. The plan is administered by our compensation committee. The plan was established to provide incentives to our key employees and to reward them if our operational goals are achieved. Certain of our key employees selected by the compensation committee are eligible to receive a percentage of their base salary as a bonus payment under the plan in addition to their annual base salary. The determination of the bonus amount is based on the achievement of certain performance targets.

Generally, the target bonus as a percentage of the 2004 base salary for officers ranges from 35% to 70% and for managers ranges from 12.5% to 20%, depending upon level of seniority. With limited exception, an employee who leaves us prior to payment of the bonus payment will not be eligible for a bonus payment. Each of our named executive officers other than Mr. Hausherr participates in our bonus plan. Mr. Hausherr participates in a bonus plan maintained by Ormed.

Special Management Bonuses

In connection with the November 2003 recapitalization, we paid special management bonuses of $5.1 million to some of our directors and key management, including bonuses of $1,072,234 to Mr. Vierling, $846,335 to Mr. Spangler, $93,703 to Mr. Clapp, and $7,013 to Mr. Schulze.

401(k) Plan

Each named executive officer other than Mr. Hausherr participates in our 401(k) plan. Pursuant to the 401(k) plan, we have agreed to contribute to each named executive officer’s 401(k) account $0.50 for every $1.00 of such executives pre-tax contributions to the account, up to a maximum pre-tax contribution of 6% of the executive’s eligible earnings. Contributions to the 401(k) accounts are held and invested by the 401(k) plan’s trustee, CIGNA Bank & Trust Company, FSB.

Ormed Retirement Plan

Ormed maintains a defined contribution plan for its employees that meet the plan’s participation requirements. Under the plan Ormed contributes a percentage of the employee’s salary, up to 3%, to an account maintained for the employee by the plan administrator. Upon retirement, the employee receives distributions from the administrator based on the total contributions made plus any interest earned on the contributions.

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1999 Stock Option Plan

Under our stock option plan, certain employees and directors are granted options to purchase shares of our common stock. Both incentive stock options and non-qualified stock options may be granted under the plan.

A total of 880,602 shares of our common stock have been reserved for issuance to key employees and directors. The per share exercise price will be determined by the compensation committee provided that, in the case of incentive stock options, the exercise price will be no less than fair market value.

Generally, 25% of an option vests over five years from the date of grant. The remaining 75% of the option vests on the tenth anniversary of the date of grant provided that the participant remains continuously employed. However, 50% of the option that vests on the tenth anniversary of the date of grant may become vested and exercisable during a five-year period prior to such anniversary if certain targets relating to cash flow are achieved and 25% of such option will vest prior to the anniversary date if there is a liquidity event.

2004 Equity Incentive Plan

The Company’s board of directors and shareholders approved an additional equity incentive plan in connection with this offering. Under the plan, a designated committee of the board may grant certain employees, consultants and board members stock options, restricted stock awards, stock appreciation rights or other types of awards. Both incentive stock options and non-qualified stock options may be granted under the plan.

The aggregate number of shares of stock that may be issued or transferred pursuant to the plan shall not exceed 5% of the outstanding shares plus an annual increase beginning in 2005 of 1% of the outstanding shares per year.

Generally, 20% of the options or awards granted vest each year for the first five years from the date of the grant. Options and awards generally terminate ten years from the date of the grant.

Employment Agreements

H. Philip Vierling and Patrick D. Spangler.    In November 1999, we entered into employment agreements with H. Philip Vierling and Patrick D. Spangler. The agreements provide for an initial term ending on December 31, 2002 and extension terms for successive one-year periods unless either party gives notice 90 days prior to the expiration of any term. The agreements provide for termination by either party with or without cause provided both parties adhere to the relevant notice provisions. If either Mr. Vierling or Mr. Spangler is terminated without cause or if either resign for cause, we will provide a pro-rated bonus for the year-to-date as well as salary, medical and dental benefits for eighteen months following the date of termination. The agreement entitles Mr. Vierling and Mr. Spangler to an annual base salary subject to increase as determined by our compensation committee and subject to decrease only in connection with an across-the-board senior management salary reduction. Mr. Vierling and Mr. Spangler are also qualified for a bonus either under our incentive compensation plan or as determined by the board of directors. Additionally, they are also eligible for other employee plans or arrangements applicable to senior management.

Rudiger Hausherr.    In June 1994, Rudiger Hausherr entered into a service agreement with Ormed. The initial term of the agreement was for 30 months with an automatic extension for an indefinite term. Either party may terminate the agreement by giving six months written notice. The agreement entitles Mr. Hausherr to an annual base salary and qualifies him for an annual bonus if certain business targets are met.

H. Allen Hughes, Jr.    In July 2002, we entered into an employment agreement with H. Allen Hughes, Jr. The agreement provides for an initial term of three years and automatically renews for successive one-year periods unless either party provides written notice of termination. If Mr. Hughes is terminated without cause or if he resigns for cause, we will provide him with his salary for one year after the termination date and his pro-rated bonus through the end of the fiscal year in which termination occurs. The agreement entitles Mr. Hughes to a base salary which will be increased at the discretion of the President of Empi. Mr. Hughes is also entitled to an annual incentive bonus of up to 35% of his salary. Mr. Hughes is subject to a commitment not to compete with the Company until the later of July 11, 2006 or one year after his termination.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

This section contains a summary of the material terms of all described agreements. You should read the agreements in their entirety, which will be filed with the SEC as exhibits to the registration statement of which this prospectus is a part.

Management Fees

In 1999, we entered into a management agreement with TC Group Management, L.L.C. and GE Capital for management and financial advisory services and oversight to be provided to us and our subsidiaries. Pursuant to the management agreement, we paid Carlyle and GE Capital an aggregate annual management fee of $0.6 million in each of the past three years. The management agreement has been amended and now provides for an annual management fee of $0.3 million. In addition, in connection with our recapitalization in November 2003, we paid an aggregate fee of $1.2 million to Carlyle and GE Capital for their investment banking and consulting services and breakage fees of $1.2 million for the early retirement of the senior subordinated debt.

Loans to Executive Officers

On February 1, 2000, we loaned each of Messrs. Vierling and Spangler $492,500 to purchase shares of our common stock pursuant to our employee stock purchase plan. These loans are secured by promissory notes and pledges of the stock that was purchased. The loans bear interest at an annual percentage rate of 9%. Payment of the promissory notes, including accrued interest, is due February 1, 2008.

Registration Rights Agreement

We have entered into a registration rights agreement with MPI Holdings and GE Capital. Pursuant to that agreement, MPI Holdings and GE Capital are entitled to registration rights. Holders of at least 400,000 of the shares of common stock held by these shareholders may require us to effect the registration of their shares of common stock from time to time pursuant to a demand. Such requirement is called a demand registration. We are required to pay all registration expenses in connection with the first eight demand registrations pursuant to the registration rights agreement. In addition, if we propose to register any of our common stock under the Securities Act, whether for our own account or otherwise, those shareholders are entitled to notice of the registration and are entitled to include their shares of common stock in that registration with all registration expenses paid by us. Notwithstanding the foregoing, we will not be obligated to effect a demand registration prior to 180 days after the effective date of this offering.

Shareholder Voting and Control Agreement

We have entered into a shareholder voting and control agreement with MPI Holdings and GE Capital that:

• imposes restrictions on their transfers of our shares;

• requires those shareholders to take certain actions upon the approval by the shareholders party to the agreement holding a majority of the shares held by those shareholders in connection with a sale of the company;

• grants Carlyle the right to require other shareholders to participate pro rata in connection with a sale of our shares by them; and

• requires the parties thereto to designate nominees to our board of directors on behalf of each of these entities.

The shareholder voting and control agreement will terminate upon the consummation of this offering.

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Board Representation Agreement

We have entered into an agreement with MPI Holdings that gives MPI Holdings the right to designate two nominees to our board of directors. The agreement will remain in effect as long as MPI Holdings owns shares of our voting stock representing at least 20% of the votes entitled to be cast for members of our board.

Employment Agreements

We have employment agreements with certain of our named executive officers, the material terms of which are described in “Management—Employment Agreements.”

Consulting Agreement

We have a consulting agreement with our Chairman, Joseph E. Laptewicz, the material terms of which are described in “Management—Directors Compensation.” This agreement will automatically terminate upon the completion of this offering.

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PRINCIPAL AND SELLING SHAREHOLDERS

The following table provides summary information regarding the beneficial ownership of our outstanding capital stock as of March 31, 2004, after giving effect to the          for          stock split for:

• each person or group who beneficially owns more than 5% of our capital stock on a fully diluted basis;

• the selling shareholders;

• each of the executive officers named in the Summary Compensation Table;

• each of our directors; and

• all of our directors and executive officers as a group.

Beneficial ownership of shares is determined under the rules of the Securities and Exchange Commission, or SEC, and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, each person identified in the table possesses sole voting and investment power with respect to all shares of common stock held by them. Shares of common stock subject to options currently exercisable or exercisable within 60 days of                     , 2004 and not subject to repurchase as of that date are deemed outstanding for calculating the percentage of outstanding shares of the person holding these options, but are not deemed outstanding for calculating the percentage of any other person. Unless otherwise noted, the address for each director and executive officer is c/o Empi, Inc., 599 Cardigan Road, St. Paul, MN 55126.

	Shares Owned Prior to the Offering			Shares Being Sold in the Offering	Shares Owned After the Offering		Shares Sold in Over-Allotment (4)	Shares Owned After Exercise of the  Over-Allotment Option (4)
Name of Beneficial Owner	Number	Percentage			Number	Percentage		Number	Percentage
TCG Holdings, L.L.C. (1)(2)	6,091,180	90.2	%
GE Capital Equity Investments, Inc. (3)	6,091,180	90.2	%
Joseph E. Laptewicz	179,960	2.8	%
H. Philip Vierling	164,429	2.6	%
Patrick D. Spangler	140,321	2.2	%
Rudiger Hausherr	25,000	*
Robert W. Clapp	10,000	*
H. Allen Hughes, Jr.	—	*
W. Robert Dahl (2)	—	*
Gerald Schulze	750	*
Steven Warner (3)	—	*
Glenn Youngkin (2)	—	*
All Directors and Executive Officers as a Group (11 persons)	532,960	8.0	%

* Denotes less than 1% beneficial ownership

(1) Carlyle Partners II, L.P., a Delaware limited partnership, Carlyle International Partners II, L.P., a Cayman Islands limited partnership, C/S International Partners, a Cayman Islands limited partnership, Carlyle International Partners III, L.P., a Cayman Islands limited partnership, Carlyle High Yield Partners, L.P. and certain additional partnerships formed by Carlyle (collectively, the “Investment Partnerships”) and certain investors (the “Investors”) constitute all of the members of MPI Holdings, L.L.C., the holder of record of 5,583,582 shares of our common stock, TC Group, L.L.C. exercises investment discretion and control over the shares held by the Investment Partnerships and the Investors directly through its capacity as the sole general partner of certain of the Investment Partnerships or indirectly through its wholly-owned subsidiary

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TC Group II, L.L.C., the sole general partner of certain of the Investment Partnerships, through its indirect subsidiary TCG High Yield, L.L.C., the sole general partner of one of the Investment Partnerships, or indirectly through its wholly-owned subsidiary Carlyle Investment Management, L.L.C., the manager of the investments of the Investors. TCG Holdings, L.L.C., a Delaware limited liability company, is the sole managing member of TC Group, L.L.C. and, in such capacity, exercises investment discretion and control of the shares beneficially owned by TC Group, L.L.C. TCG Holdings, L.L.C. is managed by a three-person managing board and all board action relating to the voting or disposition of the shares require approval of a majority of the board. The members of the managing board are William E. Conway, Jr., Daniel A. D’Aniello and David Rubenstein, each of whom disclaim beneficial ownership of the shares. Each of Carlyle Partners II, L.P., Carlyle International Partners II, L.P., C/S International Partners, Carlyle International Partners III, L.P. and Carlyle High Yield Partners, L.P. may be considered an affiliate or associated person of a broker-dealer. Each represents that it acquired its shares in the ordinary course of business and at the time of purchase the selling shareholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities. TCG Holdings, L.L.C. may be deemed to be the beneficial owner of the shares beneficially owned by GE Capital Investments, Inc. due to the agreement of MPI Holdings, L.L.C. and GE Capital Investments, Inc. to vote for the director nominees of the other parties pursuant to the shareholders’ agreement described in this prospectus. This agreement will terminate upon the commencement of this offering, after which TCG Holdings, L.L.C. will not be deemed to be the beneficial owner of the shares of GE Capital Equity Investment, Inc.

(2) The address of such person is c/o The Carlyle Group, 1001 Pennsylvania Avenue, NW, Washington, D.C. 20004.

(3) The address of such person is c/o GE Capital Corporation, 500 West Monroe, Chicago, IL 60661. GE Capital Equity Investments, Inc. owns 507,598 shares. GE Capital Investments, Inc. may be deemed to be the beneficial owner of the shares beneficially owned by TCG Holdings, L.L.C. due to the agreement of MPI Holdings, L.L.C. and GE Capital Equity Investments, Inc. to vote for the director nominees of the other parties pursuant to the shareholders’ agreement described in this prospectus. This agreement will terminate upon the commencement of this offering, after which GE Capital Equity Investments, Inc. will not be deemed to be the beneficial owners of the shares of TCG Holdings, L.L.C.

(4) This assumes that the shares owned after the over-allotment are exercised in full.

In addition, certain of the selling shareholders have granted the underwriters the right to purchase up to an additional          shares of common stock to cover over-allotments. If the underwriters exercise this over-allotment option in full, TCG Holdings, L.L.C. and GE Capital will beneficially own         % and         %, respectively, of our common stock after this offering.

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DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, our authorized capital stock will consist of          shares of stock, par value $0.01, of which          shares are designated common stock and          shares are undesignated. As of             , there were          shares of our common stock issued and outstanding held by          holders of record. The following description of our capital stock and related matters is qualified in its entirety by reference to our articles of incorporation and by-laws, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part.

The following summary describes elements of our articles of incorporation and by-laws after giving effect to this offering and provisions of Minnesota law that govern our company, board of directors and shareholders.

Common Stock

Voting Rights.    The holders of our common stock are entitled to one vote per share on all matters submitted for action by the shareholders. There is no provision for cumulative voting with respect to the election of directors. Accordingly, a holder of more than 50% of the shares of our common stock can, if it so chooses, elect all of our directors. In that event, the holders of the remaining shares will not be able to elect any directors.

Dividend Rights.    All shares of our common stock are entitled to share equally in any dividends our board of directors may declare from legally available sources, subject to the terms of any outstanding preferred stock. Our senior secured credit facility imposes restrictions on our ability to declare dividends with respect to our common stock.

Liquidation Rights.    Upon liquidation or dissolution of our company, whether voluntary or involuntary, all shares of our common stock are entitled to share equally in the assets available for distribution to shareholders after payment of all of our prior obligations, including any then-outstanding preferred stock.

Other Matters.    The holders of our common stock have no preemptive or conversion rights, and our common stock is not subject to further calls or assessments by us. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our common stock, including the common stock offered in this offering, are fully paid and non-assessable.

Stock Options

As of March 31, 2004, there were 855,435 shares of our common stock issuable upon exercise of outstanding stock options and 25,167 shares of our common stock reserved for future issuance under our existing stock option plan.

Authorized but Unissued Capital Stock

Our articles of incorporation permit us to issue up to              shares of capital stock, from time to time, in one or more series and with such designation and preferences for each series as are stated in the resolutions providing for the designation and issue of each such series adopted by our board of directors. Our articles of incorporation authorize our board of directors to determine the voting, dividend, redemption and liquidation preferences and limitations pertaining to such series. The board of directors, without shareholder approval, may create and issue a series of shares with voting rights and other rights that could adversely affect the voting power of the holders of our common stock and could have anti-takeover effects. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.

One of the effects of the existence of unissued and unreserved capital stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or

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discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the shareholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

The listing requirements of the New York Stock Exchange, which would apply so long as our common stock remains listed on the New York Stock Exchange, require shareholder approval of certain issuances equal to or exceeding 20% of then-outstanding voting power or then-outstanding number of shares of common stock.

Anti-Takeover Provisions of Minnesota Law

Some provisions of Minnesota law could have anti-takeover effects on a corporation subject to those provisions or have the effect of delaying, deferring or preventing a change in control of the corporation or the removal of its existing management. As described below, we have elected to opt out of two of those provisions, but we remain subject to others. When we have elected to opt out of certain provisions, we have determined that the ownership profile of our company and other provisions of Minnesota law and our articles of incorporation and by-laws should be adequate to protect our shareholders against undesirable takeover attempts.

We have elected to opt out of the Minnesota Control Share Acquisition Statute, section 302A.671 of the Minnesota Statutes. This statute would have applied, with certain exceptions, to any acquisition of our voting stock from a person other than us and other than in connection with certain mergers and exchanges to which we are a party, that results in the acquiring person owning 20% or more of our voting stock then outstanding. Similar triggering events would have occurred at the one-third and majority ownership levels. Section 302A.671 would have required approval of any such acquisition by a majority vote of our disinterested shareholders and a majority vote of all of our shareholders. In general, shares acquired in excess of the applicable percentage threshold in the absence of such approval would have been denied voting rights and would have been redeemable at their then fair market value by us during a specified time period.

We have also elected to opt out of the Minnesota Business Combination Statute, section 302A.673 of the Minnesota Statutes, which generally would have prohibited us or any of our subsidiaries from entering into any business combination transaction with a shareholder for a period of four years after the shareholder acquires 10% or more of our voting stock then outstanding. An exception would have been provided for circumstances in which, before the 10% share-ownership threshold is reached, either the transaction or the share acquisition is approved by a committee of our board of directors composed of one or more disinterested directors.

The Minnesota Statutes contain a “fair price” provision in Section 302A.675 that will be applicable to us. This provision provides that no person may acquire any of our shares within two years following the person’s last purchase of our shares in a takeover offer unless all shareholders are given the opportunity to dispose of their shares to the person on terms that are substantially equivalent to those in the earlier takeover offer. This provision does not apply if the acquisition is approved by a committee of disinterested directors before any shares are acquired in the takeover offer.

In addition, section 302A.553, subdivision 3, of the Minnesota Statutes prohibits us from purchasing any voting shares owned for less than two years from a holder of more than 5% of our outstanding voting stock for more than the market value of the shares. Exceptions to this provision are provided if the share purchase is approved by a majority of our shareholders or if we make a repurchase offer of equal or greater value to all shareholders.

Certain Provisions of Minnesota Law and Our Articles of Incorporation and By-Laws

Election and Removal of Directors

Our board of directors is not divided into classes. Each director is elected to serve a term that expires at the next regular annual meeting of shareholders and when a successor is elected and has qualified (or at the time the director dies, resigns, or is removed or disqualified).

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Our articles of incorporation and by-laws do not provide for cumulative voting in the election of directors.

Minnesota law allows the removal of a director from office, with or without cause, by the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote at an election of directors. If a director has been appointed to fill a vacancy and the shareholders have not subsequently elected directors, then the board of directors may remove that director by a majority vote of those directors present at a meeting.

Special Shareholder Meetings

Minnesota law provides that a special meeting of shareholders may be called at any time by the chief executive officer, the chief financial officer, by two or more directors, by a person authorized in the articles of incorporation or bylaws of the corporation, or by shareholders holding 10% or more of the voting power of all shares entitled to vote (except that a special meeting called by shareholders for the purpose of considering any action to directly or indirectly facilitate or effect a business combination may only be called by 25% or more of the voting power of all shares entitled to vote). Business conducted at a special meeting of shareholders is limited to the business specified in the meeting notice.

Requirements for Advance Notification of Shareholder Nominations and Proposals

Our by-laws provide for an advance-notice procedure for the nomination, other than by or at the direction of the board of directors, of candidates for election as directors as well as for other shareholder proposals to be considered at annual meetings of shareholders. In general, notice of intent to nominate a director or raise matters at such meetings will have to be received by us not less than 90 days prior to the date fixed for the annual meeting, and must contain certain information concerning the persons to be nominated or the matters to be brought before the meeting and concerning the shareholders submitting the proposal.

Shareholder Action by Written Consent

Minnesota law permits shareholders to act in lieu of a meeting only by the unanimous written consent of all shareholders.

Amendment of Articles of Incorporation

A resolution to amend our articles of incorporation may be brought by a majority of the board of directors or by shareholders holding 3% or more of the voting power of all voting shares. An amendment to the articles of incorporation must be approved by the affirmative vote of a majority of the voting power of the shares present and entitled to vote on the matter at a meeting of shareholders at which a quorum is present.

Amendment of By-Laws

The power to adopt, amend, or repeal our by-laws generally is vested in our board of directors. The power of our board of directors is subject to the right of shareholders holding 3% or more of the voting power of our outstanding shares to propose a resolution to adopt, amend, or repeal the bylaws, which must be approved by the affirmative vote of the holders of a majority of the shares present and entitled to vote at a meeting at which a quorum is present. Only the shareholders may adopt, amend, or repeal by-laws fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the board of directors, or fixing the number of directors or their classifications, qualifications or terms of office.

Indemnification of Officers and Directors

Minnesota law generally requires that a corporation must indemnify an officer or director who is threatened to be made a party to a proceeding by reason of his or her official capacity against judgments, penalties, fines and expenses in connection with the proceeding, if the following criteria are met:

• the person has not been indemnified by another organization for the same judgments, penalties, fines and expenses;

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• the person has acted in good faith;

• no improper personal benefit was obtained by the person;

• in the case of a criminal proceeding, the person had no reasonable cause to believe that the conduct was unlawful; and

• the person has acted in a manner he or she reasonably believed was in the best interest of the corporation.

In addition, Minnesota law requires the advancement of expenses in certain instances.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, indemnification for liabilities under the Securities Act is against public policy and is unenforceable.

Limitation of Liability of Directors

Our articles of incorporation provide that, to the fullest extent permitted by Minnesota law, directors shall have no personal liability to either the corporation or its shareholders for monetary damages for breach of fiduciary duty. Minnesota law prohibits this limitation of liability of directors in respect of:

• a breach of the director’s duty of loyalty to the corporation or its shareholders;

• acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

• payment of unlawful dividends or unlawful stock purchases or redemptions;

• any transaction in which the director derived an improper personal benefit;

• certain violations of the Minnesota securities laws; and

• any act or omission occurring prior to the date when the provision in the articles of incorporation eliminating or limiting liability becomes effective.

Transfer Agent and Registrar

                     has been appointed as the transfer agent and registrar for our common stock.

Listing

We expect to list our shares of common stock on the New York Stock Exchange under the symbol “EMP.”

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DESCRIPTION OF CERTAIN INDEBTEDNESS

On November 24, 2003, we entered into a senior secured credit facility with a syndicate of financial institutions and institutional lenders. JPMorgan Chase Bank, a lender under our senior secured credit facility, is an affiliate of J.P. Morgan Securities Inc., who is acting as an underwriter in this offering. In addition, an affiliate of Lehman Brothers Inc., who is also acting as an underwriter in this offering, holds an unfunded position in our revolving credit facility. Set forth below is a summary of the terms of our senior secured credit facility. This summary is not a complete description of all of the terms of the agreements.

General

Our senior secured credit facility provides for senior secured financing of up to $190.0 million and consists of a $165.0 million term loan facility drawn in full on the closing date with a maturity of six years and a $25.0 million revolving credit facility that will terminate five years from the closing date. As of March 31, 2004, there was approximately $164.6 million outstanding under our term loan facility and no amount outstanding under our revolving credit facility. All borrowings are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties.

Interest and Fees

The interest rates per annum applicable to our term loan facility are, at our option, the Base Rate or Eurodollar Rate plus, in each case, an applicable margin. The Base Rate is a fluctuating interest rate equal to the higher of the prime rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank as its prime rate in effect at its principal office in New York City, and the federal funds effective rate plus 0.50%. The Eurodollar Rate is, for each day during each interest period, equal to the rate per annum for a period of time equal to such interest period, given for deposits in dollars appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two business days prior to the beginning of such interest period.

The “applicable margin” added to either the Base Rate or Eurodollar Rate loan is the rate per annum set forth in the following table:

	Base Rate Loans		Eurodollar Rate Loans
Revolving credit facility	1.50	%	2.50	%
Term loan facility	2.00	%	3.00	%

However, in the future, the applicable margin will be determined based on our consolidated total leverage ratio and can range from 1.00% to 3.00%.

Our effective interest rate as of March 31, 2004 was 4.24%. In addition, we are required to pay to the lenders under the revolving credit facility a commitment fee in respect of the unused commitments at a per annum rate of 0.50%. Our senior secured credit facility requires us to use derivative financial instruments to hedge our interest rate risk on at least 40% of the outstanding indebtedness under the term loan facility until March 2006.

Prepayments

Subject to certain exceptions, the term loan facility must be prepaid with 100% of the net proceeds of certain asset sales or dispositions, certain indebtedness, insurance recovery and condemnation events, 50% of the net proceeds of certain equity sales or issuances, and a percentage of excess cash flow.

Voluntary prepayments of loans under our senior secured credit facility and voluntary reductions in the unused commitments under the revolving credit facility are permitted in whole or in part, in minimum amounts and subject to certain other limitations as set forth in the senior secured credit agreement.

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Amortization of Principal

The term loan facility amortizes in scheduled quarterly payments of $412,500 aggregating to 1% of its initial principal amount in each of the years from 2004 through 2008 and 94% of its initial principal amount in equal quarterly payments of $39,187,500 in 2009.

Collateral and Guarantees

Substantially all of our tangible and intangible assets (including, without limitation, intellectual property, material owned real property and all of the capital stock of each of our direct and indirect domestic subsidiaries and two-thirds of the capital stock of certain of their first-tier foreign subsidiaries) secure the domestic guarantees and our obligations under our senior secured credit facility. Our obligations under our senior secured credit facility are also guaranteed by substantially all of our domestic subsidiaries.

Covenants and Other Matters

Our senior secured credit facility requires us to comply with certain financial covenants, including a maximum total leverage ratio, a minimum net interest coverage ratio and a minimum fixed charge coverage ratio.

Our senior secured credit facility also includes certain negative covenants restricting or limiting our ability to, among other things:

• declare dividends or redeem or repurchase capital stock;

• prepay, redeem or purchase certain debt;

• engage in sale leaseback transactions;

• make loans or investments;

• our subsidiaries’ ability to pay dividends or make other shareholder distributions;

• guarantee or incur additional debt;

• amend or otherwise alter terms of certain debt;

• make capital expenditures;

• engage in mergers, acquisitions or other business combinations;

• sell assets;

• change our fiscal reporting periods;

• our ability to grant liens on our properties;

• transact with affiliates; and

• alter the business we conduct.

Our senior secured credit facility also contains certain customary representations and warranties, affirmative covenants and events of default, including change of control, cross-defaults to other debt and material judgments.

As of March 31, 2004, we were in compliance with all material financial covenants and other requirements set forth in our senior secured credit facility.

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UNITED STATES FEDERAL INCOME TAX

CONSEQUENCES TO NON-UNITED STATES HOLDERS

The following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of our common stock to non-U.S. holders, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. This summary is applicable only to non-U.S. holders who hold our common stock as a capital asset (generally, an asset held for investment purposes). We have not sought any ruling from the Internal Revenue Service (the “IRS”), with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

This summary also does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

• banks, insurance companies, or other financial institutions;

• persons subject to the alternative minimum tax;

• tax-exempt organizations;

• dealers in securities or currencies;

• traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

• “controlled foreign corporations,” “passive foreign corporations,” “foreign personal holding companies” and corporations that accumulate earnings to avoid U.S. federal income tax;

• U.S. expatriates or former long-term residents of the United States;

• persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction; or

• persons deemed to sell our common stock under the constructive sale provisions of the Code.

In addition, if a partnership holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships which hold our common stock and partners in such partnerships should consult their tax advisors.

You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty.

Non-U.S. Holder Defined

For purposes of this discussion, you are a non-U.S. holder if you are a holder that, for U.S. federal income tax purposes, is not a U.S. person. For purposes of this discussion, you are a U.S. person if you are:

• a citizen or resident of the United States;

• a corporation or other entity taxable as a corporation for U.S. tax purposes or a partnership or entity taxable as a partnership for U.S. tax purposes created or organized in or under the laws of the United States or of any state therein the District of Columbia, unless in the case of a partnership, U.S. Treasury regulations provide otherwise;

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• an estate whose income is subject to U.S. federal income tax regardless of its source; or

• a trust (1) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (2) which has made an election to be treated as a U.S. person.

Distributions

If distributions are made on shares of our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock.

Any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate.

Dividends received by you that are effectively connected with your conduct of a U.S. trade or business (and, where a tax treaty applies, are attributable to a U.S. permanent establishment maintained by you) are exempt from such withholding tax. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.

If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may obtain a refund of any excess amounts currently withheld if you file an appropriate claim for refund with the IRS.

Gain on Disposition of Common Stock

You generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

• the gain is effectively connected with your conduct of a U.S. trade or business (and, where a tax treaty applies, is attributable to a U.S. permanent establishment maintained by you);

• you are an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or

• our common stock constitutes a U.S. real property interest by reason of our status as a “United States real property holding corporation” for U.S. federal income tax purposes (a “USRPHC”) at any time within the shorter of the five-year period preceding the disposition or your holding period for our common stock.

We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if you actually or constructively hold more than 5% of our common stock.

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If you are a non-U.S. holder described in the first bullet above, you will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates, and corporate non-U.S. holders described in the first bullet above may be subject to the branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S. source capital losses. You should consult any applicable income tax treaties that may provide for different rules.

Backup Withholding and Information Reporting

Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address, and the amount of tax withheld, if any. A similar report is sent to you. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in your country of residence.

Payments of dividends made to you will not be subject to backup withholding if you establish an exemption, for example by properly certifying your non-U.S. status on a Form W-8BEN or another appropriate version of Form W-8. Notwithstanding the foregoing, backup withholding at a rate of up to 31% may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person.

Payments of the proceeds from a disposition of our common stock effected outside the United States by a non-U.S. holder made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting (but not backup withholding) will apply to such a payment if the broker is a U.S. person, a controlled foreign corporation for U.S. federal income tax purposes, a foreign person 50% or more of whose gross income is effectively connected with a U.S. trade or business for a specified three-year period, or a foreign partnership with certain connections with the United States, unless the broker has documentary evidence in its records that the beneficial owner is a non-U.S. holder and specified conditions are met or an exemption is otherwise established.

Payments of the proceeds from a disposition of our common stock by a non-U.S. holder made by or through the U.S. office of a broker is generally subject to information reporting and backup withholding unless the non-U.S. holder certifies as to its non-U.S. holder status under penalties of perjury or otherwise establishes an exemption from information reporting and backup withholding.

Backup withholding is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may be obtained, provided that the required information is furnished to the IRS in a timely manner.

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SHARES ELIGIBLE FOR FUTURE SALE

Since September 1999, there has not been any public market for our common stock, and we cannot predict what effect, if any, market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of our common stock. Nevertheless, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options, in the public market, or the perception that these sales could occur, could materially and adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.

Upon the closing of this offering, we will have outstanding an aggregate of              shares of common stock. Of the outstanding shares, the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our “affiliates,” as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described below. The remaining shares of common stock will be deemed “restricted securities” as defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 144(k) under the Securities Act, which we summarize below.

Subject to the lock-up agreements described below, the employee shareholders agreements and the provisions of Rules 144 and 144(k), additional shares of our common stock will be available for sale in the public market under exemptions from registration requirements as follows:

Number of Shares	Date
	After 180 days from the date of this prospectus or             , 2004 (         of which will be subject to the volume restrictions of Rule 144).

TCG Holdings, L.L.C. which will beneficially own         % of our shares, or         % if the underwriters excise their over-allotment option in full, upon the completion of this offering, has the ability to cause us to register the resale of its shares.

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

• 1% of the number of shares of our common stock then outstanding, which will equal approximately          shares immediately after this offering; or

• the average weekly trading volume of our common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

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Lock-Up Agreements

All of our executive officers, directors and existing shareholders holding         % of our common stock (on a fully diluted basis) have entered into lock-up agreements under which they agreed, subject to limited exceptions not to transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the date of this prospectus without the prior written consent of Lehman Brothers Inc. and J.P. Morgan Securities Inc., on behalf of the underwriters. The limited exceptions to the lock-up agreements include: (i) transfers to family members or affiliates for estate planning purposes if the transferee agrees in writing to be subject to the terms of the lock-up agreement and such transfer does not require the transferee to make a filing under Section 16 of the Securities and Exchange Act of 1934; or (ii) exercise of any options or warrants provided that any shares so issued are also subject to the lock-up agreement. Notwithstanding the foregoing, in the event that either (1) during the last 17 days of the 180-day “lock-up” period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the “lock-up” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock-up” period, then in either case the expiration of the “lock-up” will be extended until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors who purchases shares of our common stock from us pursuant to options granted prior to the completion of this offering under our existing stock option plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.

Following this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering approximately          shares of common stock issued or issuable upon the exercise of stock options, subject to outstanding options or reserved for issuance under our stock benefit plans. Accordingly, shares registered under the registration statement will, subject to Rule 144 provisions applicable to affiliates, be available for sale in the open market, except to the extent that the shares are subject to vesting restrictions or the contractual restrictions described above. See “Management—Stock Option Plan.”

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UNDERWRITING

Under the terms of an underwriting agreement, which will be filed as an exhibit to the registration statement relating to this prospectus, each of Lehman Brothers Inc., J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Piper Jaffray & Co. has severally agreed to purchase from us and the selling shareholders the respective number of shares of common stock opposite its name below:

Underwriters	Number of Shares
Lehman Brothers Inc.
J.P. Morgan Securities Inc.
Deutsche Bank Securities Inc.
Piper Jaffray & Co.
Total

The underwriting agreement provides that the underwriters’ obligations to purchase shares of our common stock in this offering depends on the satisfaction of the conditions contained in the underwriting agreement, including:

• the obligation to purchase all of the shares of our common stock, if any of the shares are purchased (other than those shares subject to the underwriters’ over-allotment option, until that option is exercised);

• if an underwriter defaults, purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated;

• the representations and warranties made by us and the selling shareholders to the underwriters are true;

• there is no material change in the financial markets; and

• we and the selling shareholders deliver customary closing documents to the underwriters.

Over-Allotment Option

The selling shareholders have granted the underwriters a 30-day option after the date of this prospectus to purchase, from time to time, in whole or in part, up to an aggregate of          shares at the public offering price less underwriting discounts and commissions. This option may be exercised to cover over-allotments, if any, made in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares proportionate to the underwriter’s initial commitment as indicated in the preceding table, and the selling shareholders will be obligated, pursuant to the option, to sell these shares to the underwriters.

Commissions and Expenses

The underwriters have advised us that the underwriters propose to offer shares of common stock directly to the public at the public offering price on the cover of this prospectus and to selected dealers, who may include the underwriters, at such offering price less a selling concession not in excess of $         per share. The underwriters may allow, and the selected dealers may re-allow, a discount from the concession not in excess of $         per share to other dealers. After this offering, the underwriters may change the public offering price and other offering terms.

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The following table summarizes the underwriting discounts and commissions we and the selling shareholders will pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option to purchase up to          additional shares. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay us and the selling shareholders for the shares.

	No Exercise	Full Exercise
Empi, Inc.:
Per share	$	$
Total	$	$
Selling shareholders:
Per share	$	$
Total	$	$

We estimate that the expenses of this offering, excluding underwriting discounts and commissions paid by us and the selling shareholders will be approximately $        . We have agreed to pay expenses incurred by the selling shareholders in connection with this offering, other than the underwriting discounts and commissions.

Listing

Application will be made to list our common stock on the New York Stock Exchange under the symbol “EMP.” In connection with that listing, the underwriters have undertaken to sell the minimum number of shares to the minimum number of beneficial owners necessary to meet the New York Stock Exchange listing requirements.

Stabilization, Short Positions and Penalty Bids

The underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Securities Exchange Act of 1934, as amended:

• Over-allotment involves sales by the underwriter of shares in excess of the number of shares the underwriter is obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriter is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriter may close out any short position by either exercising its over-allotment option and/or purchasing shares in the open market.

• Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

• Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriter will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which it may purchase shares through the over-allotment option. If the underwriter sells more shares than could be covered by the over-allotment option, which is called a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase shares in this offering.

• Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

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These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.

Neither we, the selling shareholders nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we, the selling shareholders nor any of the underwriters make any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Lock-Up Agreements

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Lehman Brothers Inc. and J.P. Morgan Securities Inc., on behalf of the underwriters for a period of 180 days after the date of this prospectus, except pursuant to the exercise of options outstanding on the date hereof, grants of employee stock options pursuant to the terms of a plan in effect on the date hereof, issuances pursuant to the exercise of such options, the filing of registration statements on Form S-8 and amendments thereto in connection with those stock options or our employee stock purchase plans in existence on the date hereof and the issuance of shares or options in acquisitions in which the acquirer of such shares agrees to the foregoing restrictions.

Our executive officers, directors and our existing shareholders holding substantially all of our common stock have entered into lock-up agreements under which they agreed, subject to certain exceptions, not to transfer or dispose of, directly or indirectly, including by way of any hedging or derivatives transaction, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the date of this prospectus without the prior written consent of Lehman Brothers Inc. and J.P. Morgan Securities Inc., on behalf of the underwriters. Notwithstanding the foregoing, in the event that either (1) during the last 17 days of the 180-day “lock-up” period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the “lock-up” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock-up” period, then in either case the expiration of the “lock-up” will be extended until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Indemnification

We and the selling shareholders have agreed to indemnify the underwriters against liabilities relating to this offering, including liabilities under the Securities Act and liabilities arising from breaches of the representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities.

Directed Share Program

At our request, the underwriters have reserved for sale at the initial public offering price up to          shares offered hereby for officers, directors, employees and certain other persons associated with us. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby.

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Discretionary Sales

The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of shares of our common stock offered by them.

Stamp Taxes

Purchasers of the shares of our common stock offered by this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover of this prospectus. Accordingly, we urge you to consult a tax advisor with respect to whether you may be required to pay those taxes or charges, as well as any other tax consequences that may arise under the laws of the country of purchase.

Electronic Distribution

A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by the underwriters and/or one or more of the selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the underwriter or the particular selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us and the selling shareholders to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations.

Other than the prospectus in electronic format, the information on the underwriters’ or any selling group member’s web site and any information contained in any other web site maintained by the underwriter or any selling group member is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters or any selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Our Relationships with the Underwriters

Certain of the underwriters and their respective affiliates have performed and expect to continue to perform financial advisory and investment and commercial banking services for us for which they have received and will receive customary compensation. JPMorgan Chase Bank, an affiliate of J.P. Morgan Securities Inc., is a lender under our term loan facility. A portion of the proceeds from this offering will be used to repay borrowings under our term loan facility. Lehman Brothers Commercial Paper Inc., an affiliate of Lehman Brothers Inc., provides an unfunded commitment under our revolving credit facility. As of the date of this prospectus, there are no borrowings outstanding under our revolving credit facility. Because more than 10% of the net proceeds of this offering will be paid to affiliates of the underwriters, this offering is being conducted pursuant to Conduct Rule 2710(h) of the National Association of Securities Dealers, Inc. (“NASD”). That rule requires that the price at which shares of our common stock are to be distributed to the public can be no higher than that recommended by a “qualified independent underwriter,” as defined by the NASD. Lehman Brothers Inc. has served in that capacity and performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus is a part.

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NOTICE TO CANADIAN INVESTORS

Offers and Sales in Canada

This prospectus is not, and under no circumstances is to be construed as, an advertisement or a public offering of shares in Canada or any province or territory thereof. Any offer or sale of shares in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable provincial securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made.

This prospectus is for the confidential use of only those persons to whom it is delivered by the underwriters in connection with the offering of the shares into Canada. The underwriters reserve the right to reject all or part of any offer to purchase shares for any reason or allocate to any purchaser less than all of the shares for which it has subscribed.

Responsibility

Except as otherwise expressly required by applicable law or as agreed to in contract, no representation, warranty, or undertaking (express or implied) is made and no responsibilities or liabilities of any kind or nature whatsoever are accepted by any underwriter or dealer as to the accuracy or completeness of the information contained in this prospectus or any other information provided by us or the selling shareholders in connection with the offering of the shares into Canada.

Resale Restrictions

The distribution of the shares in Canada is being made on a private placement basis only and is exempt from the requirement that we and the selling shareholders prepare and file a prospectus with the relevant Canadian regulatory authorities. Accordingly, any resale of the shares must be made in accordance with applicable securities laws, which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with exemptions from registration and prospectus requirements. Canadian purchasers are advised to seek legal advice prior to any resale of the shares.

Representations of Purchasers

Each Canadian investor who purchases shares will be deemed to have represented to us, the selling shareholders, the underwriters and any dealer who sells shares to such purchaser that: (i) the offering of the shares was not made through an advertisement of the shares in any printed media of general and regular paid circulation, radio, television or telecommunications, including electronic display, or any other form of advertising in Canada; (ii) such purchaser has reviewed the terms referred to above under “Resale Restrictions” above; (iii) where required by law, such purchaser is purchasing as principal for its own account and not as agent; and (iv) such purchaser or any ultimate purchaser for which such purchaser is acting as agent is entitled under applicable Canadian securities laws to purchase such shares without the benefit of a prospectus qualified under such securities laws, and without limiting the generality of the foregoing: (a) in the case of a purchaser located in a province other than Ontario and Newfoundland and Labrador, without the dealer having to be registered, (b) in the case of a purchaser located in a province other than Ontario or Québec, such purchaser is an “accredited investor” as defined in section 1.1 of Multilateral Instrument 45-103—Capital Raising Exemptions, (c) in the case of a purchaser located in Ontario, such purchaser, or any ultimate purchaser for which such purchaser is acting as agent, is an “accredited investor”, other than an individual, as that term is defined in Ontario Securities Commission Rule 45-501—Exempt Distributions and is a person to which a dealer registered as an international dealer in Ontario may sell shares, and (d) in the case of a purchaser located in Québec, such purchaser is a “sophisticated purchaser” within the meaning of section 44 or 45 of the Securities Act (Québec).

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Taxation and Eligibility for Investment

Any discussion of taxation and related matters contained in this prospectus does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase the shares. Canadian purchasers of shares should consult their own legal and tax advisers with respect to the tax consequences of an investment in the shares in their particular circumstances and with respect to the eligibility of the shares for investment by the purchaser under relevant Canadian federal and provincial legislation and regulations.

Rights of Action for Damages or Rescission (Ontario)

Securities legislation in Ontario provides that every purchaser of shares pursuant to this prospectus shall have a statutory right of action for damages or rescission against us and any selling shareholder in the event this prospectus contains a misrepresentation as defined in the Securities Act (Ontario). Ontario purchasers who purchase shares offered by this prospectus during the period of distribution are deemed to have relied on the misrepresentation if it was a misrepresentation at the time of purchase. Ontario purchasers who elect to exercise a right of rescission against us and any selling shareholder on whose behalf the distribution is made shall have no right of action for damages against us or the selling shareholders. The right of action for rescission or damages conferred by the statute is in addition to, and without derogation from, any other right the purchaser may have at law. Prospective Ontario purchasers should refer to the applicable provisions of Ontario securities legislation and are advised to consult their own legal advisers as to which, or whether any, of such rights or other rights may be available to them.

The foregoing summary is subject to the express provisions of the Securities Act (Ontario) and the rules, regulations and other instruments thereunder, and reference is made to the complete text of such provisions contained therein. Such provisions may contain limitations and statutory defenses on which we and the selling shareholders may rely. The enforceability of these rights may be limited as described herein under “Enforcement of Legal Rights.”

The rights of action discussed above will be granted to the purchasers to whom such rights are conferred upon acceptance by the relevant dealer of the purchase price for the shares. The rights discussed above are in addition to and without derogation from any other right or remedy which purchasers may have at law. Similar rights may be available to investors in other Canadian provinces.

Enforcement of Legal Rights

We are organized under the laws of the State of Minnesota in the United States of America. All, or substantially all, of our directors and officers, as well as of the selling shareholders and the experts named herein, may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or such persons. All or a substantial portion of our assets and the assets of such other persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or such persons in Canada or to enforce a judgment obtained in Canadian courts against us or such persons outside of Canada.

Language of Documents

Upon receipt of this document, you hereby confirm that you have expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, vous confirmez par les présentes que vous avez expressément exigé que tous les documents faisant foi ou se rappportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.

87

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by our counsel, Faegre & Benson LLP. Certain other legal matters in connection with the issuance of our common stock to be sold in this offering will be passed upon for us by Latham & Watkins LLP, Washington, D.C. Certain legal matters in connection with this offering will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, New York.

EXPERTS

The consolidated financial statements of Empi, Inc. at December 31, 2003 and 2002, and for each of the years then ended, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Empi, Inc. for the year ended December 31, 2001, appearing in this prospectus and registration statement, were audited by Arthur Andersen LLP. After reasonable efforts, Empi, Inc. has not been able to obtain the consent of Arthur Andersen LLP to the incorporation by reference into such this registration statement of Arthur Andersen LLP’s audit report regarding such financial statements. Accordingly, Arthur Andersen LLP will not be liable to investors under Section 11(a) of the Securities Act because it has not consented to being named as an expert in this registration statement. Therefore, such lack of consent may limit the recovery by investors from Arthur Andersen LLP.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act with respect to the shares of our common stock offered by this prospectus. This prospectus, filed as a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules thereto as permitted by the rules and regulations of the SEC. For further information about us and our common stock, you should refer to the registration statement. This prospectus summarizes provisions that we consider material of certain contracts and other documents to which we refer you. Because the summaries may not contain all of the information that you may find important, you should review the full text of those documents. We have included copies of those documents as exhibits to the registration statement.

The registration statement and the exhibits thereto filed with the SEC may be inspected, without charge, and copies may be obtained at prescribed rates, at the SEC’s Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The registration statement and other information filed by us with the SEC are also available at the SEC’s Internet site at http://www.sec.gov. You may request copies of the filing, at no cost, by telephone at (651) 415-9000 or by mail at Empi, Inc., 599 Cardigan Road, St. Paul, MN 55126.

As a result of this offering, we and our shareholders will become subject to the proxy solicitation rules, annual and periodic reporting requirements, restrictions of stock purchases and sales by affiliates and other requirements of the Exchange Act. We will furnish our shareholders with annual reports containing audited financial statements certified by independent auditors and quarterly reports containing unaudited financial statements for the first three quarters of each fiscal year.

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INDEX TO FINANCIAL STATEMENTS

EMPI, INC.

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm	F-2
Report of Arthur Andersen LLP, Independent Public Accountants	F-3
Consolidated Balance Sheets as of March 31, 2004, December 31, 2003 and 2002	F-4
Consolidated Statements of Income for the three months ended March 31, 2004 and the years ended December 31, 2003, 2002 and 2001	F-5
Consolidated Statements of Shareholders’ Deficit and Comprehensive Earnings for the three months ended March 31, 2004 and the years ended December 31, 2003, 2002 and 2001	F-6
Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and the years ended December 31, 2003, 2002 and 2001	F-7
Notes to Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Empi, Inc.

We have audited the accompanying consolidated balance sheets of Empi, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Empi, Inc. and Subsidiaries for the year ended December 31, 2001, were audited by other auditors who have ceased operations and whose report dated March 21, 2002 expressed an unqualified opinion on those statements.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Empi, Inc. and Subsidiaries at December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (Statement) No. 142, “Goodwill and Other Intangible Assets.”

As discussed above, the consolidated financial statements of Empi, Inc. and Subsidiaries as of December 31, 2001 and for the year then ended, were audited by other auditors who have ceased operations. These consolidated financial statements have been revised to include the transitional disclosures required by Statement No. 142, which was adopted as of January 1, 2002, as described in Note 2, and the disclosures required by Statement No. 128, “Earnings per Share” and Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Our audit procedures with respect to the disclosures with respect to 2001 included: (a) for Statement 142, agreeing the previously reported net income to the previously issued financial statements and the adjustments to amortization to the Company’s underlying records obtained from management, and testing the mathematical accuracy of the reconciliation presented; (b) for Statement 128, testing the calculation of both basic and diluted weighted-average shares outstanding and testing the mathematical accuracy of the reconciliation the weighted-average share calculation and the basic and diluted earnings per share calculations, and (c) for Statement 131, agreeing that the net revenues by geographic location and by product to the Company’s underlying records obtained from management and testing the mathematical accuracy of the reconciliations of net revenue by geographic location and by product to the consolidated financial statements. In our opinion, the disclosures for 2001 related to Statements No. 142, 128 and 131 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the fiscal year 2001 consolidated financial statements of Empi, Inc. and Subsidiaries other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the fiscal year 2001 consolidated financial statements taken as a whole.

Ernst & Young LLP

Minneapolis, Minnesota

February 27, 2004, except as to Note 13, as to which the

date is July     , 2004

The foregoing report is in the form that will be signed upon the completion of the restatement of capital accounts described in Note 13 to the financial statements.

/S/    ERNST & YOUNG LLP

Minneapolis, Minnesota

July 6, 2004

F-2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Empi, Inc.:

We have audited the accompanying consolidated balance sheets of Empi, Inc. and Subsidiaries (a Minnesota corporation) as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Empi, Inc. and Subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

Arthur Andersen LLP

Minneapolis, Minnesota

March 21, 2002

NOTE: In accordance with Rule 2-02 of Regulation S-X, the report above is a copy of a report previously issued by Arthur Andersen LLP (“Andersen”), which report has not been reissued by Andersen. The Company has been unable to obtain the consent of Andersen to the inclusion of this report in this Form 10-K and in reliance upon Rule 437a under the Securities Exchange Act of 1934, as amended (the “Securities Act”) has not filed such consent with this Form S-1. Because we have not been able to obtain Andersen’s consent, you may not be able to recover against Andersen under Section 11 of the Securities Act for any untrue statements of a material fact contained in the Company’s financial statements audited by Andersen or any omission to state a material fact required to be stated therein. Certain financial information for the year in ended December 31, 2001 was not reviewed by Andersen and includes: (i) reclassifications to conform to our 2003 and 2002 financial statement presentation and (ii) reclassifications and additional disclosures to conform with new accounting pronouncements.

F-3

Empi, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands)

	March 31,			December 31,
	2004			2003			2002
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10,577		$	3,115		$	6,732
Accounts receivable, net of allowances of $11,744, $13,404 and $12,976, respectively		34,692			36,369			37,919
Inventories		14,158			13,808			12,902
Deferred income taxes		5,530			5,213			5,041
Other current assets		1,573			1,411			1,704
Total current assets		66,530			59,916			64,298
Property, plant and equipment, net		13,327			13,393			12,294
Deferred financing costs, net of accumulated amortization of $241, $60 and $2,376, respectively		4,085			4,266			1,660
Goodwill		28,551			29,320			24,792
Deferred income taxes		—			—			596
Other assets, net of accumulated amortization of $749, $711 and $674, respectively		835			757			714
Total assets	$	113,328		$	107,652		$	104,354
Liabilities and shareholders’ deficit
Current liabilities:
Current portion of long-term debt	$	1,699		$	1,718		$	10,481
Accounts payable		6,332			5,039			6,191
Accrued compensation		4,163			3,359			3,486
Income taxes payable		3,453			1,317			1,170
Interest payable		671			874			850
Commissions payable		803			963			1,112
Other current liabilities		2,782			3,421			4,555
Total current liabilities		19,903			16,691			27,845
Deferred income taxes		308			1,761			—
Other long-term liabilities		740			228			535
Long-term debt, less current portion		163,959			164,381			110,876
Minority interest		584			554			348
Shareholders’ deficit:
Common stock, $0.01 par value:		62			62			62
Authorized shares—10,000
Issued and outstanding shares—6,191
Additional paid-in capital		(132,428	)		(132,428	)		(132,428	)
Retained earnings		55,351			51,336			96,066
Accumulated other comprehensive gain (loss):
Foreign currency translation		6,293			6,193			2,366
Unrealized loss on derivatives		(459	)		(141	)		(331	)
Officers’ stock notes receivable		(985	)		(985	)		(985	)
Total shareholders’ deficit		(72,166	)		(75,963	)		(35,250	)
Total liabilities and shareholders’ deficit	$	113,328		$	107,652		$	104,354

See accompanying notes.

F-4

Empi, Inc. and Subsidiaries

Consolidated Statements of Income

(In Thousands, Except Per Share Data)

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001
	(unaudited)
Net revenues	$	38,893		$	35,950		$	150,525		$	135,586		$	121,555
Cost of goods sold		14,128			12,139			51,946			42,024			36,180
Gross profit		24,765			23,811			98,579			93,562			85,375
Operating expenses:
Selling, general, and administrative		15,502			15,045			58,831			53,071			56,491
Research and development		650			691			2,409			2,131			2,874
Recapitalization expense		—			—			5,408			—			—
Total operating expenses		16,152			15,736			66,648			55,202			59,365
Earnings from operations		8,613			8,075			31,931			38,360			26,010
Other income (expense):
Interest income		32			35			164			195			305
Interest expense		(2,063	)		(2,124	)		(7,994	)		(8,781	)		(11,040	)
Other		(101	)		218			(2,511	)		(1,176	)		(646	)
Total other expense		(2,132	)		(1,871	)		(10,341	)		(9,762	)		(11,381	)
Earnings before income taxes		6,481			6,204			21,590			28,598			14,629
Income tax expense		(2,419	)		(1,843	)		(8,180	)		(9,605	)		(7,896	)
Minority interest		(47	)		—			(127	)		(66	)		805
Net earnings	$	4,015		$	4,361		$	13,283		$	18,927		$	7,538
Net earnings per share:
Basic	$	0.65		$	0.70		$	2.15		$	3.06		$	1.22
Diluted	$	0.60		$	0.65		$	2.00		$	3.04		$	1.21
Weighted-average shares outstanding:
Basic		6,191			6,191			6,191			6,191			6,191
Diluted		6,643			6,661			6,653			6,220			6,220

See accompanying notes.

F-5

Empi, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Deficit and Comprehensive Earnings

(In Thousands)

	Common Stock			Additional Paid-In Capital			Officers’ Stock Notes Receivable			Retained Earnings			Accumulated Other Comprehensive (Loss) Gain			Total			Comprehensive Earnings
	Shares	Amount
Balance at December 31, 2000	6,191	$	62	$	(132,428	)	$	(985	)	$	69,818		$	(170	)	$	(63,703	)	$	—
Net earnings	—		—		—			—			7,538			—			7,538			7,538
Dividend	—		—		—			—			(217	)		—			(217	)		—
Unrealized holding loss on derivatives, net of tax	—		—		—			—			—			(385	)		(385	)		(385	)
Currency translation adjustments, net of tax	—		—		—			—			—			(538	)		(538	)		(538	)
Balance at December 31, 2001	6,191		62		(132,428	)		(985	)		77,139			(1,093	)		(57,305	)	$	6,615
Net earnings	—		—		—			—			18,927			—			18,927		$	18,927
Unrealized holding gains on derivatives, net of tax	—		—		—			—			—			54			54			54
Currency translation adjustments, net of tax	—		—		—			—			—			3,074			3,074			3,074
Balance at December 31, 2002	6,191		62		(132,428	)		(985	)		96,066			2,035			(35,250	)	$	22,055
Net earnings	—		—		—			—			13,283			—			13,283		$	13,283
Dividend	—		—		—			—			(58,013	)		—			(58,013	)
Unrealized holding gains on derivatives, net of tax	—		—		—			—			—			190			190			190
Currency translation adjustments, net of tax	—		—		—			—			—			3,827			3,827			3,827
Balance at December 31, 2003	6,191	$	62	$	(132,428	)	$	(985	)	$	51,336		$	6,052		$	(75,963	)	$	17,300
Net earnings (unaudited)	—		—		—			—			4,015			—			4,015			4,015
Unrealized holding gains on derivatives, net of tax (unaudited)	—		—		—			—			—			(318	)		(318	)		(318	)
Currency translation adjustments, net of tax (unaudited)	—		—		—			–			—			100			100			100
Balance at March 31, 2004 (unaudited)	6,191	$	62	$	(132,428	)	$	(985	)	$	55,351		$	5,834		$	(72,166	)	$	3,797

See accompanying notes.

F-6

Empi, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001
	(unaudited)
Operating activities
Net earnings	$	4,015		$	4,361		$	13,283		$	18,927		$	7,538
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		1,233			1,022			4,221			2,937			2,890
Amortization		—			—			37			57			5,725
Write-off of deferred financing costs		—			—			998			—			—
Deferred tax provision		(284	)		472			(279	)		(148	)		(1,300	)
Amortization of deferred financing costs		180			180			722			722			722
Minority interest		(47	)		—			127			66			(934	)
Changes in operating assets and liabilities:
Accounts receivable		1,397			2,647			2,596			(74	)		(3,854	)
Inventories		(421	)		169			(930	)		(260	)		360
Accounts payable and accrued expenses		2,564			(1,616	)		(1,136	)		(688	)		1,227
Interest payable		(77	)		(695	)		(302	)		—			(36	)
Income taxes payable		2,205			2,243			17			(295	)		(55	)
Other		(1,157	)		61			(1,784	)		(174	)		(762	)
Net cash provided by operating activities		9,608			8,844			17,570			21,070			11,521
Investing activities
Changes to other assets		(405	)		(464	)		116			(240	)		2,091
Payments for acquisitions, net of cash acquired		—			—			(467	)		(14,498	)		—
Purchase of property, plant and equipment		(1,423	)		(1,279	)		(3,900	)		(6,467	)		(3,706	)
Net cash used in investing activities		(1,828	)		(1,743	)		(4,251	)		(21,205	)		(1,615	)
Financing activities
Borrowings on long-term debt		—			—			165,000			14,000			2,598
Payments on long-term debt		(437	)		(6,601	)		(120,240	)		(13,681	)		(7,250	)
Debt issuance costs		—			—			(4,326	)		—			—
Dividends		—			—			(58,013	)		—			(217	)
Net cash (used in) provided by financing activities		(437	)		(6,601	)		(17,579	)		319			(4,869	)
Net (decrease) increase in cash and cash equivalents		7,343			500			(4,260	)		184			5,037
Effect of exchange rate changes on cash		119			8			643			479			(871	)
Cash and cash equivalents, beginning of year		3,115			6,732			6,732			6,069			1,903
Cash and cash equivalents, end of year	$	10,577		$	7,240		$	3,115		$	6,732		$	6,069
Supplemental cash flow information
Cash paid during the year for:
Interest	$	1,896		$	2,386		$	7,752		$	8,190		$	10,340
Income taxes	$	212		$	967		$	7,997		$	10,638		$	8,243
Noncash investing and financing activities:
Increase (decrease) in fair value of cash flow hedges	$	(512	)	$	—		$	307		$	86		$	(621	)
Estimated fair value of net assets acquired	$	—		$	—		$	—		$	2,534		$	—
Cash paid		—			—			—			(1,534	)		—
Liability created during acquisition	$	—		$	—		$	—		$	1,000		$	—

See accompanying notes.

F-7

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.    Nature of Business

Empi, Inc. and Subsidiaries (the Company) is a leading medical device company focused on products used for pain management, orthopedic rehabilitation and physical therapy. The Company develops, manufactures, markets and distributes a diverse range of non-invasive medical devices and related accessories that are primarily used by patients for at-home therapy. The Company also provides physical therapy equipment and supplies to physicians, physical therapists and other healthcare professionals for use in their clinics. The primary markets for the Company’s products are the United States and Europe. The Company also does a small percentage, less than 1%, of business in Canada and Asia.

In August 1999, the Company merged with MPI Holdings, L.L.C., a newly formed affiliate of The Carlyle Group. The Company was the surviving entity of the merger. The merger was accounted for as a recapitalization. The Company’s existing shareholders received cash for their shares of common stock. The aggregate amount paid to effect the merger was approximately $164.3 million. The net proceeds of $25.5 million from the issuance of senior subordinated notes, initial borrowings of $85.0 million under a credit facility and the proceeds of $60.0 million from the investments of Carlyle and GE Capital Equity Investments, Inc., GE Capital, were used to fund the cash payments required to effect the merger and to pay merger related expenses. Upon consummation of the merger, Carlyle and GE Capital beneficially owned 91.67% and 8.33%, respectively, of the Company’s $0.01 par value common stock.

On November 24, 2003, the Company consummated a $169.4 million recapitalization. As a result of the recapitalization, the Company entered into a senior secured credit facility consisting of a $165.0 million six-year term loan facility and a $25.0 million five-year revolving credit facility. The proceeds from the term loan facility and $4.4 million of cash on hand were used as follows: (1) repayment of principal and interest on the Company’s existing credit facility in the amount of $75.0 million; (2) repayment of $27.3 million for principal and interest on senior subordinated debt; (3) $58.0 million in dividends to shareholders; (4) $5.4 million in recapitalization expenses, consisting of $5.1 million in special management bonuses and $0.3 million of other expenses; and (5) $4.3 million in fees related to the recapitalization which have been capitalized as deferred financing costs. Approximately $0.6 million of the recapitalization expenses were accrued at December 31, 2003.

2.    Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Empi and all subsidiaries in which it holds a controlling interest. The minority interest as of December 31, 2003 and December 31, 2002 represents the 50% separate ownership of Medireha GmbH. For 2001, the minority interest represents the 23% separate ownership of Empi Germany, a subsidiary of Empi Europe, and the 50% separate ownership of Medireha. All material inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The most significant management estimates used in the preparation of the financial statements are associated with the reserves established for sales allowances, product returns, rental credits, uncollectible accounts receivable, lost consignment inventory and inventory obsolescence.

Reclassification

Certain prior year items have been reclassified to conform to the current year presentation.

F-8

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The Company has reclassified to net revenues amounts billed to customers related to shipping and handling activities that had been recorded previously in cost of goods sold. The effect of the reclassification increased cost of goods sold by $2,883,000, $1,984,000 and $1,726,000 for the years ended December 31, 2003, 2002 and 2001, respectively, and reduced selling, general and administrative expenses by $345,000 for the year ended December 31, 2001.

Revenue Recognition

The Company derives revenues from its wholesale and retail businesses. The wholesale business involves the sale of devices and medical supplies to clinics, hospitals, large buying groups or distributors. The retail business involves providing its products to patients for rent or purchase, the sale of accessories to patients for the ongoing use of such products and billing of the patient’s insurance provider for the products or accessories.

The Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB) No. 101, as amended by SAB No. 104, when each of the following four conditions are met: 1) a contract or sales arrangement exists; 2) products have been shipped and title has transferred or services have been rendered; 3) the price of the products or services is fixed or determinable; and 4) collectibility is reasonably assured. Accordingly, the Company recognizes retail revenue, both rental and purchase, when products have been dispensed to the patient and the patient’s insurance has been verified. For retail products that are sold from inventories consigned at clinic locations, the Company recognizes revenue when it receives notice that the device has been prescribed and dispensed to the patient and the insurance has been verified or preauthorization from the insurance company has been obtained when required. The Company recognizes wholesale revenue when it ships its products to its wholesale customers.

The Company has established reserves to account for sales allowances, product returns and rental credits. Sales allowances generally result from agreements with certain insurance providers that permit reimbursement to the Company in amounts that are below the product’s invoice price. This reserve is provided for by reducing gross revenue by a portion of the amount invoiced at the time revenue is recognized. The Company estimates the amount of the reduction based upon historical experience and considers the impact of new contract terms or modifications of existing arrangements with insurance providers.

The product return reserve accounts for patient returns of products after purchase. This reserve is provided for at the time of sale by reducing gross revenue by an amount based on historical rate of returns.

Rental credits result when patients purchase products that they had previously rented. Many insurance providers require patients to rent devices for a period of one to three months prior to purchase. If the patient has a long-term need for the device, the insurance companies may authorize purchase of the device by these patients. When the device is purchased, most insurance providers require that rental payments previously made on the device be credited toward the purchase price. These credits are processed at the time the payment is received for the purchase of the device, which creates a time lag between billing of the purchase and processing of the rental credit. This reserve is provided for by reducing gross revenue over the rental period by our historical conversion rate of rentals to sales. The cost to refurbish rented products is expensed as incurred as part of cost of goods sold.

A change in the percentage of sales made pursuant to such contracts or a change in the number or type of products that are returned could cause the level of these reserves to vary in the future.

In addition to the reserves for sales allowances, returns and rental credits, the Company provides for uncollectible accounts receivable. These uncollectible accounts receivable are a result of non-payment from patients who have been direct billed for co-payments or deductibles; lack of appropriate insurance coverage; and disallowances of charges by third-party providers. The reserve is based on historical trends, current relationships

F-9

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

with providers, and internal process improvements. If there were a change to a material insurance provider contract, a decline in the economic condition of patients or significant turnover of company personnel, the current level of the reserve for uncollectible accounts receivable may not be adequate and may result in an increase of these levels in the future.

Shipping and Handling Costs

Shipping and handling costs related to unit and supplies fulfillment services are included in cost of goods sold.

Cash Equivalents

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

Fair Value Disclosure of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and payables for which current carrying amounts are equal to or approximate fair market values. The fair value of long-term obligations is based on interest rates for the same or similar debt offered to the Company having the same or similar remaining maturities and collateral requirements and approximates carrying value.

Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or market. Inventory balances were as follows:

	March 31,		December 31,
	2004		2003		2002
	(In Thousands)
Finished goods	$	10,349	$	10,279	$	6,759
Work-in-process		518		419		356
Raw materials		3,291		3,110		5,787
	$	14,158	$	13,808	$	12,902

Property, Plant and Equipment

Property, plant and equipment are stated on the basis of cost. Depreciation and amortization of property, plant and equipment are computed on the straight-line basis over estimated useful lives of 25 years for building and leasehold improvements, 5 to 10 years for furniture and fixtures, 5 to 8 years for equipment and 3 years for computers. Property, plant and equipment balances were as follows at December 31:

	2003			2002
	(In Thousands)
Equipment and computers	$	33,186		$	31,809
Furniture and fixtures		8,611			4,667
Buildings and leasehold improvements		2,320			2,372
		44,117			38,848
Less accumulated depreciation		(30,724	)		(26,554	)
Net property, plant and equipment	$	13,393		$	12,294

F-10

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Earnings Per Share

Basic earnings per share are computed using the weighted-average common shares outstanding. Diluted earnings per share are computed using the weighted-average common shares outstanding after adjusting for potential common shares from stock options. For all years presented, the reported net earnings were used when computing basic and diluted earnings per share. A reconciliation of the shares used in the computation is as follows:

	March 31,		December 31,
	2004	2003	2003	2002	2001
	(In Thousands)
Basic weighted-average shares outstanding	6,191	6,191	6,191	6,191	6,191
Dilutive potential common shares	452	470	462	29	29
Diluted weighted-average shares outstanding	6,643	6,661	6,653	6,220	6,220

Goodwill

Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets effective January 1, 2002. Under Statement 142, goodwill is no longer amortized, but is subject to annual impairment tests. Statement 142 requires that goodwill for each reporting unit be reviewed for impairment at least annually. In addition, upon adoption of Statement 142, the Company had to complete a transitional impairment test. This transitional impairment test completed in the first quarter of 2002, indicated no goodwill impairment. The Company has two reporting units at December 31, 2003, consisting of its U.S. and European operations. The Company tests goodwill for impairment using the two-step process prescribed in Statement 142. In the first step, the Company compares the fair value of each reporting unit, as computed primarily by present value cash flow calculations, to its book carrying value, including goodwill. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and the Company would then complete step two in order to measure the impairment loss. In the second step, the Company would calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting unit (as determined in step 1). If the implied fair value of goodwill is less than the carrying value of goodwill, the Company would recognize an impairment loss equal to the difference.

During the fourth quarters of 2003 and 2002, management completed its annual goodwill review and did not identify any impairment to the carrying value.

Prior to 2002, goodwill was amortized over its useful life, ranging from 4 to 7 years, from the date of acquisition using the straight-line method.

F-11

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The following table presents a reconciliation of reported net earnings to adjusted net earnings as if Statement 142 had been in effect as follows for the years ended December 31:

	2003		2002		2001
	(In Thousands, Except Per Share Data)
Reported net earnings	$	13,283	$	18,927	$	7,538
Goodwill amortization		—		—		5,200
Adjusted net earnings	$	13,283	$	18,927	$	12,738
Net earnings per share:
Basic—as reported	$	2.15	$	3.06	$	1.22
Basic—pro forma	$	2.15	$	3.06	$	2.06
Diluted—as reported	$	2.00	$	3.04	$	1.21
Diluted—pro forma	$	2.00	$	3.04	$	2.05

The changes in carrying amount of goodwill for the years ended December 31, 2003 and 2002 are as follows:

	2003		2002
	(In Thousands)
Balance, beginning of year	$	24,792	$	16,736
Goodwill acquired during year		457		5,111
Effects of currency translation		4,071		2,945
Balance, end of year	$	29,320	$	24,792

Other Assets

Other assets consist primarily of interest receivable on the officers’ stock note receivable and patents. Patent costs are amortized using the straight-line method over the estimated useful life of the patent, ranging from 5 to 15 years.

Deferred Financing Costs

Deferred financing costs are the costs associated with acquiring debt, such as legal and underwriting fees. In November 2003, the Company entered into a new bank credit facility (see Note 4). In the course of securing the new credit facility, the Company incurred expenses of $4,326,000, which will be amortized over the life of the credit facility.

In 2003, the Company wrote-off $998,000 of deferred financing costs associated with the debt that was extinguished with the proceeds from the new senior secured credit facility.

Impairment of Long-Lived Assets

The Company periodically evaluates whether events and circumstances have occurred which may affect the estimated useful life or the recoverability of the remaining balance of its long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be

F-12

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount and fair market value less costs to sell. As of December 31, 2003, the Company concluded there was no impairment of long-lived assets.

Stock-Based Compensation

At December 31, 2003, the Company has a stock-based employee compensation plan, which is described more fully in Note 6. The Company accounts for that plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net earnings for 2003, 2002 and 2001 as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings if the Company had applied the fair value recognition provision of FASB Statement 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	Three Months Ended March 31,						Year Ended December 31,
	2004			2003			2003			2002			2001
	(In Thousands, Except Per Share Data)
Net earnings, as reported	$	4,015		$	4,361		$	13,283		$	18,927		$	7,538
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards		(16	)		(31	)		(253	)		(158	)		(157	)
Pro forma net earnings	$	3,999		$	4,330		$	13,030		$	18,769		$	7,381
Net earnings per share:
Basic—as reported	$	0.65		$	0.70		$	2.15		$	3.06		$	1.22
Basic—pro forma	$	0.65		$	0.70		$	2.10		$	3.03		$	1.19
Diluted—as reported	$	0.60		$	0.65		$	2.00		$	3.04		$	1.21
Diluted—pro forma	$	0.60		$	0.65		$	1.96		$	3.02		$	1.19

The fair value of stock options used to compute the pro forma earnings disclosure, as prescribed by Statement 123, is the estimated present value at grant date using the minimum value model with the following assumptions for 2003, 2002 and 2001, respectively: dividend yield of 0%, risk-free interest rate of 3.44%, 3.08%, 4.09% and an expected life of five years. Nonpublic companies use the minimum value model where there is limited basis for determining the expected volatility of the stock price. Accordingly, no value has been assumed for volatility in determining the value of options issued. The fair value of options granted in 2003, 2002 and 2001, was $2.40, $1.41 and $1.82, respectively. There were no options granted during the three months ended March 31, 2004.

Derivative Instruments and Hedging Activities

The Company adopted FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities, as amended by FASB Statement 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of FASB Statement 133, effective beginning fiscal year 2001. Statements 133 and 138 require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the hedged assets, liabilities, or firm commitments are recognized through earnings or in comprehensive earnings until the hedged items are recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings.

F-13

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

In January 2001, the Company entered into forward exchange contracts to mitigate potential foreign currency gains and losses relative to specific foreign currency transactions. The Company designated these contracts as cash flow hedges under Statements 133 and 138 at their inception. As of December 31, 2001, the Company had derivative-related balances totaling $621,000, representing the fair value of the forward exchange contracts, recorded in other current liabilities and $385,000 recorded in accumulated other comprehensive loss as a result of the implementation of Statements 133 and 138. The $385,000 recorded in other accumulated comprehensive gain (loss) as of December 31, 2001, was recognized as goodwill due to the payment of the Ormed earnout payable in January 2002, and the purchase of the remaining minority interest of Ormed in January 2002 (see Note 3).

In September 2002, the Company entered into interest rate cap contracts related to its term loan facility B (see Note 4). The Company designated these contracts as cash flow hedges under Statements 133 and 138 at their inception. The cap contracts limit the London Interbank Offered Rate (LIBOR) interest rate related to a portion of the Company’s term loan facility B to 3.5% through the maturity of the debt in September 2006. During November 2003, the Company refinanced its term loan facility B and elected to continue one interest rate cap contract. The unrealized gain on the interest rate cap contract at the time of the refinancing will be recognized in earnings over the interest period of the new debt. As of December 31, 2003 and 2002, the Company had derivative-related balances totaling $228,000 and $535,000, respectively, representing the fair value of interest rate cap contracts, recorded in long-term liabilities, and $141,000 and $331,000, respectively recorded in other comprehensive loss. The interest rate cap contract was designated as a cash flow hedge in relation to the new debt on the refinancing date. Any ineffectiveness subsequent to the refinancing transaction will be recognized in each subsequent reporting period.

During the first quarter the Company entered into a series of interest rate swap contracts related to its senior secured credit facility. The Company designated these contracts as cash flow hedges at their inception. These contracts limit the Company’s exposure to increasing LIBOR interest rates through March 31, 2004.

At March 31, 2004, the Company had derivative-related balances totaling $740,000, representing the fair value of these contracts, recorded in other long-term liabilities and $459,000 recorded in accumulated other comprehensive gain.

Foreign Currency Translation

Assets and liabilities of the Company’s foreign operations are translated using the year-end rates of exchange method. Results of operations are translated using the average rates prevailing throughout the period. Translation gains or losses are accumulated and excluded from results of operations and recorded as a separate component of shareholders’ deficit.

Income Taxes

The Company accounts for income taxes following the provisions of FASB Statement 109, Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

F-14

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Interim Financial Data

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative or the results that may be expected for the year ending December 31, 2004.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. FIN 46 requires companies to determine whether a financing or other arrangement constitutes a “variable interest entity.” If a company concludes that such an arrangement is a variable interest entity, the company must then evaluate whether it is the primary beneficiary. The primary beneficiary of a variable interest entity is required to consolidate the entity for financial statement purposes. Variable interest entities are those that: 1) have insufficient equity investment at risk to finance their activities without additional subordinated support or 2) lack essential characteristics of a controlling financial interest including, among others, the obligation to absorb expected losses, or the right to receive expected residual returns, of the entity. The primary beneficiary is the enterprise that is obligated to absorb the expected losses or has a right to receive the expected residual returns. FIN 46 was effective immediately for variable interest entities created, or in which the Company obtains an interest, after January 31, 2003. For all variable interest entities created on or before January 31, 2003, the FASB delayed the initial effective date of the provisions until the first reporting period that ends after December 15, 2003. The adoption of FIN 46 will not have an effect on the Company.

In May 2003, FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for issuer classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Instruments that fall within the scope of SFAS 150 must be classified as a liability, and is effective for financial instruments entered into or modified after May 31, 2003. For financial instruments issued prior to June 1, 2003, SFAS 150 is effective for the Company in the second quarter of fiscal year 2003. Adoption did not have an impact on the Company’s consolidated financial statements.

3.    Acquisitions

In 2000, the Company’s foreign subsidiary, Empi Europe, acquired a 77% interest in Ormed and its subsidiaries through a stock acquisition for $18.8 million. In January 2002, the Company acquired the remaining 23% of the outstanding capital stock of Ormed for $4.4 million in cash plus additional consideration of $8.6 million based on Ormed’s earnings performance for the year ended December 31, 2000. Among Ormed’s assets is a 50% interest in Medireha, which manufactures the CPM devices distributed exclusively by Ormed. Accordingly, the results of operations of the acquired entities have been included in the Company’s consolidated results since June 2000. The Company reflects its partial ownership of Medireha on its consolidated balance sheet in minority interest, and on its consolidated statements of income by reducing its net earnings to account for the portion of Medireha’s earnings allocable to its other equity holders.

On July 31, 2002, the Company acquired 100% of the net assets of Rehab Med+Equip in an asset purchase agreement for $2,534,000, of which $1,534,000 was paid in cash and $1,000,000 was a promissory note (see Note 4). In 2003, the note was reduced to $938,000 due to an indemnification claim for uncollectible accounts receivable and slow-moving inventory. Accordingly, the results of operations of the acquired entity have been included in the Company’s consolidated statements since the date of acquisition.

F-15

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

4.    Long-Term Debt

Long-term borrowings consist of the following:

	March 31,			December 31,
	2004			2003			2002
	(In Thousands)
Term loan facility and revolving credit facility	$	164,588		$	165,000		$	94,500
Senior subordinated debt		—			—			25,500
Notes payable		1,070			1,099			1,357
		165,658			166,099			121,357
Less current maturities		(1,699	)		(1,718	)		(10,481	)
		163,959		$	164,381		$	110,876

In November 2003, the Company entered into a new senior secured credit facility which requires periodic principal and interest payments. The term loan facility of $165.0 million has a six-year term with principal payments due quarterly beginning March 31, 2004 and bears interest at the option of the Company at the Eurodollar rate plus 3.0% or the greater of prime or the federal funds effective rate plus 2.0%. Interest is payable no less than one month and no more than three months from the date the interest rates are set. As of March 31, 2004, the outstanding balance on the term loan facility was approximately $164.6 million with an interest rate of 4.24%.

The $25.0 million revolving credit facility expires November 24, 2008 and is available to fund working capital and general corporate purposes, including financing of acquisitions, investments and strategic alliances. Outstanding borrowings bear interest, at the option of the Company, at the Eurodollar rate plus 2.5% or the greater of prime or the federal funds effective rate plus 1.5%. Interest is generally paid on a quarterly basis. There is a commitment fee equal to 0.5% of the average daily amount of the available revolving commitment payable quarterly. At March 31, 2004, there was no amount outstanding on the revolving credit facility.

The credit facility places certain restrictions on the Company, including limitations on the ability to incur indebtedness, grant liens, sell all of the Company’s assets or engage in certain other activities, dispose of or transfer stock ownership of any subsidiary, pay dividends, make capital expenditures which are not rental pool expenditures, make investments, make optional payments or modify debt instruments or enter into sales and leaseback transactions. In addition, the credit facility requires the Company to maintain certain financial ratios. As of March 31, 2004, the Company was in compliance with the applicable ratios. The indebtedness under the credit facility is secured by substantially all of the assets of the Company, including real and personal property, inventory, accounts receivable, intellectual property and other intangibles.

The term loan facility requires the Company to make an annual prepayment of the term loan facility equal to 50% of any excess cash flow. For the purpose of this prepayment, excess cash flow is defined for each fiscal year as the difference between (i) the sum of consolidated net income (with certain limited adjustments), and the amount of any decrease in the amount of consolidated current assets less consolidated current liabilities, and the net amount of any non-cash losses in any disposition of our assets, minus (ii) the sum of the amount of actual capital expenditures and asset sales that are permitted under the credit facilities, any prepayments of the revolving loans under the credit facilities (but only if that prepayment is accompanied by a decrease in the revolving loan commitment amount), the amount of any scheduled payments of indebtedness permitted under the credit facilities, and the net amount of any non-cash gain in the disposition of property. The excess cash flow payment must be made no later than 95 days after year end or 125 days after year end if there is a permitted acquisition within the year.

F-16

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Subject to certain exceptions, the term loan facility must be prepaid with 100% of the net proceeds of certain asset sales or dispositions, 100% of the net proceeds of certain indebtedness, 50% of the net proceeds of certain equity sales or issuances, 100% of the net proceeds from insurance recovery and condemnation events and a percentage of excess cash flow.

Voluntary prepayments of loans under our senior secured credit facility and voluntary reductions in the unused commitments under the revolving credit facility are permitted in whole or in part, in minimum amounts and subject to certain other limitations as set forth in the credit agreement.

In connection with the recapitalization, the Company incurred fees and costs of $5.3 million. Approximately $4.3 million has been capitalized as deferred financing expenses and is being amortized over the term of the related debt instruments.

The Company’s credit facilities in 2002 consisted of a five-year term loan facility in the amount of $25.0 million (Term loan facility A), a seven-year term loan facility in the amount of $60.0 million (Term loan facility B), and a $60.0 million five-year revolving credit facility (collectively, the Credit Facilities).

Term loan facility A, Term loan facility B and any accrued interest were repaid in November 2003 with the proceeds from the new senior secured credit facility. Term loan facility A and Term loan facility B were payable in quarterly principal installments and had outstanding balances of $16,750,000 and $58,750,000, respectively, at December 31, 2002. Term loan facility A was to have matured on September 30, 2004 and bore interest at the option of the Company at the greater of prime plus 1.75% or the federal funds rate plus 2.25%, or LIBOR plus 2.75%. LIBOR is based on LIBOR for the corresponding length of the loan. Term loan facility B was to have matured on September 30, 2006 and bore interest at the option of the Company at the greater of prime plus 2.25% or the federal funds rate plus 2.75%, or LIBOR plus 3.25%. At December 31, 2002, the interest rates on Term loan facility A and Term loan facility B were 3.76% and 5.01%, respectively. Interest on both term loan facilities was payable no less than one month and no more than three months from the date interest rates were set.

The $60.0 million revolving credit facility was scheduled to expire August 31, 2004. Outstanding borrowings bore interest, at the option of the Company, at the greater of prime plus 1.75% or the federal funds rate plus 2.25%, or LIBOR plus 2.75%. At December 31, 2002, the interest rate on the revolving credit facility was 3.76%. In addition, there was a commitment fee equal to 0.375% of the unused portion of the revolving credit facility, which was payable quarterly. Borrowings of $19.0 million were outstanding on the revolving credit agreement at December 31, 2002.

The Company’s senior subordinated debt and any accrued interest were repaid with proceeds from the new credit facility entered into in November 2003. The Company’s senior subordinated debt was scheduled to mature on August 15, 2007. The senior notes were subordinated in right of payment to all existing and future senior indebtedness of the Company. The notes were redeemable, in whole or in part, at the option of the Company, at prices decreasing from 105% of the face amount on September 1, 2003 to par on September 1, 2006 together with accrued and unpaid interest. The interest rate on the notes was 10% per annum if interest is paid in cash or 12% per annum if interest is paid in the form of additional notes. Interest payments were made in cash when due; therefore, the interest rate at December 31, 2002 was 10%. Semiannual interest payments were required over the term of the debt.

Notes payable at December 31, 2003 and 2002 consist of various bank debt issued by foreign subsidiaries for working capital purposes with interest rates ranging from 6.5% to 10% and a promissory note due to Rehab Distribution Corp. The promissory note is consideration for the purchase of Rehab Med+Equip (see Note 3).

F-17

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Principal payments of $469,000 are due in August 2005 and August 2008. At December 31, 2003 and 2002, $938,000 and $1,000,000 were outstanding, respectively. The promissory note bears interest of the greater of 5% or the prime rate per annum, payable monthly. At both dates, the interest rate on the promissory note was 5%.

Annual maturities of the principal on long-term debt as of December 31, 2003 were as follows (in thousands):

2004	$	1,718
2005		2,189
2006		1,675
2007		1,650
2008		2,117
Thereafter		156,750
	$	166,099

5.    Income Taxes

For financial reporting purposes, earnings (loss) before income taxes and minority interest include the following components for the years ended December 31:

	2003		2002		2001
	(In Thousands)
United States	$	16,469	$	25,588	$	17,859
Foreign		5,121		3,010		(3,230	)

The income tax provision related to continuing operations consists of the following as of December 31:

	2003			2002			2001
	(In Thousands)
Current taxes:
Federal	$	5,560		$	7,711		$	7,435
State		758			916			932
Foreign		2,141			1,126			829
Deferred taxes		(279	)		(148	)		(1,300	)
Total provision for income taxes	$	8,180		$	9,605		$	7,896

Reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31 is as follows:

	2003		2002		2001
Provision at federal statutory rate	35.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
State and local taxes, net of federal tax benefit	2.3		2.2		3.7
Change in valuation allowance	—		(3.6	)	—
Nondeductible goodwill for foreign taxes	—		—		15.3
Other	0.6		—		—
Effective rate	37.9	%	33.6	%	54.0	%

F-18

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

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

	2003			2002
	(In Thousands)
Deferred tax assets/(liability)—current:
Allowance for doubtful accounts	$	4,467		$	4,790
Derivatives		87			204
Inventory adjustments		382			62
Other		277			(15	)
Total deferred tax assets		5,213			5,041
Deferred tax asset/(liability)—long term:
Amortization of goodwill		676			1,230
Net operating losses		1,725			1,125
Foreign currency translation		(3,791	)		(1,444	)
Other		(371	)		(315	)
		(1,761	)		596
Net deferred tax assets	$	3,452		$	5,637

At December 31, 2003, the Company has net operating loss carryforwards of $6,843,000 for German tax purposes, which do not expire.

6.    Stock Plans

The Company has a stock option plan, the 1999 Stock Option Plan of Empi, Inc. (the Plan), under which certain employees and directors are granted options to purchase shares of the Company’s common stock. Grants under the Plan may take the form of incentive or nonqualified stock options. A total of 880,602 shares of the Company’s stock have been reserved for issuance to directors, officers, and key employees. Stock options have been granted at their fair market value as determined by the Board of Directors at the date of grant and generally are exercisable partially over the first five years of the agreement with the final vesting prior to the expiration ten years after the grant. Certain options will also vest upon achievement of certain events or performance targets. A summary of stock options is shown below:

	Shares Under Option		Weighted- Average Exercise Price
Outstanding, December 31, 2000	865,602		$	9.52
Granted	4,833			9.85
Outstanding, December 31, 2001	870,435		$	9.52
Granted	5,000			9.85
Outstanding, December 31, 2002	875,435		$	9.52
Granted	30,000			15.21
Cancelled	(50,000	)		9.85
Outstanding, December 31, 2003	855,435		$	9.70

There were no options granted, canceled or exercised during the three months ended March 31, 2004.

F-19

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The following table summarizes information about the Plan options outstanding at December 31, 2003:

Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life (in Years)	Weighted-Average Exercise Price	Number Exercisable	Weighted-Average Exercise Price
$3.07	1,345	5.75	$  3.07	1,345	$  3.07
6.32–8.46	99,367	5.75	7.34	99,367	7.34
9.59–9.85	739,723	6.24	9.81	431,473	9.78
20.57	15,000	9.96	20.57	7,500	20.57
$3.07–$20.57	855,435	6.24	$  9.70	539,685	$  9.47

As of December 31, 2003, 2002 and 2001, there were currently exercisable options to acquire 539,685, 478,747 and 301,185 shares of the Company’s common stock, respectively.

7.    Capital Stock

The Company loaned a total of $985,000 to certain officers on February 1, 2000 for the purchase of 100,000 shares of the Company’s common stock. The loans are secured by full-recourse promissory notes and pledges of the stock purchased. The loans bear interest at an annual percentage rate of 9%. Payment, including accrued interest, is due February 1, 2008.

8.    Commitments and Contingencies

Leases

The Company leases office space and various equipment under noncancelable operating leases. These leases expire on various dates through 2012.

Aggregate future minimum lease payments at December 31, 2003 are as follows (in thousands):

2004	$	1,558
2005		1,492
2006		1,365
2007		1,086
2008		962
Thereafter		2,173
	$	8,636

Rent expense includes a minimum base payment and operating expenses. Rent expense for the years ended December 31, 2003, 2002 and 2001 was $2,031,000, $1,678,000 and $1,148,000, respectively and $543,000 and $485,000 for the three months ended March 31, 2004 and 2003, respectively.

Litigation

The Company is not currently subject to any pending or threatened litigation, other than routine litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on its financial condition or results of operations.

F-20

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

9.    Retirement Plan

The Company has a retirement profit-sharing and savings plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to defer up to 15% of their income on a pretax basis through contributions to the plan. For every dollar the employee contributes, up to 6% of their income, the Company will contribute $0.50. The Company’s matching contributions were approximately $667,000, $606,000, and $570,000 in 2003, 2002 and 2001, respectively, and $157,000 and $167,000 during the three months ended March 31, 2004 and 2003, respectively. In addition, Empi, Inc.’s subsidiaries have various employee benefit plans. Contributions to those plans were $37,000, $21,000 and $10,000 for the years ended December 31, 2003, 2002 and 2001, respectively and $11,000 and $9,000 during the three months ended March 31, 2004 and 2003, respectively.

10.    Related-Party Transactions

The Company has an agreement with Carlyle and GE Capital (the Company’s principal shareholders) to provide management services to the Company for an annual fee. The services provided include business performance analysis and acquisition-related services. Fees and expenses paid to Carlyle and GE Capital for these services under the agreement amounted to an aggregate of $600,000 for each of the years ended December 31, 2003, 2002 and 2001. The management agreement has been amended to provide for a reduction of the management fee to an aggregate of $300,000 for 2004.

The Company completed a recapitalization in November of 2003. Carlyle assisted the Company’s management with the project. Fees and expenses paid to Carlyle for investment banking and consulting services in relation to the recapitalization were $1,194,000. Additionally, the Company paid breakage fees of $1,169,000 and $106,000 to Carlyle and GE Capital, respectively, for the early retirement of the senior subordinated debt (See Note 4).

As more fully discussed in Note 7, the Company has outstanding loans to executive officers totaling $985,000.

The Company incurred expenses of $1,092,000 for services and purchased a software system for $591,000 from Hug Holding GmbH for the year ended December 31, 2001. The services provided include accounting, information technology, purchasing and human resources. An owner of Hug Holding GmbH was a minority owner of Empi Germany in 2001.

11.    Segment Information

The Company operates as one reportable segment, the manufacturing and distribution of non-invasive medical and rehabilitation devices and related accessories. In management’s on-going evaluation of the results and operations, it reviews and analyzes net revenues; gross margin; new contracts; percentage conversion of product rental to purchase by product type; cash collected; aging of receivables; inventory turns; and bad debt write-offs. The Company’s chief operating decision makers used consolidated results to make operating and strategic decisions. Net revenue from the United States and foreign sources (primarily Europe) was as follows:

	Three Months Ended March 31,				Year Ended December 31,
	2004		2003		2003		2002		2001
	(In Thousands)
Domestic	$	28,399	$	26,674	$	114,165	$	104,420	$	95,385
Germany		9,584		8,399		30,712		25,566		21,005
Other international		910		877		5,648		5,600		5,165
Total	$	38,893	$	35,950	$	150,525	$	135,586	$	121,555

F-21

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Net revenues by product category was as follows:

	Three Months Ended March 31,				Year Ended December 31,
	2004		2003		2003		2002		2001
	(In Thousands)
Electrotherapy	$	18,299	$	17,171	$	73,211	$	69,707	$	64,696
Orthotics and continuous passive motion		11,056		9,969		39,635		35,371		31,165
Iontophoresis		4,674		4,864		20,030		20,996		20,399
RME catalog and other products		4,864		3,946		17,649		9,512		5,295
Total	$	38,893	$	35,950	$	150,525	$	135,586	$	121,555

12.    Quarterly Data (Unaudited)

The following tabulations reflect the unaudited quarterly results of operations for the years ended December 31, 2003 and 2002 and the three months ended March 31, 2004.

	Net Sales		Gross Profit		Net Income		Diluted Earnings Per Share
	(In Thousands, Except Per Share Data)
2004
First quarter	$	38,893	$	24,765	$	4,015	$	0.60
2003
First quarter	$	35,950	$	23,811	$	4,361	$	0.65
Second quarter		37,248		24,683		4,559		0.68
Third quarter		35,290		23,049		4,145		0.62
Fourth quarter		42,037		27,036		218		0.03
2002
First quarter	$	31,094	$	21,715	$	3,873	$	0.62
Second quarter		34,632		24,590		4,411		0.71
Third quarter		34,495		23,822		4,309		0.69
Fourth quarter		35,365		23,435		6,334		1.02

The fourth quarter of 2003 was negatively impacted by the recapitalization expenses (see Note 4). The expenses associated with the recapitalization were the write-off of the deferred financing charges from the retired debt, $998,000, and the breakage fees paid to The Carlyle Group and GE Capital on the senior subordinated debt, $1,275,000. The special bonus paid to management totaled $5,136,000. The impact of these expenses, net of taxes, is $4,523,000 or $0.68 per share.

13.    Stock Split

The Company completed a          for          stock split, affecting all outstanding shares of its common stock on                  , 2004.

F-22

Empi, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

14.    Subsequent Event (unaudited)

In                         , 2004, the Company’s board of directors and shareholders approved the 2004 Equity Incentive Plan (“the plan”) in connection with the Company’s proposed initial public offering. Under the plan, a designated committee of the board may grant certain employees, consultants and board members stock options, restricted stock awards, stock appreciation rights or other types of awards. Both incentive stock options and non-qualified stock options may be granted under the plan. The aggregate number of shares of stock that may be issued or transferred pursuant to the plan shall not exceed 5% of the outstanding shares plus an annual increase beginning in 2005 of 1% of the outstanding shares per year. Generally, 20% of the options or awards granted vest each year for the first five years from the date of the grant. Options and awards generally terminate ten years from the date of the grant.

F-23

                     Shares

Common Stock

PROSPECTUS

                    , 2004

Joint Book-Running Managers

LEHMAN BROTHERS

JPMORGAN

DEUTSCHE BANK SECURITIES

PIPER JAFFRAY

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution

Set forth below is a table of the registration fee for the Securities and Exchange Commission, the filing fee for the National Association of Securities Dealers, Inc., the listing fee for the New York Stock Exchange and estimates of all other expenses to be incurred in connection with the issuance and distribution of the securities described in the registration statement, other than underwriting discounts and commissions:

SEC registration fee	$	19,005
NASD filing fee		15,500
New York Stock Exchange listing fee		*
Printing and engraving expenses		*
Legal fees and expenses		*
Accounting fees and expenses		*
Transfer agent and registrar fees		*
Miscellaneous		*
Total	$	*

* To be completed by amendments.

Item 14.    Indemnification of Directors and Officers

Section 302A.521, subd. 2, of the Minnesota Statutes requires that we indemnify a person made or threatened to be made a party to a proceeding by reason of the former or present official capacity of the person with respect to the company, against judgments, penalties, fines, including, without limitation, excise taxes assessed against the person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorneys’ fees and disbursements, incurred by the person in connection with the proceeding with respect to the same acts or omissions if such person (i) has not been indemnified by another organization or employee benefit plan for the same judgments, penalties or fines, (ii) acted in good faith, (iii) received no improper personal benefit, and statutory procedure has been followed in the case of any conflict of interest by a director, (iv) in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful, and (v) in the case of acts or omissions occurring in the person’s performance in the official capacity of director or, for a person not a director, in the official capacity of officer, board committee member or employee, reasonably believed that the conduct was in the best interests of the company, or, in the case of performance by a director, officer or employee of the company involving service as a director, officer, partner, trustee, employee or agent of another organization or employee benefit plan, reasonably believed that the conduct was not opposed to the best interests of the company. In addition, Section 302A.521, subd. 3, requires payment by us, upon written request, of reasonable expenses in advance of final disposition of the proceeding in certain instances. A decision as to required indemnification is made by a disinterested majority of our board of directors present at a meeting at which a disinterested quorum is present, or by a designated committee of the board, by special legal counsel, by the shareholders, or by a court.

Our by-laws (Exhibit 3.2 to this registration statement) provide that we shall indemnify our directors and officers to the fullest extent permitted by the Minnesota Statutes, as detailed above. We also maintain a director and officer liability insurance policy to cover us, our directors and our officers against certain liabilities.

Section      of the form of underwriting agreement to be filed as Exhibit 1.1 hereto, the underwriters agree to indemnify, under certain conditions, the company, our directors, certain of our officers and persons who control the company within the meaning of the Securities Act against certain liabilities.

II-1

Item 15.    Recent Sales of Unregistered Securities

On various dates during the period between January 1, 2001 and the date of this registration statement (the “Applicable Period”), the registrant granted options to purchase 39,833 shares of common stock to certain of its officers and employees under its 1999 Stock Option Plan at exercise prices ranging from $8.46 to $20.57 per share. The issuance of these options was not registered under the Securities Act. Instead, these options were issued pursuant to the exemption from registration provided by Rule 701 promulgated under the Securities Act.

Item 16.    Exhibits and Financial Statement Schedule

(a) Exhibits

Exhibit No.	Description of Exhibit
1.1*	Form of Underwriting Agreement.
3.1**	Amended and Restated Articles of Incorporation of Empi, Inc.
3.2**	Bylaws of Empi, Inc.
3.3**	Form of Second Amended and Restated Articles of Incorporation of Empi, Inc.
3.4**	Form of Amended and Restated Bylaws of Empi, Inc.
4.1**	Form of Stock Certificate of Common Stock.
4.2**	Shareholder Voting and Control Agreement by and among MPI Holdings, L.L.C., GE Capital Equity Investment, Inc. and Empi, Inc. as of August 31, 1999.
5.1	Opinion of Faegre & Benson LLP.
10.1	Employment Agreement of H. Philip Vierling.
10.2	Employment Agreement of H. Allen Hughes, Jr.
10.3	Employment Agreement of Patrick D. Spangler.
10.4	Managing Director Service Agreement of Rudiger Hausherr.
10.5	Technical Advisory Agreement of Joseph E. Laptewicz.
10.6	Amended and Restated Management Agreement between Empi, Inc., TC Group Management, L.L.C. and GE Capital Equity Investment, Inc. as of January 1, 2004.
10.7	Secured Promissory Note between H. Philip Vierling, as Payor, and Empi Corp., as Payee, as of February 1, 2000.
10.8	Secured Promissory Note between Patrick D. Spangler, as Payor, and Empi Corp., as Payee, as of February 1, 2000.
10.9	$190,000,000 Credit Agreement among Empi, Inc., Empi Corp., as Borrower, The Several Lenders from time to time Parties hereto, Wachovia Bank, National Association, as Documentation Agent, and JPMorgan Chase Bank, as Administration Agent and Syndication Agent as of November 24, 2003.
10.10	Stock Option Plan of Empi, Inc. as of August 31, 1999.
10.11	Incentive Stock Option Agreement.
10.12	Empi Corp. Officer, Manager and Director level Incentive Compensation Plan as of January 1, 2004.
10.13	Registration Rights Agreement by and between MPI Holdings, L.L.C., GE Capital Equity Investments, Inc. and Empi, Inc. as of August 31, 1999.
10.14	Exclusive Distribution Agreement between Medireha GmbH and Ormed GmbH.
21.1**	Subsidiaries of Empi, Inc.
23.1	Consent of Ernst & Young LLP.
23.2	Consent of Faegre & Benson LLP (included in Exhibit 5.1).
24.1**	Power of Attorney (included in signature page of initial filing).

* To be filed by Amendment.

** Previously filed.

II-2

(b) Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or not required or because the required information is shown in the Consolidated Financial Statements of Empi, Inc. or the notes thereto.

Empi, Inc.

Schedule II—Valuation and Qualifying Accounts

Years ended December 31, 2003, 2002 and 2001

	Balance at Beginning of Period			Additions— Charged to Costs and Expenses			Deductions— Describe			Foreign Currency Translation			Balance at End of Period
Accounts Receivable Reserves:
Year Ended December 31, 2003
Sales allowances	$	(6,148	)	$	(32,028	)	$	31,284	(1)	$	—		$	(6,892	)
Bad debt reserve		(6,828	)		(4,291	)		4,905	(2)		(298	)		(6,512	)
	$	(12,976	)	$	(36,318	)	$	36,189		$	(298	)	$	(13,404	)
Year Ended December 31, 2002
Sales allowances	$	(4,065	)	$	(28,151	)	$	26,068	(1)	$	—		$	(6,148	)
Bad debt reserve		(7,756	)		(2,811	)		3,979	(2)		(240	)		(6,828	)
	$	(11,821	)	$	(30,962	)	$	30,047		$	(240	)	$	(12,976	)
Year Ended December 31, 2001 (unaudited)
Sales allowances	$	(2,665	)	$	(20,642	)	$	19,242	(1)	$	—		$	(4,065	)
Bad debt reserve		(7,989	)		(4,489	)		4,616	(2)		106			(7,756	)
	$	(10,654	)	$	(25,131	)	$	23,858		$	106		$	(11,821	)
Inventory Reserves:
Year Ended December 31, 2003
Inventory reserve	$	(1,067	)	$	(402	)	$	165	(3)	$	(78	)	$	(1,382	)
Year Ended December 31, 2002
Inventory reserve	$	(1,553	)	$	(184	)	$	715	(3)	$	(45	)	$	(1,067	)
Year Ended December 31, 2001 (unaudited)
Inventory reserve	$	(3,149	)	$	(65	)	$	1,594	(3)	$	67		$	(1,553	)

(1) Sales allowance, product returns and rental credits issued

(2) Write-off of uncollectible accounts

(3) Write-off of obsolete inventory and year end adjustments to required reserve levels based on inventory analysis

II-3

Item 17.    Undertakings

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issues.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denomination and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Paul, State of Minnesota on July 7, 2004.

EMPI, INC.
By:	/S/    PATRICK D. SPANGLER
	Patrick D. Spangler Executive Vice President of Finance and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
* H. Philip Vierling	President and Chief Executive Officer     (Principal Executive Officer)	July 7, 2004
/s/    PATRICK D. SPANGLER         Patrick D. Spangler	Executive Vice President of Finance and Chief Financial Officer     (Principal Financial Officer)	July 7, 2004
* Joseph E. Laptewicz	Chairman of the Board of Directors	July 7, 2004
* W. Robert Dahl	Member of the Board of Directors	July 7, 2004
* Steven Warner	Member of the Board of Directors	July 7, 2004
* Gerald Schulze	Member of the Board of Directors	July 7, 2004
* Glenn Youngkin	Member of the Board of Directors	July 7, 2004

*By:	/S/    PATRICK D. SPANGLER
	Patrick D. Spangler Attorney-in-fact

II-5

EX-5.1

Exhibit 5.1

                    , 2004

Empi, Inc.

599 Cardigan Road

Shoreview, Minnesota 55126

Ladies and Gentlemen:

In connection with the proposed registration under the Securities Act of 1933, as amended, of up to [            ] shares of Common Stock, par value $.01 per share (the “Shares”), of Empi, Inc., a Minnesota corporation (the “Company”), we have examined such corporate records and other documents, including the Registration Statement on Form S-1 relating to the Shares (as such Registration Statement may be amended from time to time, the “Registration Statement”), and have reviewed such matters of law as we have deemed necessary for this opinion, and we advise you that in our opinion:

1. The Company is a corporation duly organized and existing under the laws of the State of Minnesota.

2. When the Amended and Restated Articles of Incorporation are properly filed with, and accepted by, the Secretary of State of the State of Minnesota in the form filed as Exhibit              to the Registration Statement and when the Shares are issued and sold as contemplated in the Registration Statement, with payment for such Shares received by the Company or the selling shareholders named in the Registration Statement as contemplated in the Registration Statement, the Shares will be legally and validly issued and fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the heading “Legal Matters” in the Prospectus constituting a part of the Registration Statement and to the reference to our firm wherever appearing therein.

Very truly yours,

FAEGRE & BENSON LLP
By:
	Andrew J. Ritten

M1:1085646.01

EX-10.1

                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

          This Employment Agreement dated as of November 19, 1999 and effective
as of September 1, 1999, is made by and between Empi Corp., a Minnesota
corporation (together with any successor thereto, the "Company"), and H. Philip
Vierling (the "Executive").

                                    RECITALS

          A. It is the desire of the Company to assure itself of the services of
the Executive by engaging the Executive to perform such services under the terms
hereof.

          B. The Executive desires to commit himself to serve the Company on the
terms herein provided.

                                    AGREEMENT

          NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below the parties hereto agree as
follows:

          1. Certain Definitions.

               (a) "Annual Base Salary" shall have the meaning set forth in
Section 4.

               (b) "Board" shall mean the Board of Directors of the Company.

               (c) The Company shall have "Cause" to terminate the Executive's
employment hereunder upon the Executive's:

                    (i) failure substantially to perform his duties hereunder,
     other than any such failure resulting from the Executive's Disability,
     after notice and reasonable opportunity for cure, all as determined by the
     Board;

                    (ii) conviction of a felony or a crime involving moral
     turpitude; or

                    (iii) fraud or personal dishonesty involving Company's
     assets.

               (d) "Company" shall have the meaning set forth in the preamble
hereto.

               (e) "Compensation Committee" means the compensation committee of
the Board.

               (f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, or, (ii) if the
Executive's employment is terminated pursuant to Section 5(a)(ii) - (vi), the
date specified in the Notice of Termination.

               (g) "Disability" shall mean the absence of the Executive from the
Executive's duties to the Company on a full-time basis for a total of three
months during any six month period as a result of incapacity due to mental or
physical illness.



               (h) "Executive" shall have the meaning set forth in the preamble
hereto.

               (i) The Executive shall have "Good Reason" to terminate his
employment in the event that the Company

                    (i) fails to make any payment or provide any material
     benefit hereunder,

                    (ii) commits a material breach of this Agreement, or

                    (iii) without the Executive's consent, materially diminishes
     the Executive's position, duties or responsibilities to the Company,

in each case, if the Company does not cure such failure, breach or action after
notice and a reasonable opportunity to cure.

               (j) "Incentive Compensation Plan" shall mean the annual
performance bonus plan as in effect from time to time, as adopted and
administered by the Board.

               (k) "Notice of Termination" shall have the meaning set forth in
Section 5(b).

               (l) "Term" shall have the meaning set forth in Section 2(b).

          2. Employment.

               (a) The Company shall employ the Executive, and the Executive
shall continue in the employ of the Company, for the period set forth in this
Section 2, in the position set forth in Section 3 and upon the other terms and
conditions herein provided. The initial term of employment under this Agreement
(the "Initial Term") shall be for the period beginning on the effective date of
this Agreement and ending on December 31, 2002, unless earlier terminated as
provided in Section 5.

               (b) The employment term hereunder shall automatically be extended
for successive one-year periods ("Extension Terms" and, collectively with the
Initial Term, the "Term") unless either party gives notice of non-extension to
the other no later than 90 days prior to the expiration of the then-applicable
Term.

          3. Position and Duties.

               (a) The Executive shall serve as the President and the Chief
Operating Officer of the Company with such customary responsibilities, duties
and authority as may from time to time be assigned to the Executive by the
Board. The Executive shall devote substantially all his working time and efforts
to the business and affairs of the Company.

               (b) If elected or appointed thereto, and only for the duration of
such elected term or appointment, the Executive shall also serve as a director
of the Company and any of its subsidiaries and/or in one or more executive
offices of any of such subsidiaries, provided

                                        2



that the Executive is indemnified for serving in any and all such capacities on
a basis consistent with that provided by the Company to other directors of the
Company or similarly situated executive officers of any such subsidiaries.

          4. Compensation and Related Matters.

               (a) Annual Base Salary. During the Term the Executive shall
receive a base salary at a rate of $185,000 per annum ("Annual Base Salary"),
subject to increase as determined by the Compensation Committee and subject to
reduction only in connection with an across-the-board reduction applicable to
senior management of the Company generally.

               (b) Bonus. During the Term, the Executive shall be eligible to
receive a bonus pursuant to the Company's Incentive Compensation Plan, the 1999
terms of which are attached hereto as Exhibit A. If the Company meets or exceeds
its goals under the Incentive Compensation Plan, the bonus payable to the
Executive shall be equal to the amount prescribed in the Incentive Compensation
Plan, and otherwise if such goals are not met, shall be in such amount, if any,
as the Board determines in its sole discretion.

               (c) Benefits. The Executive shall be entitled to participate in
the other employee benefit plans, programs and arrangements of the Company
(including vacation) now (or, to the extent determined by the Board, hereafter)
in effect which are applicable to the senior officers of the Company, subject to
and on a basis consistent with the terms, conditions and overall administration
thereof.

               (d) Expenses. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in the performance
of his duties to the Company, in accordance with the Company's documentation and
other policies with respect thereto.

               (e) Directors' and Officers' Insurance. During the Term, the
Company will maintain for the benefit of the Executive (in his capacity as an
officer and/or director of the Company) directors' and officers' insurance;
provided, that the Company may terminate such insurance coverage for all
officers and directors, including the Executive, if a majority of the members of
the Board determine in good faith that such insurance is not available or is
available only at unreasonable expense.

          5. Termination. The Executive's employment hereunder may be terminated
by the Company or the Executive, as applicable, without any breach of this
Agreement only under the following circumstances:

               (a) Circumstances.

                    (i) Death. The Executive's employment hereunder shall
     terminate upon his death.

                    (ii) Disability. If the Company determines in good faith
     that the Executive has incurred a Disability, the Company may give the
     Executive written notice of its intention to terminate the Executive's
     employment. In such event, the Executive's

                                        3



     employment with the Company shall terminate effective on the 30th day after
     receipt of such notice by the Executive, provided that within the 30 days
     after such receipt, the Executive shall not have returned to full-time
     performance of his duties. The Executive shall continue to receive his
     Annual Base Salary until the Date of Termination.

                    (iii) Termination for Cause. The Company may terminate the
     Executive's employment hereunder for Cause.

                    (iv)  Termination without Cause. The Company may terminate
     the Executive's employment hereunder without Cause.

                    (v)   Resignation for Good Reason. The Executive may
     terminate  his employment for Good Reason.

                    (vi)  Resignation without Good Reason. The Executive may
     resign his employment without Good Reason upon 60 days written notice to
     the Company.

               (b) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive under this Section 5 (other than
termination pursuant to paragraph (a)(i)) shall be communicated by a written
notice to the other party hereto indicating the specific termination provision
in this Agreement relied upon, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and specifying a Date of
Termination which, except in the case of termination for Cause, shall be at
least fourteen days following the date of such notice (a "Notice of
Termination").

          6. Severance Payments.

               (a) Termination without Cause or Resignation for Good Reason. If
the Executive's employment shall terminate without Cause (pursuant to Section
5(a)(iv)) or for Good Reason (pursuant to Section 5(a)(v)), the Company shall:

                    (i)   pay to the Executive, for the eighteen month period
     following the Date of Termination, in accordance with its regular payroll
     practice his Annual Base Salary as in effect on the Date of Termination;
     and

                    (ii)  for the year in which the termination occurs, pay to
     the Executive a pro-rated amount of bonus based on the Company's
     year-to-date performance (as determined by the Board) in relation to the
     performance targets set forth in the Incentive Compensation Plan; and

                    (iii) continue for 18 months the Executive's coverage under
     the Company medical and dental plans and programs in which the Executive
     was entitled to participate immediately prior to the Date of Termination as
     if the Executive were an active employee during such time, subject to
     standard employee contributions by the Executive as are required under such
     plans, and further subject to the Executive's election of "COBRA"
     continuation coverage during such period. Following the expiration of the

                                        4



     COBRA period, the Company may continue coverage under the Company's medical
     and dental plans or provide the Executive with benefits substantially
     similar to those which the Executive would otherwise have been entitled to
     receive under such plans and programs. All post-employment coverage under
     such plans shall be co-extensive with COBRA continuation coverage required
     by law, and shall cease if the Executive becomes eligible for coverage
     under another employer's plans.

               (b) Survival. The expiration or termination of the Term shall not
impair the rights or obligations of any party hereto which shall have accrued
hereunder prior to such expiration.

          7. Competition.

               (a) The Executive shall not, at any time during the Term or
during the 12-month period following the expiration of the term (or, if earlier,
the Date of Termination), without the prior written consent of the Board,
directly or indirectly engage in, or have any equity interest in, or be employed
by or manage or operate any person, firm, corporation, partnership, business or
product (whether as director, officer, employee, agent, representative, partner,
security holder, consultant or otherwise) that engages in any business or
develops, manufactures or sells any product which competes with any business or
product of the Company or any entity owned by it anywhere in the world;
provided, however, that the Executive shall be permitted to acquire a stock
interest in such a corporation provided such stock is publicly traded and the
stock so acquired is not more than five percent (5%) of the outstanding shares
of such corporation.

               (b) In the event the terms of this Section 7 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a geographical area
or by reason of its being too extensive in any other respect, it will be
interpreted to extend only over the maximum period of time for which it may be
enforceable, and/or over the maximum geographical area as to which it may be
enforceable and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.

          8. Nondisclosure of Proprietary Information.

               (a) Except as required in the faithful performance of the
Executive's duties hereunder or pursuant to subsection (c), the Executive shall,
in perpetuity, maintain in confidence and shall not directly, indirectly or
otherwise, use, disseminate, disclose or publish, or use for his benefit or the
benefit of any person, firm, corporation or other entity any confidential or
proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, business
strategy, business development, finances, principals, vendors, distributors,
suppliers, customers, potential customers, manufacturing methods, sales methods,
marketing methods, costs, prices, contractual relationships, information
systems, regulatory status, compensation paid to employees or other terms of
employment, or deliver to any person, firm, corporation or other entity any
document, record, notebook, computer program or similar repository of or
containing any such confidential or proprietary information or trade secrets.
The parties hereby stipulate and agree that as between them the foregoing
matters are important,

                                        5



material and confidential proprietary information and trade secrets and affect
the successful conduct of the businesses of the Company (and any successor or
assignee of the Company).

               (b) Upon termination of the Executive's employment with Company
for any reason and upon the Company's request, the Executive will promptly
deliver to the Company all correspondence, drawings, manuals, letters, notes,
notebooks, reports, programs, plans, proposals, financial documents, or any
other documents concerning, without limitation, the Company's operations,
processes, products, inventions, business practices, business strategy, business
development, finances, principals, vendors, distributors, suppliers, customers,
potential customers, manufacturing methods, sales methods, marketing methods,
costs, prices, contractual relationships, information systems, regulatory
status, compensation paid to employees or other terms of employment and/or which
contain proprietary information or trade secrets.

               (c) The Executive may respond to a lawful and valid subpoena or
other legal process but shall give the Company the earliest possible notice
thereof, shall, as much in advance of the return date as possible, make
available to the Company and its counsel the documents and other information
sought and shall assist such counsel in resisting or otherwise responding to
such process.

          9. Injunctive Relief. It is recognized and acknowledged by the
Executive that a breach of the covenants contained in Sections 7 and 8 will
cause irreparable damage to Company and its goodwill, the exact amount of which
will be difficult or impossible to ascertain, and that the remedies at law for
any such breach will be inadequate. Accordingly, the Executive agrees that in
the event of a breach of any of the covenants contained in Sections 7 and 8, in
addition to any other remedy which may be available at law or in equity, the
Company will be entitled to specific performance and injunctive relief.

          10. Binding on Successors. This Agreement shall be binding upon and
inure to the benefit of the Company, the Executive and their respective
successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.

          11. Governing Law. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
Minnesota.

          12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

          13. Notices. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:

               (a) If to the Company:

                                    Empi Corp.
                                    599 Cardigan Road

                                        6



                                    St. Paul, MN 55126
                                    Attn: Joseph E. Laptewicz, Jr.
                                    Phone: (651) 415-9000
                                    Fax: (651) 415-7497

                                    With copies to:

                                    The Carlyle Group
                                    520 Madison Avenue, 41th Floor
                                    New York, NY 10022
                                    Attn: Walter Jin
                                    Phone: (212) 381-4900
                                    Fax: (212) 381-4901

                                    and

                                    Latham & Watkins
                                    885 Third Avenue, Suite 1000
                                    New York, New York 10022
                                    Attn: Maureen A. Riley
                                    Phone: (212) 906-1200
                                    Fax: (212) 751-4864

               (b) If to the Executive, to him at the address set forth below
under his signature;

or at any other address as any party shall have specified by notice in writing
to the other parties.

          14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.

          15. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding to vary the terms of this
Agreement.

                                        7



          16. Amendments; Waivers. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive and
the Chairman of the compensation committee of the Board. By an instrument in
writing similarly executed, the Executive or the Company may waive compliance by
the other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform, provided, however, that
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder preclude any other or further exercise of
any other right, remedy, or power provided herein or by law or in equity.

          17. No Inconsistent Actions. The parties hereto shall not voluntarily
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with respect
to the interpretation and application of the provisions of this Agreement.

          18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in St. Paul, Minnesota in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 7 or 8
of the Employment Agreement and the Executive hereby consents that such
restraining order or injunction may be granted without the necessity of the
Company's posting any bond. The fees and expense of the arbitrator shall be
borne by the Company.

                            [signature page follows]

                                        8



        IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.

                                   THE COMPANY

                                   EMPI CORP.

                                   By:  ____________________________
                                        Name:
                                        Title:

                                   THE EXECUTIVE

                                        ____________________________
                                        Name:     H. Philip Vierling

                                        Address:  599 Cardigan Road
                                                  St. Paul, MN 55126

                                        9

EX-10.2

                                                                    EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

     This Agreement is made as of July 31, 2002 by and between RME Acquisition
Corp., a Minnesota corporation (the "Company"), and H. Allen Hughes, Jr., a
resident of Tennessee ("Executive").

     WHEREAS, the Company has acquired the business (the "Business") and
substantially all of the assets of Rehab Med Equip, Inc., a Tennessee
corporation ("RME"); and

     WHEREAS, Executive has served as chairman of the board and chief executive
officer of RME; and

     WHEREAS, the Company wishes to employ Executive in connection with the
Business, and Executive desires to accept that employment pursuant to the terms
and conditions of this Agreement;

     NOW, THEREFORE, for the consideration described below, the parties agree
as follows:


I. Employment

     1.1 Employment As Executive. The Company hereby agrees to employ Executive
as a General Manager of the Company for a three-year period commencing on the
date hereof, renewable automatically for successive one-year periods, unless
terminated by either Executive or the Company in accordance with Article III of
this Agreement (such actual period of employment being referred to as the
"Employment Period"). Executive accepts such employment pursuant to the terms of
this Agreement. Executive shall perform such duties and responsibilities as may
be determined from time to time by the Vice President of Marketing of Empi
Corp., the parent corporation of the Company ("Empi"), to whom he shall report.

     1.2 Exclusive Services. Executive agrees to devote his full business time,
attention, and energy to performing his duties and responsibilities to the
Company under this Agreement during the Employment Period.

     1.3 Base of Operations. Executive's principal base of operations for the
performance of his duties and responsibilities under this Agreement shall be the
offices of the Company in Collegedale, Tennessee, or within the area covered by
a 35-mile radius of such location.

Compensation, Benefits, and Perquisites

     2.1 Salary. During the Employment Period, the Company shall pay Executive a
salary at the annual rate of $103,600, payable in accordance with the Company's
normal payroll payment schedule for salaried employees, but not less often than
monthly. The President of Empi may review the salary periodically and may in his
sole discretion increase it to reflect performance and other factors, although
the Company is not obligated to provide for any



increases. Executive's salary is subject to reduction only in connection with an
across-the board reduction in salaries applicable to senior management of the
Company and Empi generally.

     2.2 Incentive Bonus. During the Employment Period, Executive shall be
eligible to earn an annual incentive bonus of up to 35% of salary, based on
meeting certain objectives, both on an individual and Company basis, established
by the Vice President of Marketing of Empi with Executive's input at the
beginning of each fiscal year of the Company.

     2.3 Vacations. Executive shall be entitled to paid vacation of four weeks a
year, to be scheduled in accordance with the policies of the Company.

     2.4 Employee Benefits. Executive shall be entitled to the benefits which
the Company generally provides to its other employees from time to time under
applicable Company plans and policies. Executive's participation in such benefit
plans shall be on the same basis as applies to other employees of the Company
and subject to the terms of applicable law, plan documents, and insurance
policies; provided, that the Company shall credit to Executive, for purposes of
eligibility to participate in, and for purposes of determining vesting under,
all benefit plans (other than the annual incentive bonuses for fiscal 2002), all
prior service of Executive recognized by RME prior to the date hereof. Executive
shall pay any contributions which are generally required of employees to receive
any such benefits.

     2.5 Employment Taxes and Withholding. Executive recognizes that the
compensation and benefits provided by the Company under this Agreement may be
subject to federal, state, or local income taxes. All such taxes shall be the
responsibility of the Executive. To the extent that federal, state, or local law
requires withholding of taxes on compensation and benefits provided under this
Agreement, the Company shall withhold the necessary amounts from the amounts
payable to Executive under this Agreement.

     2.6 Company Responsibility for Insured Benefits. In connection with this
Article II, the Company may provide certain benefits in the form of premiums of
insurance coverage. The Company is not itself promising to pay the benefit an
insurance company is obligated to pay under the policy the insurance company has
issued. If an insurance company does not or cannot pay benefits it owes to
Executive or his beneficiaries under the insurance policy, neither Executive nor
his personal representative or beneficiary shall have any claim for benefits
against the Company.

     2.7 Expenses. Executive shall be entitled to receive reimbursement from the
Company (in accordance with the policies and procedures then in effect for the
Company's employees) for all reasonable travel and other expenses incurred by
him in connection with his services under this Employment Agreement.

     2.8 Indemnification. The Company shall indemnify Executive and hold him
harmless from any and all claims and liabilities arising out of his employment
and service as an employee and officer, or in any other applicable capacity, to
the extent consistent with Company policies on indemnification for employees and
officers generally, including those in the

                                       -2-



Company's by-laws, insurance policies covering directors' and officers'
liability and other relevant documents and policies.

III. Termination of Executive's Employment

     3.1  Termination of Employment. Except for termination of Executive's
employment by reason of Executive's disability, Executive's employment under
this Agreement may be terminated by Executive or the Company at any time for any
reason by providing written notice to the other party of such termination. If
Executive terminates this Agreement for any reason, he agrees to provide 90 days
notice prior to the effective date of termination (the "Termination Date"). This
Agreement shall terminate in its entirety immediately upon the death of
Executive.

     3.2  Severance. (a) If Executive's employment hereunder is terminated by
the Company without cause (as defined below) or by Executive for good reason (as
defined below), the Company will pay to Executive (i) his salary through the
Termination Date and for a period of one year after the Termination Date and
(ii) his Prorated Incentive Bonus (as defined below) after the end of the fiscal
year in which termination occurs.

     (b)  If Executive's employment hereunder is terminated for any other
reason, including by Executive's resignation from his employment (other than for
good reason), the Company will pay to Executive his salary through the
Termination Date.

     (c)  Executive's salary paid pursuant to Section 3.2(a) may, at the
Company's option, be paid continuing on the normal payroll periods of the
Company or in one or more lump sums. Other than as expressly provided to the
contrary in this section or under applicable law, Executive's rights to
compensation and benefits shall cease on the Termination Date.

     3.3  Definitions. (a) The "Prorated Incentive Bonus" shall mean Executive's
incentive bonus for the fiscal year during which the Termination Date occurs,
prorated to reflect the number of days during such year that Executive was
employed by the Company. The Prorated Incentive Bonus shall be calculated and
paid within 90 days after the end of the fiscal year, based on the actual
financial results of the Company.

     (b)  Termination "without cause" shall mean, and be limited to, termination
of Executive's employment by the Company other than as a result of (i) death,
(ii) disability, (iii) ??? or (iv) "cause", which is defined as and limited to
the following: (A) failure by or ??? of Executive to substantially perform
Executive's duties hereunder, or substantial neglect ??? duties, after receiving
written notice from the Company and failing to cure such failure, ??? or neglect
within 30 days, or other breach of this Agreement by Executive; (B) ??? of a
felony or a crime of moral turpitude by Executive or other public misconduct by
???, in any event which is materially detrimental to the reputation of the
Company; or (C) ??? or violation of any fiduciary duty or duty of loyalty owed
by the Executive to the ???.

     (c)  Termination or resignation by Executive for "good reason" shall mean,
and be ??? to, resignation following: (i) any action by the Company which
results in a material

                                       -3-



diminution or material adverse change in Executive's title, authority, duties or
responsibilities; (ii) any failure of the Company to pay Executive the salary
and any other amounts due hereunder as and when required or any other failure of
the Company to perform its material obligations to Executive hereunder in any
material respect if such failure continues uncured for ten (10) days after
written notice thereof, specifying the nature of such failure and requesting
that it be cured, as given by Executive to the Company; (iii) any action by the
Company requiring Executive to be based at any office or location other than the
office of the Company located in Collegedale, Tennessee; provided, however, that
this Section 3.3(c)(iii) shall not apply to a general relocation of the offices
of the Company to a location not more than 35 miles from the Company's current
office; or (iv) upon the occurrence of an Event of Default (as defined in that
certain Promissory Note dated the date hereof and issued by Empi to RME in the
principal amount of $1,000,000 (the "Note")), if (A) the effect of such
occurrence is to permit the acceleration of the Note, and the Note is
accelerated and immediately due and payable in accordance with its terms and (B)
Executive resigns his employment hereunder within 90 days following such Event
of Default.

      3.4 Disability. If Executive has become unable, due to the condition of
his physical, mental or emotional health, to regularly perform the duties of his
employment hereunder for a continuous period of more than 120 consecutive days,
the President of Empi may, in his discretion, determine that Executive will not
return to work and terminate his employment under this Agreement by giving
Executive written notice of termination due to disability.

IV.   Non-Competition, Confidentiality and Trade Secrets

      4.1 Agreement Not to Compete. Executive agrees that, while he is employed
by the Company or its affiliate and until the later of (i) four years after the
date of this Agreement or (ii) one year after the Termination Date, he will not,
unless he receives the prior written approval of the Company, directly or
indirectly engage in any of the following actions:

          (a) Own an interest in (except as provided below), manage, operate,
join, control, lend money or render financial or other assistance to, or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant, independent contractor or otherwise, any entity whose
business, products or services compete directly or indirectly with those of the
Company  or Empi, for which purpose a competing business is defined as one
engaged in the manufacturing, distributing or marketing of physical therapy
equipment and products for use in homes and clinics in the United States.
However, nothing in this subsection (a) shall preclude Executive from holding
less than one percent of the outstanding capital stock if any corporation
required to file periodic reports with the Securities and Exchange Commission
under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
the securities of which are listed on any securities exchange, quoted on the
National Association of Securities Dealers Automated Quotation System, or traded
in the over-the-counter market.

          (b) (i) Induce or attempt to induce any person who is then an employee
of the company or any of its affiliates to leave the employ of the Company or
any of its affiliates, (ii) or any way interfere with the relationship between
the Company or any of its affiliates and any with employee of the Company or any
of its affiliates or (iii) employ or otherwise engage as an

                                      -4-



employee, independent contractor or otherwise any such employee or independent
contractor (including sales representatives) of the Company or any of its
affiliates.

        (c) Intentionally solicit, request, advise or induce any person or
entity that was a customer, client or supplier of the Company or any of its
affiliates during the twelve (12) calendar month period immediately preceding
the Termination Date to cancel, curtail or otherwise adversely change its
relationship with the Company or such affiliate, in any manner or capacity.

If the scope of the restrictions in this section are determined by a court of
competent jurisdiction to be too broad to permit enforcement of such
restrictions to their full extent, then such restrictions shall be construed or
rewritten so as to be enforceable to the maximum extent permitted by law, and
Executive hereby consents, to the extent he may lawfully do so, to the judicial
modification of the scope of such restrictions in any proceeding brought to
enforce them.

     4.2 Non-Disclosure of Information. During the period of his employment
hereunder, and at all times thereafter, Executive shall not, without the written
consent of the Company, disclose to any person, other than an employee of the
Company, or any of its affiliates or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by Executive of his
duties as an executive of the Company, except where such disclosure may be
required by law, any material confidential information obtained by him while in
the employ of the Company with respect to any of the Company's products,
technology, information, services, customers, methods, or plans unless and to
the extent that such confidential information is or becomes generally known to
and available for use by the public other than as a result of unauthorized
disclosure by Executive. Executive acknowledges that all of such confidential
information is a valuable, special, and unique asset, the disclosure of which
Executive acknowledges may be materially damaging to the Company.

     4.3 Remedies. Executive acknowledges that the Company's remedy at law for
any breach or threatened breach by Executive of Section 4.1 or Section 4.2 will
be inadequate. Therefore, the Company shall be entitled to injunctive and other
equitable relief restraining Executive from violating those requirements, in
addition to any other remedies that may be available to the Company under this
Agreement or applicable law.

     4.4 Termination. Upon the occurrence of an Event of Default (as defined in
the Note), the effect of such occurrence is to permit the acceleration of the
Note, and the Note is accelerated and immediately due and payable in accordance
with its terms, then the restrictions set forth in Section 4.1(a) of this
Agreement shall terminate at the time Executive's employment with the Company
terminates and thereafter Executive shall have no further obligations under such
Section 4.1(a). All other terms and conditions of this Agreement will remain in
full force and effect.

V.   Miscellaneous

     5.1 Amendment. This Agreement may be amended only in a writing that is
signed by the parties.

                                      -5-



     5.2 Entire Agreement. This Agreement contains the entire understanding of
the parties with regard to the employment of the Executive by the Company. There
are no other agreements, conditions, or representations, oral or written,
expressed or implied, with regard thereto. This Agreement supersedes all prior
agreements, promises, and representations relating to the employment of
Executive by the Company.

     5.3 Assignment. The Company may in its sole discretion assign this
Agreement to any entity which succeeds to some or all of the business of the
Company through merger, consolidation, a sale of some or all of the assets of
the Company, or any similar transaction. Executive acknowledges that the
services to be rendered by him are unique and personal. Accordingly, Executive
may not assign any of his rights or obligations under this Agreement.

     5.4 Successors. Subject to Section 5.3, the provisions of this Agreement
shall be binding upon the parties hereto, upon any successor to or assign of the
Company, and upon Executive's heir and the personal representative of Executive
or Executive's estate.

     5.5 Notices. Any notice required to be given under this Agreement shall be
in writing and shall be delivered either in person or by certified or registered
mail, return receipt requested. Any notice by mail shall be addressed as
follows:

          If to the Company, to:

          RME Acquisition Corp.
          c/o Empi Corp.
          599 Cardigan Road
          Shoreview, MN 55126
          Attention: Patrick D. Spangler, Exec. Vice President and CFO

          If to Executive, to:

          H. Allen Hughes, Jr.
          6001 Pebblebrook Lane
          McDonald, TN 37353

          with a copy to:
          Shumacker Witt Gaither & Whitaker, P.C.
          701 Market Street, Suite 500
          Chattanooga, TN 37402
          Attention: John K. Culpepper

or such other addresses as either party may designate in writing to the other
party from time to time.

     5.6 Waiver of Breach. Any waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other

                                       -6-



provision of this Agreement or of any subsequent breach by such party of a
provision of this Agreement. No waiver by the Company shall be valid unless in
writing and signed by the President of Empi.

     5.7 Severability. If any one or more of the provisions (or portions
thereof) of this Agreement shall for any reason be held by a final determination
of a court of competent jurisdiction to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provisions (or portions of the provisions) of this Agreement,
and the invalid, illegal, or unenforceable provision shall be deemed replaced by
a provision that is valid, legal, and enforceable and that comes closest to
expressing intention of the parties.

     5.8 Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Minnesota, without giving effect to
conflict of law principles.

     5.9 Headings. The headings of articles and sections herein are included
solely for convenience and reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.

     5.10 Counterparts. This Agreement may be executed by either of the parties
in counterparts, each of which shall be deemed to be an original, but all such
counterparts shall constitute a single instrument.

     IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the ??? set forth above.



                                          RME Acquisition Corp.

                                          By:  /s/ Patrick D. Spangler
                                             -----------------------------------
                                                Patrick D. Spangler
                                          Its:  Executive Vice President and CFO


                                          EXECUTIVE


                                          /s/ H. Allen Hughes Jr.
                                          --------------------------------------
                                          H. Allen Hughes, Jr.

                                      -7-

EX-10.3

                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

          This Employment Agreement dated as of November 19, 1999 and effective
as of September 1, 1999, is made by and between Empi Corp., a Minnesota
corporation (together with any successor thereto, the "Company"), and Patrick D.
Spangler (the "Executive").

                                    RECITALS

          A. It is the desire of the Company to assure itself of the services of
the Executive by engaging the Executive to perform such services under the terms
hereof.

          B. The Executive desires to commit himself to serve the Company on the
terms herein provided.

                                    AGREEMENT

          NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below the parties hereto agree as
follows:

          1.   Certain Definitions.

               (a)  "Annual Base Salary" shall have the meaning set forth in
Section 4.

               (b)  "Board" shall mean the Board of Directors of the Company.

               (c)  The Company shall have "Cause" to terminate the Executive's
employment hereunder upon the Executive's:

                    (i)   failure substantially to perform his duties hereunder,
     other than any such failure resulting from the Executive's Disability,
     after notice and reasonable opportunity for cure, all as determined by the
     Board;

                    (ii)  conviction of a felony or a crime involving moral
     turpitude; or

                    (iii) fraud or personal dishonesty involving Company's
     assets.

               (d)  "Company" shall have the meaning set forth in the preamble
hereto.

               (e) "Compensation Committee" means the compensation committee of
the Board.

               (f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, or, (ii) if the
Executive's employment is terminated pursuant to Section 5(a)(ii) - (vi), the
date specified in the Notice of Termination.

               (g) "Disability" shall mean the absence of the Executive from the
Executive's duties to the Company on a full-time basis for a total of three
months during any six month period as a result of incapacity due to mental or
physical illness.



               (h)  "Executive" shall have the meaning set forth in the preamble
hereto.

               (i)  The Executive shall have "Good Reason" to terminate his
employment in the event that the Company

                    (i)   fails to make any payment or provide any material
     benefit hereunder,

                    (ii)  commits a material breach of this Agreement, or

                    (iii) without the Executive's consent, materially diminishes
     the Executive's position, duties or responsibilities to the Company,

in each case, if the Company does not cure such failure, breach or action after
notice and a reasonable opportunity to cure.

               (j)  "Incentive Compensation Plan" shall mean the annual
performance bonus plan as in effect from time to time, as adopted and
administered by the Board.

               (k)  "Notice of Termination" shall have the meaning set forth in
Section 5 (b).

               (l) "Term" shall have the meaning set forth in Section 2(b).

          2.   Employment.

               (a) The Company shall employ the Executive, and the Executive
shall continue in the employ of the Company, for the period set forth in this
Section 2, in the position set forth in Section 3 and upon the other terms and
conditions herein provided. The initial term of employment under this Agreement
(the "Initial Term") shall be for the period beginning on the effective date of
this Agreement and ending on December 31, 2002, unless earlier terminated as
provided in Section 5.

               (b) The employment term hereunder shall automatically be extended
for successive one-year periods ("Extension Terms" and, collectively with the
Initial Term, the "Term") unless either party gives notice of non-extension to
the other no later than 90 days prior to the expiration of the then-applicable
Term.

          3.   Position and Duties.

               (a) The Executive shall serve as the Executive Vice President and
the Chief Financial Officer of the Company with such customary responsibilities,
duties and authority as may from time to time be assigned to the Executive by
the Board. The Executive shall devote substantially all his working time and
efforts to the business and affairs of the Company.

               (b) If elected or appointed thereto, and only for the duration of
such elected term or appointment, the Executive shall also serve as a director
of the Company and any

                                       2



of its subsidiaries and/or in one or more executive offices of any of such
subsidiaries, provided that the Executive is indemnified for serving in any and
all such capacities on a basis consistent with that provided by the Company to
other directors of the Company or similarly situated executive officers of any
such subsidiaries.

          4. Compensation and Related Matters.

               (a) Annual Base Salary. During the Term the Executive shall
receive a base salary at a rate of $175,000 per annum ("Annual Base Salary"),
subject to increase as determined by the Compensation Committee and subject to
reduction only in connection with an across-the-board reduction applicable to
senior management of the Company generally.

               (b) Bonus. During the Term, the Executive shall be eligible to
receive a bonus pursuant to the Company's Incentive Compensation Plan, the 1999
terms of which are attached hereto as Exhibit A. If the Company meets or exceeds
its goals under the Incentive Compensation Plan, the bonus payable to the
Executive shall be equal to the amount prescribed in the Incentive Compensation
Plan, and otherwise if such goals are not met, shall be in such amount, if any,
as the Board determines in its sole discretion.

               (c) Benefits. The Executive shall be entitled to participate in
the other employee benefit plans, programs and arrangements of the Company
(including vacation) now (or, to the extent determined by the Board, hereafter)
in effect which are applicable to the senior officers of the Company, subject to
and on a basis consistent with the terms, conditions and overall administration
thereof.

               (d) Expenses. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in the performance
of his duties to the Company, in accordance with the Company's documentation and
other policies with respect thereto.

               (e) Directors' and Officers' Insurance. During the Term, the
Company will maintain for the benefit of the Executive (in his capacity as an
officer and/or director of the Company) directors' and officers' insurance;
provided, that the Company may terminate such insurance coverage for all
officers and directors, including the Executive, if a majority of the members of
the Board determine in good faith that such insurance is not available or is
available only at unreasonable expense.

          5. Termination . The Executive's employment hereunder may be
terminated by the Company or the Executive, as applicable, without any breach of
this Agreement only under the following circumstances:

               (a)  Circumstances.

                    (i) Death. The Executive's employment hereunder shall
     terminate upon his death.

                    (ii) Disability. If the Company determines in good faith
     that the Executive has incurred a Disability, the Company may give the
     Executive written notice

                                        3



         of its intention to terminate the Executive's employment. In such
         event, the Executive's employment with the Company shall terminate
         effective on the 30th day after receipt of such notice by the
         Executive, provided that within the 30 days after such receipt, the
         Executive shall not have returned to full-time performance of his
         duties. The Executive shall continue to receive his Annual Base Salary
         until the Date of Termination.

                    (iii) Termination for Cause. The Company may terminate the
          Executive's employment hereunder for Cause.

                    (iv) Termination without Cause. The Company may terminate
          the Executive's employment hereunder without Cause.

                    (v) Resignation for Good Reason. The Executive may terminate
          his employment for Good Reason.

                    (vi) Resignation without Good Reason. The Executive may
          resign his employment without Good Reason upon 60 days written notice
          to the Company.

               (b)  Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive under this Section 5 (other than
termination pursuant to paragraph (a)(i)) shall be communicated by a written
notice to the other party hereto indicating the specific termination provision
in this Agreement relied upon, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and specifying a Date of
Termination which, except in the case of termination for Cause, shall be at
least fourteen days following the date of such notice (a "Notice of
Termination").

          6.   Severance Payments.

               (a) Termination without Cause or Resignation for Good Reason. If
the Executive's employment shall terminate without Cause (pursuant to Section
5(a)(iv)) or for Good Reason (pursuant to Section 5(a)(v)), the Company shall:

                    (i)   pay to the Executive, for the eighteen month period
     following the Date of Termination, in accordance with its regular payroll
     practice, his Annual Base Salary as in effect on the Date of Termination;
     and

                    (ii)  for the year in which the termination occurs, pay to
     the Executive a pro-rated amount of bonus based on the Company's
     year-to-date performance (as determined by the Board) in relation to the
     performance targets set forth in the Incentive Compensation Plan; and

                    (iii) continue for 18 months the Executive's coverage under
     the Company medical and dental plans and programs in which the Executive
     was entitled to participate immediately prior to the Date of Termination as
     if the Executive were an active employee during such time, subject to
     standard employee contributions by the Executive as are required under such
     plans, and further subject to the Executive's election

                                       4



          of "COBRA" continuation coverage during such period. Following the
          expiration of the COBRA period, the Company may continue coverage
          under the Company's medical and dental plans or provide the Executive
          with benefits substantially similar to those which the Executive would
          otherwise have been entitled to receive under such plans and programs.
          All post-employment coverage under such plans shall be co-extensive
          with COBRA continuation coverage required by law, and shall cease if
          the Executive becomes eligible for coverage under another employer's
          plans.

                    (b) Survival. The expiration or termination of the Term
shall not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.

          7.   Competition.

               (a)  The Executive shall not, at any time during the Term or
during the 12-month period following the expiration of the term (or, if earlier,
the Date of Termination), without the prior written consent of the Board,
directly or indirectly engage in, or have any equity interest in, or be employed
by or manage or operate any person, firm, corporation, partnership, business or
product (whether as director, officer, employee, agent, representative, partner,
security holder, consultant or otherwise) that engages in any business or
develops, manufactures or sells any product which competes with any business or
product of the Company or any entity owned by it anywhere in the world;
provided, however, that the Executive shall be permitted to acquire a stock
interest in such a corporation provided such stock is publicly traded and the
stock so acquired is not more than five percent (5%) of the outstanding shares
of such corporation.

                    (b) In the event the terms of this Section 7 shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its extending for too great a period of time or over too great a geographical
area or by reason of its being too extensive in any other respect, it will be
interpreted to extend only over the maximum period of time for which it may be
enforceable, and/or over the maximum geographical area as to which it may be
enforceable and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.

          8.  Nondisclosure of Proprietary Information.

                    (a) Except as required in the faithful performance of the
Executive's duties hereunder or pursuant to subsection (c), the Executive shall,
in perpetuity, maintain in confidence and shall not directly, indirectly or
otherwise, use, disseminate, disclose or publish, or use for his benefit or the
benefit of any person, firm, corporation or other entity any confidential or
proprietary information or trade secrets of or relating to the Company,
including, without limitation, information with respect to the Company's
operations, processes, products, inventions, business practices, business
strategy, business development, finances, principals, vendors, distributors,
suppliers, customers, potential customers, manufacturing methods, sales methods,
marketing methods, costs, prices, contractual relationships, information
systems, regulatory status, compensation paid to employees or other terms of
employment, or deliver to any person, firm, corporation or other entity any
document, record, notebook, computer program or similar repository of or
containing any such confidential or proprietary information or trade secrets.
The

                                       5



parties hereby stipulate and agree that as between them the foregoing matters
are important, material and confidential proprietary information and trade
secrets and affect the successful conduct of the businesses of the Company (and
any successor or assignee of the Company).

                    (b) Upon termination of the Executive's employment with
Company for any reason and upon the Company's request, the Executive will
promptly deliver to the Company all correspondence, drawings, manuals, letters,
notes, notebooks, reports, programs, plans, proposals, financial documents, or
any other documents concerning, without limitation, the Company's operations,
processes, products, inventions, business practices, business strategy, business
development, finances, principals, vendors, distributors, suppliers, customers,
potential customers, manufacturing methods, sales methods, marketing methods,
costs, prices, contractual relationships, information systems, regulatory
status, compensation paid to employees or other terms of employment and/or which
contain proprietary information or trade secrets.

                    (c) The Executive may respond to a lawful and valid subpoena
or other legal process but shall give the Company the earliest possible notice
thereof, shall, as much in advance of the return date as possible, make
available to the Company and its counsel the documents and other information
sought and shall assist such counsel in resisting or otherwise responding to
such process.

          9. Injunctive Relief. It is recognized and acknowledged by the
Executive that a breach of the covenants contained in Sections 7 and 8 will
cause irreparable damage to Company and its goodwill, the exact amount of which
will be difficult or impossible to ascertain, and that the remedies at law for
any such breach will be inadequate. Accordingly, the Executive agrees that in
the event of a breach of any of the covenants contained in Sections 7 and 8, in
addition to any other remedy which may be available at law or in equity, the
Company will be entitled to specific performance and injunctive relief.

          10. Binding on Successors. This Agreement shall be binding upon and
inure to the benefit of the Company, the Executive and their respective
successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.

          11. Governing Law. This Agreement shall be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
Minnesota.

          12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

          13. Notices. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:

                                       6



               (a)  If to the Company:

                           Empi Corp.
                           599 Cardigan Road
                           St. Paul, MN 55126
                           Attn:  Joseph E. Laptewicz, Jr.
                           Phone: (651) 415-9000
                           Fax:  (651) 415-7497

                           With copies to:

                           The Carlyle Group
                           520 Madison Avenue, 41st Floor
                           New York, NY 10022
                           Attn:  Walter Jin
                           Phone: (212) 381-4900
                           Fax:  (212) 381-4901

                           and

                           Latham & Watkins
                           885 Third Avenue, Suite 1000
                           New York, New York 10022
                           Attn:  Maureen A. Riley
                           Phone: (212) 906-1200
                           Fax:  (212) 751-4864

               (b) If to the Executive, to him at the address set forth below
under his signature;

or at any other address as any party shall have specified by notice in writing
to the other parties.

          14.  Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.

          15.  Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding to vary the terms of this
Agreement.

          16.  Amendments; Waivers. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by the Executive and
the Chairman of the compensation committee of the Board. By an instrument in
writing similarly executed, the

                                       7



Executive or the Company may waive compliance by the other party or parties with
any provision of this Agreement that such other party was or is obligated to
comply with or perform, provided, however, that such waiver shall not operate as
a waiver of, or estoppel with respect to, any other or subsequent failure. No
failure to exercise and no delay in exercising any right, remedy, or power
hereunder preclude any other or further exercise of any other right, remedy, or
power provided herein or by law or in equity.

          17. No Inconsistent Actions. The parties hereto shall not voluntarily
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with respect
to the interpretation and application of the provisions of this Agreement.

          18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in St. Paul, Minnesota in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 7 or 8
of the Employment Agreement and the Executive hereby consents that such
restraining order or injunction may be granted without the necessity of the
Company's posting any bond. The fees and expense of the arbitrator shall be
borne by the Company.

                            [signature page follows]

                                       8



          IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.

                                             THE COMPANY

                                             EMPI CORP.

                                             By: _______________________________
                                                 Name:
                                                 Title:

                                             THE EXECUTIVE

                                                 _______________________________
                                                 Name:     Patrick D. Spangler

                                                 Address:  599 Cardigan Road
                                                           St. Paul, MN 55126

                                       9

EX-10.4

                                                                    EXHIBIT 10.4

                       Managing Director Service Agreement

                                     between

                                   ORMED GmbH
                           Merzhauser Stra(B)e 112
                                 79100 Freiburg

                    - hereinafter referred to as "Company" -

                                       and

                                Rudiger Hausherr
                                 Lindengarten 17
                                  79219 Staufen

               - hereinafter referred to as "Managing Director" -



                                       I.

1.   Mr. Rudiger Hausherr renders his services as Managing Director of ORMED
     GmbH since June 1, 1994.

2.   All former employment agreements or other Service Contracts between the
     parties shall be cancelled by signing this Service Agreement. Especially
     all employment protection provisions resulting from the prior activity
     within this company or within the HUG group shall not be transferred to
     this Service Agreement. The Allianz Pension fund existing at present time
     for Managing Director and all other insurance contracts
     (Direktversicherung, Unfall, Reisversicherung ) will remain the same.

                                       II.

                                      (S) 1
                               Activity and duties

1.   The Managing Director has to conduct the business of the Company with the
     due diligence of a conscientious businessman and must conscientiously
     fulfil the duties imposed on him by Law, the Articles of Association of the
     Company, the attached Business Instructions, other general or specific
     instructions received from the Company's shareholder's meeting and this
     Service Agreement.

2.   The Managing Director is obliged to obtain the prior approval (consent) of
     the shareholders' meeting or the majority shareholder for all transactions
     pursuant to the Business Instructions in their respective applicable
     version.

                                      (S) 2
                                  Working time

1.   The Managing Director shall devote his full and unrestricted work capacity
     to the Company unless otherwise agreed in this Service Agreement.

2.   Each assumption of paid or unpaid secondary activities or honorary
     positions as well as appointments to supervisory boards, advisory boards
     etc. require the prior written approval of the shareholders' meeting. The
     Approval can be revoked at any time, whereby in the event of a revocation
     any provisions as to notice periods for the termination of an assumed
     office must be taken into consideration.

                                      (S) 3
                                  Remuneration

1.   The Managing Director shall receive an annual salary in the amount of DM
     330.000 payable in twelve monthly instalments in the amount of DM 27.500
     each.

2.   In addition, the Managing Director receives an annual premium subject to
     the fulfilment of the following requirements.

                                        2



     As of January 1, 2000 the annual premium amounts to DM 80,000 in case
     certain targets agreed with the shareholders are met by 100 %, it being
     understood that the respective proportion of the premium indicated below
     becomes due in case only one of the two targets is met. If the targets are
     only met by 90 % or less, no premium has to be paid. In case the targets
     are met by 90 - 100 %, half of the premium is due. If the targets are met
     in excess of 100 % the premium may be increased by shareholders' resolution
     at the shareholders' meeting's discretion.

     The targets consist of:

     -     Revenue as planned             45% of the premium amount

     -     EBIT as planned                55% of the premium amount

                                     (S) 4
                                   Company car

1.   The Company shall provide the Managing Director with a car in accordance
     with its car policy applicable from time to time which is appropriate for
     Mr. Hausherr's position as Managing Director and his appearance vis-a-vis
     customers.

2.   The Managing Director is entitled to also use the company car for private
     purposes. An amount corresponding to the private use shall be added to his
     monthly salary and shall be taxed according to the directives for income
     taxes.

                                     (S) 5
                        Continued payment during sickness

In case the Managing Director is not able to work due to sickness, not based on
his fault, he shall receive the difference between sickness benefits and his net
salary for the duration of six months, but limited to the duration of this
Service Agreement.

                                     (S) 6
                                    Vacation

The Managing Director is entitled to 30 working days of vacation per year. His
vacation shall be co-ordinated with other key employees of the Company and shall
comply with the interest of the Company.

                                     (S) 7
                                 Confidentiality

1.   The Managing Director is obliged during the duration of this Service
     Agreement and afterwards to keep confidential all information or data
     relating to the Companies or any other associated Company he becomes aware
     of and not to disclose any documents concerning the Companies or any other
     associated Companies either by himself or by third parties. This includes
     trade secrets, know-how, inventions, designs, processes, formulae,
     notations, improvements financial information and lists of customers

                                        3



     concerning the affairs, business or products of the Company or of the
     associated Companies or of any of their predecessors in business or of any
     of their suppliers, agents, distributors or customers.

2.   Publications of facts of which the Managing Director received knowledge
     during his services for the Company or which relate to his sphere of duty
     require the prior approval of the shareholders' meeting.

                                     (S) 8
                               Disability to work

The Managing Director has to notify the Company within three working days of
every disability to work and the approximate duration thereof. If so requested,
the Managing Director is obliged to disclose the reasons for his disability to
work.

                                     (S) 9
                               Payment after death

In case the Managing Director dies, his widow or a person to be named by the
Managing Director shall receive the complete remuneration based on this contract
for a period of three months.

                                     (S) 10
                            Non competition covenant

1.   During the term of the Service Agreement, the Managing Director is not
     allowed to act for or on behalf of a direct or indirect competitor of the
     Company as a self-employed entrepreneur, an employee or in any other way.
     Furthermore, the Managing Director is not allowed to establish or to
     acquire such a Company or to directly or indirectly participate in such a
     competitive company.

2.   In case of the Managing Director's violation of the non-competition clause
     pursuant to Section 1 above, the Managing Director is obligated to pay a
     penalty in -the amount of five monthly remuneration(s) based on the average
     monthly net remuneration, excluding bonuses. The penalty has to be paid for
     each violation separately. In case of a permanent violation the penalty has
     to be paid for each month commenced. Additional claims of the Company shall
     remain unaffected.

3.   For the period of one year after the expiration of this Service Agreement
     the Managing Director is not allowed to act for or on behalf of a direct or
     indirect competitor of the Company as a self-employed entrepreneur, an
     employee or in any other way. Furthermore, during this period the Managing
     Director is not allowed to establish or to acquire such company or to
     directly or indirectly participate in such competitive company. The
     post-contractual non-competition clause is subject to the condition
     precedent that this Service Agreement will not be terminated prior to six
     months following the expiration of the fix initial term pursuant to (S) 12
     Section 1 of this Service Agreement.

                                        4



4.   For the duration of the aforementioned post-contractual non-competition
     clause the Company shall pay to the Managing Director a compensation in the
     amount to 50% of the average monthly net remuneration of the Managing
     Director calculated on the basis of the Managing Director's income of the
     last twelve months before the expiration of this Service Agreement. The
     average monthly net remuneration shall include any bonuses (pro rata for
     each month of service) pursuant to (S) 3 Section 2 of this Service
     Agreement, unless this Service Agreement is terminated by the Company for
     cause or by the Managing Director. The monthly compensation payment is due
     at the end of each calendar month.

5.   The Compensation will be reduced by earnings by the Managing Director
     during the period of the post-contractual non-competition covenant
     resulting from his activities as self-employed entrepreneur, as employee or
     any other activities according to sec. 74c German Commercial Code (HGB).
     This also applies to earnings which the Managing Director fails to realise
     and to unemployment benefits potentially obtained by the Managing Director.
     The Managing Director is obligated to disclose the amounts of earnings and
     the amounts of failed earnings upon the Company's request immediately.

6.   In case of the Managing Directors violation of the post-contractual
     non-competition clause, the Managing Director is obligated to pay a penalty
     in the amount of five monthly remuneration(s) based on the average monthly
     net remuneration, excluding any bonuses. The penalty has to be paid for
     each violation separately. In case of a permanent violation the penalty has
     to be paid for each month commenced. (Additional claims of the Company
     shall remain unaffected.)

7.   The Company can waive the restraint on competition until the end of the
     Service Agreement by written declaration, with the result that the
     non-competition compensation is to be paid until six months after the
     declaration of waiver, despite the prohibition having been lifted.

8.   If the Company terminates the Service Agreement for important reasons due
     to contract-breaching conduct of the Managing Director, the restraint on
     competition becomes invalid to the extent the Company informs the Managing
     Director in writing before one month after the termination.

9.   If the Company terminates the Service Agreement without an important
     reason, the restraint on competition becomes invalid if the Managing
     Director declares in writing within one month of receipt of the termination
     that he does not feel bound by the restraint on competition. If the Company
     undertakes to pay the full last average remuneration for the term of the
     restraint on competition, the restraint on competition continues to be
     valid.

                                     (S) 11
                                   Inventions

The Company has to be notified about all inventions made during the duration of
the employment contract.

                                        5



                                     (S) 12
                            Duration and termination

1.   This Service Agreement is concluded for a fix initial term of thirty
     months, commencing June 01, 2000.

2.   Unless either party notifies the other party by October 31, 2002 at the
     latest that it does not desire to continue this Service Agreement beyond
     the fix initial term, the Service Agreement shall automatically extend for
     an indefinite term. Then it can be terminated by either party with six
     months notice to the end of a calendar month.

3.   The appointment of the Managing Director can be revoked at any time by
     resolution of the Shareholders' Meeting. The revocation of the appointment
     of the Managing Director is deemed to be a termination according to the
     previous sentence with effect as of the date provided for in the previous
     sentence.

4.   In the event of termination, the Company is entitled to suspend the
     Managing Director from his duties immediately after having received or sent
     the termination notice balancing the suspension with the remaining vacation
     entitlement.

5.   The right to terminate this Service Agreement for important cause shall not
     be affected by the previous provisions.

6.   The notice of termination has to be given in writing.

                                     (S) 13
                               Return of Documents

After termination of this Service Agreement, or in the event of release of the
Managing Director from his duties, the Managing Director is obliged to return
all items of Company property and documents in their entirety without undue
delay, in particular keys, books, datacarrier, printed items of any kind or
extracts or copies thereof which are in his possession at such time. The
Managing Director is not entitled to retain those items and documents for any
reason. The company car has to be returned at the end of this Service Agreement.

                                     (S) 14
                      Additional agreements and amendments

1.   This Service Agreement contains all contractual stipulations between the
     parties. There are no oral side agreements or other agreements than
     mentioned in this Service Agreement.

2.   All alterations or revisions of this Service Agreement must be in writing
     and must be approved by resolution of the Shareholders' Meeting.

3.   If provisions of this Service Agreement or parts of provisions of this
     Service Agreement are or become void, the validity of the other provisions
     of this Service Agreement shall

                                        6



     not be affected thereby. The void provision shall be replaced by a legal
     provision which comes as close as possible to the economic and legal
     rationale of the void provision.

4.   Rights based on this Service Agreement have to be claimed within a period
     of two month after becoming due. Otherwise, those rights are deemed to be
     excluded.

5.   This contract will be exclusively governed by German Law.

6.   Both parties declare that they each have received a copy of this contract.

Freiburg, June 30, 2000             Shoreview, July 1, 2000


_____________________________       _________________________________

Rudiger Hausherr                    ORMED GmbH
                                    represented by:
                                    HOHENSTAUFENEINHUNDERTACHTUND-
                                    VIERZIGSTE Verwaltungs GmbH & Co. KG,
                                    in turn, represented by Patrick D. Spangler

                                        7

EX-10.5

                                                                    EXHIBIT 10.5

                          TECHNICAL ADVISORY AGREEMENT

     THIS TECHNICAL ADVISORY AGREEMENT (this "Agreement") is entered into by and
between Empi Corp., a Minnesota corporation (the "Company") and Joseph E.
Laptewicz, Jr. (the "Technical Advisor"), effective as of January 1, 2003 (the
"Effective Date").

                                    RECITALS

     A. The Company desires to engage the Technical Advisor to assist the
Company on the terms and conditions set forth herein;

     B. The Company believes that it is in its best interest to engage the
Technical Advisor; and

     C. The Technical Advisor desires to be engaged by the Company in the
capacity and on the terms and conditions described herein.

                                    AGREEMENT

          For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:

     1. Scope of Engagement.

          a. The Company agrees to retain the Technical Advisor for the period
     set forth in Section 1(b) and the Technical Advisor accepts this engagement
     to perform the services set forth in Section 2(a) on the terms and
     conditions set forth herein.

          b. The term of this Agreement (the "Term") shall be for the period
     beginning on the Effective Date and ending on December 31, 2004 unless
     earlier terminated as provided in Section 4.

     2. Duties.

          a. The Technical Advisor shall serve as a technical advisor to the
     Company with the responsibilities, duties and authority set forth below and
     additional responsibilities, duties and authority as may from time to time
     be assigned to the Technical Advisor by the CEO. During the Term, the
     Technical Advisor's duties shall include the following:

               (i)   Provide technical support in the development of projects
                     undertaken by the Company.

               (ii)  Provide industry expertise with respect to regulatory
                     positioning of the Company's products.

               (iii) Serve as advisor and mentor to the CEO with respect to
                     operational and integration issues.



               (iv) Review new products and technologies developed or purchased
                    by the Company.

               (v)  Evaluate products and technologies developed or owned by
                    target companies.

               (vi) Attend at least one strategy session with TC Group, L.L.C.,
                    a Delaware limited liability company (the "Carlyle Group").

          b. During the Term, it is expected that the Technical Advisor shall be
     accessible as needed to advise the Company and perform the duties set forth
     in Section 2(a).

          c. The Technical Advisor acknowledges and agrees that the Technical
     Advisor has a duty to act in the best interests of the Company. The
     Technical Advisor agrees not to commit any act that would injure the
     business, interests or reputation of the Company or any of the Company's
     subsidiaries, affiliates or owners.

     3. Compensation. As compensation for the Technical Advisor's services, the
Technical Advisor shall receive the following amounts:

          a. Advisory Fee. Subject to Section 5, The Company shall pay the
     Technical Advisor an advisory fee equal to $45,000 per year (the "Advisory
     Fee") in 12 monthly installments for the performance of the duties set
     forth in Section 2(a). The Technical Advisor acknowledges and agrees that
     the monthly installments are subject to withholding.

          b. Benefits. The Technical Advisor shall be entitled to participate in
     the Company's group health plan, group dental plan and 401(k) plan to the
     extent that the Technical Advisor is eligible to receive benefits under
     such plans.

          c. Expenses. The Company shall reimburse the Technical Advisor for all
     reasonable expenses incurred during the Term for travel, lodging,
     entertainment, and other business expenses incurred in connection with the
     performance of the duties set forth in Section 2.

     4. Termination. The Technical Advisor's engagement with the Company shall'
terminate upon the first to occur of the following events:

          a. automatically upon the death or retirement of the Technical
     Advisor;

          b. automatically upon the occurrence of any of the following events:
     (i) consummation of a merger or acquisition in which the Company is not the
     surviving entity; (ii) consummation of a sale, transfer or other
     disposition of all or substantially all of the assets of the Company; (iii)
     the Carlyle Group or any affiliate of the Carlyle Group (collectively,
     "Carlyle") cease to hold 50% of the shares of common stock of the Company;
     or (iv) an underwritten public offering of shares of common stock of the

                                       2



     Company pursuant to an effective registration statement under the
     Securities Act of 1933, as amended.

     5. Effect of Termination. The sole liability of the Company under this
Agreement upon termination of the Technical Advisor's engagement shall be to (a)
reimburse the Technical Advisor pursuant to Section 3(c) for reasonable expenses
incurred by the Technical Advisor during the Term, and (b) pay any accrued but
unpaid portion of the Advisory Fee (appropriately pro-rated to the date of
termination) and (c) make the Technical Advisor eligible to continue the medical
and/or dental coverage for up to 18 months pursuant to the COBRA regulations and
to comply with any other obligations under this Agreement which expressly
survive termination of the Technical Advisor's engagement or pursuant to any
other written agreements between the Technical Advisor and the Company. The
Technical Advisor acknowledges and agrees that the Company is not obligated to
provide any severance payment to the Technical Advisor upon termination of this
Agreement, and that the Company is not obligated to pay the Technical Advisor
for any accrued, but unused vacation or sick leave upon termination of the
Technical Advisor's engagement unless required by state law.

     6. Nondisclosure.

          a. Except as required in the faithful performance of the Technical
     Advisor's duties hereunder or pursuant to Section 6(c) below or as
     expressly authorized by the Company in writing, the Technical Advisor
     shall, in perpetuity, maintain in confidence and shall not directly,
     indirectly or otherwise, use, disseminate, disclose or publish, or use for
     his benefit or the benefit of any person, firm, corporation or other entity
     any confidential or proprietary information or trade secrets of or relating
     to the Company or Carlyle, including, without limitation, information with
     respect to the Company's or Carlyle's business operations, processes,
     products, inventions, business practices, finances, principals, vendors,
     suppliers, customers, potential customers, marketing methods, costs,
     prices, contractual relationships, regulatory status, compensation paid to
     the Technical Advisor or other terms of engagement, or deliver to any
     person, firm, corporation or other entity any document, record, notebook,
     computer program or similar repository of or containing any confidential or
     proprietary information or trade secrets. The parties hereby stipulate and
     agree that as between them the foregoing matters are important and
     material, and that the disclosure of confidential or proprietary
     information or trade secrets will affect the successful conduct of the
     businesses of the Company and/or Carlyle (and any successors or assignees
     of the Company or Carlyle). Information that (i) is generally known by the
     public, other than as a result of the Technical Advisor's acts or failure
     to act; or (ii) the Technical Advisor is legally required to disclose, is
     not subject to the restrictions of this Section 6(a).

          b. Upon termination of the Technical Advisor's engagement for any
     reason, the Technical Advisor will promptly deliver to the Company all
     correspondence, drawings, manuals, letters, notes, notebooks, reports,
     programs, plans, proposals, financial documents, budgets or board books or
     any other documents concerning the customers, business plans, marketing
     strategies, products and/or processes of the Company or Carlyle and shall
     promptly destroy, purge or delete any confidential or proprietary
     information or trade secrets which may have been recorded or otherwise
     placed in any computer memory

                                       3



     or storage device or incorporated in any documents or material which cannot
     practicably be returned to the Company.

          c. The Technical Advisor may respond to a lawful and valid subpoena or
     other legal process but shall give the Company the earliest possible notice
     thereof, and shall, as much in advance of the return date as possible, make
     available to the Company and its counsel the documents and other
     information sought and shall assist the Company's counsel in resisting or
     otherwise responding to the subpoena or other legal process. The Technical
     Advisor shall use his best efforts to lawfully avoid or limit disclosure of
     information requested pursuant to such subpoena or other legal process.

          d. For purposes of this Section 6, the term "the Company" shall
     include the Company and each of its affiliates.

     7. No Competition.

          a.  Except as otherwise permitted herein, the Technical Advisor shall
     not:

               (i)  at any time during the Term or during the two year period
                    following the expiration of the Term, without the prior
                    written consent of the Company, which consent may be granted
                    or withheld by the Company in its sole discretion, directly
                    or indirectly engage in, consult with, have any equity
                    interest in, or manage or operate any person, firm,
                    corporation, partnership or business (whether as director,
                    officer, employee, agent, representative, partner, security
                    holder, consultant, technical advisor or otherwise) that
                    engages in any business which competes with any business of
                    the Company anywhere in the world (as conducted during the
                    Term), provided, however, that the Technical Advisor shall
                    be permitted to acquire a stock or membership interest in
                    such an entity provided the entity is publicly traded and
                    the acquired interest is not more than two percent (2%)'6f
                    the outstanding shares or membership interests of the
                    entity; or

               (ii) at any time during the Term or during the two year period
                    following the expiration of the Term, without the prior
                    written consent of the Company, solicit or accept if offered
                    to him, with or without solicitation, on his own behalf or
                    on behalf of any other person, the services of any person
                    who is an employee of the Company, nor solicit or hire any
                    of the Company's employees or encourage any of the Company's
                    employees to terminate employment with the Company.

          b. In the event the terms of this Section 7 shall be determined by any
     court of competent jurisdiction to be unenforceable because the provision
     extends for too great a period of time, over too great a geographical area,
     or for any other reason, the provision shall be interpreted to extend only
     over the maximum period of time for which it may be

                                       4



     enforceable, and/or over the maximum geographical area as to which it may
     be enforceable and/or to the maximum extent in all other respects as to
     which it may be enforceable, all as determined by the court interpreting
     this Agreement.

          c. For purposes of this Section 7, the term "the Company" shall
     include the Company and each of its affiliates.

     8. Injunctive Relief; Survival.

          a. The Technical Advisor recognizes and acknowledges that a breach of
     the covenants contained in Section 6 and Section 7 will cause irreparable
     damage to the Company and Carlyle and their goodwill, the exact amount of
     which will be difficult or impossible to ascertain, and that the remedies
     at law for any breach will be inadequate. Accordingly, the Technical
     Advisor agrees that in the event of a breach of any of the covenants
     contained in Section 6 and Section 7, in addition to any other remedy which
     may be available at law or in equity, the Company and Carlyle shall be
     entitled to specific performance and injunctive relief.

          b. The rights and obligations of the parties arising under Section 6
     and Section 7, of this Agreement shall survive and will not be impaired by
     the termination of the Technical Advisor's engagement with the Company.

     9. Indemnification.

          The Company agrees to indemnify the Technical Advisor for the costs of
defense actually and reasonably incurred by the Technical Advisor in connection
with any civil or criminal action, suit or proceeding brought against the
Technical Advisor, and any judgment rendered against the Technical Advisor with
respect to any action, suit or proceeding as a result of a decision made, or
action taken within the scope of this Agreement, provided that, in the Company's
view, the Technical Advisor acted in good faith and in the Company's best
interests. The Company shall not indemnify the Technical Advisor for any costs
of defense incurred by the Technical Advisor as a result of any acts or
omissions that the Company determines constitute fraud, intentional misconduct,
or gross negligence. The Company and the Technical Advisor agree that the
Company shall be entitled to select counsel to represent the Technical Advisor
with respect to any action, suit or proceeding referenced in this Section 9.

     10. Binding on Successors. This Agreement shall be binding upon and inure
to the benefit of the Company, the Technical Advisor and their respective
successors, assigns, personnel and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.

     11. Complete Agreement. This Agreement constitutes the complete agreement
and understanding concerning the technical advisory arrangement between the
parties and shall supersede all other agreements, understandings or commitments
between the parties as to the technical advisory arrangement.

                                       5



     12. Prior Employment Agreement. The Technical Advisor acknowledges and
agrees that the Employment Agreement dated as of November 19, 1999, by and
between the Company and the Technical Advisor (the "Employment Agreement") will
expire by its terms on December 31, 2002. The Technical Advisor further
acknowledges and agrees that the Company or Carlyle will not be obligated to
provide any severance benefit to the Technical Advisor upon the expiration of
the Employment Agreement and that the Company will not be obligated to pay the
Technical Advisor for any accrued, but unused vacation or sick leave unless
required by state law.

     13. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same Agreement.

     14. Notice. All notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed sufficiently given when
provided by facsimile, delivered by hand, or deposited in the mail, registered
or certified, postage prepaid, and addressed to the party entitled to receive
notice at the following address (or any address the parties may subsequently
designate in writing in accordance herewith):

           The Company:

           Empi Corp.
           599 Cardigan Road
           St. Paul, MN 55126
           Attn:  Secretary
           Phone: (651) 415-9000
           Fax:   (651) 415-7497

           with a copy to:

           The Carlyle Group
           520 Madison Avenue, 41st Floor
           New York, NY 10022
           Attn:  Walter Jin
           Phone: (212) 381-4900
           Fax:   (212) 381-4901

           with a copy to:

           Latham & Watkins
           555 11th Street, N.W.
           Suite 1000
           Washington, D.C. 20004
           Attention:  David S. Dantzic, Esq.
           Phone: (202) 637-2200
           Fax:   (202) 637-2201

                                       6



          The Technical Advisor
          Joseph E. Laptewicz, Jr.
          119 Trent Lane
          Chocowinity, NC 27817

          with a copy to:

          ______________________________

          ______________________________

          ______________________________


     15. Waiver. No party shall be deemed to have waived any right, power or
privilege under this Agreement unless the waiver shall have been duly executed
in writing and acknowledged by the party to be charged with the waiver. The
failure of any party at any time to insist upon performance of any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
provision of this Agreement, nor in any way to affect the validity of this
Agreement or any part hereof. No waiver of any breach of this Agreement shall be
held to be a waiver of any subsequent breach.

     16. Choice of Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the state of Minnesota without regard
to its conflict of laws principles.

     17. Assignment. The Company may assign its rights and obligations under
this Agreement. The Technical Advisor may not assign this Agreement. This
Agreement is binding on the Technical Advisor, the Company and the Company's
successors and assigns whether by assignment, by operation of law or otherwise.

     18. Amendment. This Agreement may not be amended or modified at any time
except by a written instrument executed by the Company and the Technical
Advisor.

     19. Construction. This Agreement shall be deemed drafted equally by the
parties. The language contained in this Agreement shall be construed as a whole
and according to its fair meaning. Any presumption or principle that the
language is to be construed against any party shall not apply. The headings in
this Agreement are only for convenience and are not intended to affect
construction or interpretation. Any references to paragraphs, subparagraphs,
sections or subsections are to those parts of this Agreement, unless the context
clearly indicates to the contrary. Also, unless the context clearly indicates to
the contrary, (a) the plural includes the singular and the singular includes the
plural; (b) "and" and "or" are each used both conjunctively and disjunctively;
(c) "any," "all," "each," or "every" means "any and all," and "each and every";
(d) "includes" and "including" are each "without limitation"(e) "herein,"
"hereof," "hereunder" and other similar compounds of the word "here" refer to
the entire Agreement and not to any particular paragraph, subparagraph, section
or subsection; and (f) all pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the entities or persons referred to may require.

                                       7



     20. Enforcement. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during the Term
(a) the provision shall be fully severable; (b) this Agreement shall be
construed and enforced as if the illegal, invalid or unenforceable provision had
never comprised a portion of this Agreement, and (c) the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of the illegal, invalid or unenforceable
provision there shall be added automatically as part of this Agreement a
provision as similar in terms to the illegal, invalid or unenforceable provision
as possible and be legal, valid and enforceable.

                           (Signature Page to Follow)

                                       8



          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

THE COMPANY:

                                     EMPI CORP.

                                     By:   _____________________________________
                                     Name:
                                     Title:

THE TECHNICAL ADVISOR:  JOSEPH E. LAPTEWICZ, JR.

                                     By:   _____________________________________
                                     Name: Joseph E. Laptewicz, Jr.


                                       9

EX-10.6

                                                                    EXHIBIT 10.6

                              AMENDED AND RESTATED
                              MANAGEMENT AGREEMENT

         This Amended and Restated Management Agreement (the "Agreement") is
made as of the l/st/ day of January, 2004, by and between Empi, Inc., a
Minnesota corporation (the "Company"), TC Group Management, L.L.C., a Delaware
limited liability company ("Carlyle"), and GE Capital Equity Investments, Inc.
("GE Equity").

                                    RECITALS:

         WHEREAS, the Company, Carlyle and GE Equity previously entered into a
Management Agreement dated August 31, 1999 (the "Existing Agreement");

         WHEREAS, the Company, Carlyle and GE Equity wish to amend and restate
the Existing Agreement to reflect the changes hereinafter set forth.

                                   AGREEMENT:

         NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions herein set forth, the parties hereto agree to amend and
restate the Existing Agreement in its entirety as follows:

         1.    Appointment.

         The Company hereby appoints Carlyle to render advisory and consulting
services described in Section 2(a) and Section 2(c) hereof for the term of this
Agreement. The Company hereby appoints GE Equity to render advisory and
consulting services described in Section 2(b) hereby for the term of this
Agreement.

         2.    Services.

               (a)  Carlyle hereby agrees that during the term of this Agreement
Carlyle shall render to the Company, by and through such of Carlyle's officers,
employees, agents, representatives and affiliates as Carlyle, in its sole
discretion, shall designate from time to time, advisory, consulting and other
services (the "Carlyle Oversight Services") in relation to the day-to-day
operations of the Company and its subsidiaries, strategic planning, domestic and
international marketing and financial oversight and including, without
limitation, advisory and consulting services in relation to the selection,
retention and supervision of independent auditors, the selection, retention and
supervision of outside legal counsel, and the selection, retention and
supervision of investment bankers or other financial advisors or consultants.

               (b)  GE Equity hereby agrees that during the term of this
Agreement GE Equity shall render to the Company, by and through such of GE
Equity's officers, employees, agents, representatives, and affiliates as GE
Equity, in its sole discretion, shall designate from time to time, advisory,
consulting and other services (the "GE Oversight Services") in relation to the
day-to-day operations of the Company and its subsidiaries, strategic planning,
domestic and international marketing and financial oversight and including,
without limitation, advisory and consulting services in relation to the
selection, retention and supervision



of independent auditors, the selection, retention and supervision of outside
legal counsel, and the selection, retention and supervision of investment
bankers or other financial advisors or consultants.

               (c)  The parties hereto acknowledge that certain events will
require Carlyle to render services beyond the scope of activities which the
parties contemplate as part of the Carlyle Oversight Services and for which
Carlyle shall be entitled-to additional compensation hereunder. It is expressly
agreed that the Carlyle Oversight Services shall not include Investment Banking
Services. "Investment Banking Services" means investment banking, financial
advisory or any other services rendered by Carlyle to the Company in connection
with (i) any acquisitions and divestitures by the Company or MPI Holdings,
L.L.C., a Delaware limited liability company ("MPP'), or any of their
subsidiaries, whether by a purchase or sale of assets or capital stock or by
merger, recapitalization, consolidation or otherwise or (ii) the public or
private sale of debt or equity securities of the Company or its subsidiaries or
any similar financing. The Investment Banking Services and the Oversight
Services shall be referred to herein together as the "Carlyle Services".

         3.    Fees.

               (a)  In consideration of the performance of the Carlyle Oversight
Services and the GE Oversight Services contemplated by Section 2(a) and Section
2(b) hereof, the Company and its successors agree to pay to (i) Carlyle an
aggregate per annum fee equal to Two Hundred Seventy-Five Thousand Dollars
($275,000) (the "Carlyle Management Fee") and (ii) GE Equity an aggregate per
annum fee equal to Twenty-Five Thousand Dollars ($25,000) (the "GE Management
Fee" and together with the Carlyle Management Fee the "Management Fees"),
commencing on the date hereof and continuing until such time as this Agreement
is terminated in accordance with Section 6 or by the mutual written consent of
the parties hereto; provided, however, that GE Equity shall cease to have any
right to receive the GE Management Fee and shall cease to be obligated to
perform any services hereunder, if GE Equity and its affiliates cease to hold,
in the aggregate, at least 5% of the then outstanding Common Stock, par value
$.0l per share of the Company. The Management Fees shall be payable quarterly in
advance. Management Fee payments shall be non-refundable.

               (b)  In consideration of the Investment Banking Services provided
to the Company in connection with the events described in the definition of
Investment Banking Services, Carlyle shall be entitled to receive additional
reasonable compensation as agreed upon by the parties hereto and approved by the
majority of the Board of Directors of the Company. Carlyle shall not be
obligated to perform such services unless requested by the Company to so provide
such services and Carlyle and the Company reach agreement concerning
compensation to be paid to Carlyle for performing such services.

               (c)  Notwithstanding any provision hereof to the contrary, GE
Equity agrees that, in the event that Carlyle elects of agrees to forego or
defer payment of all or any portion of the Carlyle Management Fee for any
period, GE Equity will agree to forego or defer payment of an equivalent portion
of the GE Management Fee for such period or the same terms that Carlyle agrees
to forgo or defer the Carlyle Management Fee for such period.

                                        2



         4.    Reimbursements.

         In addition to the compensation payable to Carlyle pursuant to Section
3 hereof, the Company shall, at the direction of Carlyle, pay directly, or
reimburse Carlyle for, its reasonable Out-of-Pocket Expenses. For the purposes
of this Agreement, the term "Out-of-Pocket Expenses" shall mean the amounts
actually paid by Carlyle or its affiliates or their respective parties, members,
officers, directors or employees in connection with its or their performance of
the Services, including, without limitation, reasonable (i) fees and
disbursements (including, without limitation, underwriting fees) of any
independent professionals and organizations, including, without limitation,
independent auditors, outside legal counsel, consultants, investment bankers or
financial advisors, (ii) costs of any outside services or independent
contractors such as financial printers, couriers, business publications or
similar services and (iii) transportation, per diem, telephone calls, word
processing expenses or any similar expense not associated with its ordinary
operations. All reimbursements for Out-of-Pocket Expenses shall be made promptly
upon or as soon as practicable after presentation by Carlyle to the Company of a
statement or invoice requesting payment thereof.

         5.    Indemnification.

         The Company will indemnify and hold harmless each of Carlyle and GE
Equity and their officers, employees, agents, representatives, members and
affiliates (each being an "Indemnified Party") from and against any and all
losses, costs, expenses, claims, damages and liabilities (the "Liabilities") to
which such Indemnified Party may become subject under any applicable federal or
state law, or any claim made by any third party, or otherwise, to the extent
they relate to or arise out of the performance of the Services contemplated by
this Agreement or the engagement of Carlyle and GE Equity pursuant to, and the
performance by Carlyle and GE Equity of the Services contemplated by, this
Agreement. The Company will reimburse any Indemnified Party for all reasonable
costs and expenses (including reasonable attorneys' fees and expenses) as they
are incurred in connection with the investigation of, preparation for or defense
of any pending or threatened claim for which the Indemnified Party would be
entitled to indemnification under the terms of the previous sentence, or any
action or proceeding arising therefrom, whether or not such Indemnified Party is
a party hereto, provided that, subject to the following sentence, the Company
shall be entitled to assume the defense thereof at its own expense, with counsel
satisfactory to such Indemnified Party in its reasonable judgment. Any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense, and in any action, claim or proceeding in which the
Company, on the one hand, and an Indemnified Party, on the other hand, is, or is
reasonably likely to become, a party, such Indemnified Party shall have the
right to employ separate counsel at the Company's expense and to control his or
its own defense of such action, claim or proceeding if, in the reasonable
opinion of counsel to such Indemnified Party, a conflict or potential conflict
exists between the Company, on the one hand, and such Indemnified Party, on the
other hand, that would make such separate representation advisable. The Company
agrees that the Company will not, without the prior written consent of the
applicable Indemnified Party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the applicable
Indemnified Party and each other Indemnified Party from

                                        3



all liability arising or that may arise out of such claim, action or proceeding.
Provided that the Company is not in breach of its indemnification obligations
hereunder, no Indemnified Party shall settle or compromise any claim subject to
indemnification hereunder without the consent of the Company. The Company will
not be liable under the foregoing indemnification provision to the extent that
any loss, claim, damage, liability, cost or expense is determined by a court, in
a final judgment from which no further appeal may be taken, to have resulted
solely from the willful misconduct of Carlyle or GE Equity. If an Indemnified
Party is reimbursed hereunder for any expenses, such reimbursement of expenses
shall be refunded to the extent it is finally judicially determined that the
liabilities in question resulted solely from the willful misconduct of such
Indemnified Party.

         6.    Term.

         This Agreement shall be in effect on the date hereof and shall continue
until the earlier of (i) such time as this Agreement is terminated by the mutual
written consent of Carlyle and the Company or (ii) such time as MPI or one or
more of its affiliates collectively control, in the aggregate, less than 10% of
the outstanding shares of voting common stock of the Company. The provisions of
Sections 5, 7 and 8 shall survive the termination of this Agreement.

         7.    Permissible Activities.

         Nothing herein shall in any way preclude Carlyle or GE Equity or their
respective officers, employees, agents, representatives, members or affiliates
from engaging in any business activities or from performing services for its or
their own account or for the account of others, including for companies that may
be in competition with the business conducted by the Company.

         8.    General.

               (a)  No amendment or waiver of any provision of this Agreement,
or consent to any departure by either party from any such provision, shall be
effective unless the same shall be in writing and signed by the parties to this
Agreement, and, in any case, such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

               (b)  This Agreement and the rights of the parties hereunder may
not be assigned without the prior written consent of the parties hereto;
provided, however, Carlyle may assign or transfer its duties or interests
hereunder to a Carlyle affiliate at the sole discretion of Carlyle.

               (c)  Any and all notices hereunder shall, in the absence of
receipted hand delivery, be deemed duly given when mailed, if the same shall be
sent by registered or certified mail, return receipt requested, and the mailing
date shall be deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties at the following
addresses:

                                        4



         If to Carlyle:        TC Group Management, L.L.C.
                               c/o The Carlyle Group
                               520 Madison Avenue, 41/st/ Floor
                               New York, NY 10022
                               Attention: Bob Dahl

         If to GE Equity:      GE Capital Equity Investments, Inc.
                               120 Long Ridge Road
                               Stamford, CT 06927
                               Attention: Steve Warner

         If to the Company:    Empi, Inc.
                               599 Cardigan Road
                               St. Paul, MN 55126
                               Attention: Pat Spangler

               (d)  This Agreement shall constitute the entire agreement between
the parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.

               (e)  This Agreement shall be governed by, and enforced in
accordance with, the laws of the State of Delaware (excluding the choice of law
principles thereof). The parties to this Agreement hereby agree to submit to the
non-exclusive jurisdiction of the federal and state courts located in the state
of Delaware in any action or proceeding arising out of or relating to this
Agreement. This Agreement shall inure to the benefit of, and be binding upon,
Carlyle and the Company (including any present or future subsidiaries of the
Company that are not signatories hereto), and their respective successors and
permitted assigns.

               (f)  This Agreement may be executed in two or more counterparts,
and by different parties on separate counterparts. Each set of counterparts
showing execution by all parties shall be deemed an original, and shall
constitute one and the same instrument.

               (g)  The waiver by any party of any breach of this Agreement
shall not operate as or be construed to be a waiver by such party of any
subsequent breach.

                  [Remainder of page intentionally left blank]

                                        5



         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers or agents as set forth
below.

                                   TC GROUP MANAGEMENT, L.L.C.

                                   By:   TC Group, L.L.C.
                                   Its:  Managing Member

                                         By:   TCG Holdings, L.L.C.
                                         Its:  Managing Member


                                   By:   _______________________________
                                         Name:   W. Robert Dahl
                                         Title:  Managing Director


                                   GE CAPITAL EQUITY INVESTMENTS, INC.


                                   By:   _______________________________
                                         Name:   Steve Warner
                                         Title:  Duly Authorized Signatory


                                   EMPI, INC.


                                   By:   _______________________________
                                         Name:   Patrick D. Spangler
                                         Title:  Chief Financial Officer

                                        6

EX-10.7

                                                                    EXHIBIT 10.7

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.

                             SECURED PROMISSORY NOTE

$492,500                                                        February 1, 2000

        FOR VALUE RECEIVED, the undersigned (the "Payor") hereby promises to pay
to the order of Empi Corp., a Minnesota corporation (the "Payee" or the
"Company"), the principal amount Four hundred ninety-two thousand five hundred
Dollars ($492,500) (the "Principal Amount"), together with interest accrued
thereon, calculated and payable as set forth below in this Note.

        As security for the performance of his obligations herein, Payor has,
contemporaneously with this Note, entered a Stock Pledge and Security Agreement
dated as of the date hereof between Payor and Payee (the "Pledge Agreement" and,
together with this Note, the "Loan Documents").

        1. Certain Defined Terms.

        For the purposes hereof, the following terms shall have the following
meanings:

            1.1 "Affiliate" of any specified Person means any other Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person, (ii)
which beneficially owns or holds 15% or more of any class of the Voting Stock or
other equity interest of such specified Person or (iii) of which 15% or more of
the Voting Stock or other equity interest is beneficially owned or held by such
specified Person or a Subsidiary of such specified Person. For the purposes of
this definition, "control" when used with respect to any specified Person means
the power to direct the management and policies of such Person directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

            1.2 "Capital Stock", with respect to any Person, means any capital
stock or membership interests of such Person, regardless of class or
designation, and all warrants, options, purchase rights, conversion or exchange
rights, voting rights, calls or claims of any character with respect thereto.

            1.3 "Carlyle" means T.C. Group, L.L.C., a limited liability company
organized under the laws of the State of Delaware.

            1.4 "Carlyle Investors" means the Persons which are members of MPI
Holdings, L.L.C., a Delaware limited liability company, as of August 31, 1999.

            1.5 "Commission" means the Securities and Exchange Commission and
any Governmental Authority succeeding to the functions thereof.



            1.6  "Final Payment Date" has the meaning set forth in Section 2.3.

            1.7  "Governmental Authority" means any nation or government, any
federal, state, local or other political subdivision thereof and any
governmental entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

            1.8  "Liquidity Event" means the first occurrence of the sale,
transfer, conveyance or other disposition, in one or a series of related
transactions, of the debt and equity securities of Parent held by the Principal
Stockholder such that immediately following such transaction (or transactions),
the value (at original cost) of all debt and equity securities of Parent held by
the Principal Stockholder is less than 20% of the value (at original cost) of
the debt and equity securities of Parent held by the Principal Stockholder as of
August 31, 1999.

            1.9  "Parent" means Empi, Inc., a Minnesota corporation, the parent
of the Company.

            1.10 "Person" means any natural person, corporation, limited
partnership, limited liability company, general partnership, joint stock
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust, or other organization, whether or not a legal entity, and
any Governmental Authority.

            1.11 "Principal Stockholder" means, collectively, MPI Holdings,
L.L.C. and any of its Permitted Assignees (as such term is defined in that
certain Shareholder Voting and Control Agreement by and among the Company, GE
Capital Equity Investments, Inc. and MPI Holdings, L.L.C.).

            1.12 "Securities" means any stock, shares, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or any
certificates of interest, shares or participation in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire any of the foregoing.

            1.13 "Securities Act" means the Securities Act of 1933, as amended
from time to time, and any successor statute.

            1.14 "Shares" has the meaning set forth in Section 2.2.

            1.15 "Subsidiary" of a Person means any corporation or other entity
of which equity Securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are the time directly or indirectly owned or controlled by
such Person, one or more of the other subsidiaries of such Person or any
combination thereof.

            1.16 "Voting Stock" means, with respect to any Person, securities
with respect to any class or classes of Capital Stock of such Person entitling
the holders thereof (whether at all times or only so long as no senior class of
stock or membership interest has voting

                                        2



power by reason of any contingency) to vote in the election of members of the
board of directors or management committee of such Person.

        2.  Payment of Principal and Interest.

            2.1 Calculation and Payment of Interest. Interest on the principal
balance of this Note outstanding from time to time until paid in full shall
accrue at the rate of 9.0% per annum, computed on the basis of a 365 or 366 day
year, as appropriate, for the actual number of days elapsed, commencing on the
date hereof for this Note.

            2.2 Mandatory Payments of Principal Prior to Final Payment Date. At
any time that a distribution of cash is made by Parent to Payor in respect of
any shares of common stock, par value $0.01 per share, of Parent then held by
Payor (the "Shares"), Payor shall immediately thereupon make a payment on this
Note equal to the total amount distributed up to the Principal Amount, together
with all accrued and unpaid interest thereon, then outstanding. In the event
that (x) Payor sells or transfers, or purports to sell or transfer, all or any
portion of the Shares, or the Shares are converted into the right to receive any
consideration other than shares of capital stock of a successor in interest of
Parent, (y) Payor ceases to be an employee of Parent and its Subsidiaries other
than as a result of death, disability or retirement, or (z) Payor, at any time
after the date hereof is employed by or works as an independent contractor
providing services to, or as a consultant for, any competitor of Parent or any
of its Subsidiaries (as determined in good faith by the Board of Directors of
the Company), the Principal Amount, together with all accrued and unpaid
interest thereof, shall immediately be due and payable.

            2.3 Final Payment Date. Unless earlier repaid in full as a result of
mandatory payments of principal pursuant to Section 2.2 hereof, the Principal
Amount and any accrued interest thereon, and all other amounts as may be due
hereunder shall become due and payable upon the earlier to occur of: (A) the
eighth anniversary of the date hereof, or (B) a Liquidity Event (the "Final
Payment Date").

            2.4 Prepayment. Payor may at his or her option, at any time, without
premium or penalty, prepay all or any portion of the Note.

            2.5 Remedies on Default. Upon the occurrence of an Event of Default
(as defined below), Payee may (a) declare the Principal Amount to be due and
payable, whereupon the Principal Amount and any accrued interest thereon and all
other amounts as may be due hereunder shall become immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which the
Payor hereby expressly waives; and (b) exercise any and all rights and remedies
available to it at law or in equity or under any of the Loan Documents,
including without limitation judicial or non-judicial foreclosure or public or
private sale of any of the Collateral (as defined in the Pledge Agreement)
pursuant to the Pledge Agreement. No delay or omission of the Payee to exercise
any right under the Loan Documents shall impair such right or be construed to be
a waiver of any Event of Default or an acquiescence therein. Any single or
partial exercise of any such right shall not preclude other or further exercise
thereof or the exercise of any other right. All remedies contained in the Loan
Documents or afforded by law shall be cumulative and all shall be available to
the Payee until all obligations of Payor hereunder and under the other Loan
Documents have been paid in full.

                                        3



        3.  Events of Default.

        In this Note, "Event of Default" means the occurrence of any of the
following:

            3.1 Failure to Make Payments. Payor shall fail to pay, in accordance
with the terms of this Note or any other Loan Document, any amount then due and
owing by Payor hereunder or under any other Loan Document upon the date that
such sum is due.

            3.2 Breach of Terms of Loan Documents. Any of the representations or
warranties made by Payor in any of the Loan Documents shall have been false or
misleading in any material respect or Payee shall fail to perform or observe any
covenants or obligations set forth in any of the Loan Documents (and such
failure shall continue unremedied for a period of thirty days after Payee
becomes or is made aware thereof).

            3.3 Security. The Pledge Agreement shall, except as a result of the
acts or omissions of Payee or any change in applicable law, in any material
respect fail to provide the Payee the security interest, rights, title,
remedies, powers or privileges intended to be created thereby, shall cease to be
in full force and effect, or the validity thereof or the applicability thereof
to the Note, or any other obligations purported to be secured or guaranteed
thereby, or any part thereof shall be disaffirmed by or on behalf of Payor. In
the event of such a change in applicable law, Payor shall take such actions as
may reasonably be requested by the Company, including, without limitation,
entering into such amendment of the Loan Documents as may be necessary to
provide the Payee the security interest, rights, title, remedies, powers or
privileges as are intended to be created by the Pledge Agreement.

            3.4 Insolvency of Payor. Payor shall become insolvent or shall be
unable to pay his debts as they fall due.

        4.  Recourse.

        In the event of default in payment under this Note, Payee shall have
recourse first against the Collateral, and second, against the other assets of
Payor to the full extent of the accreted value of this Note.

        5.  Place of Payment and Notices.

            5.1 Place of Payment. All payments on this Note shall be paid in
lawful currency of the United States of America at the address of the Payee set
forth for notices in Section 5.2, or such other place as may be specified by the
Payee from time to time or otherwise as Payee distributes to Payor.

            5.2 Notice. Any notice or other communication required or permitted
to be given hereunder shall be in writing, and shall be delivered to the parties
at the addresses set forth below (or to such other addresses as the parties may
specify by due notice to the others). Notices or other communications given by
certified mail, return receipt requested, postage prepaid, shall be deemed given
three (3) days after the date of mailing. Notices or other communications set in
any other manner shall be deemed given only when actually received.

                                        4



                              Payee:   Empi Corp.
                                       The Carlyle Group
                                       1001 Pennsylvania Avenue, N.W.
                                       Suite 200 South
                                       Washington, D.C. 20004

                              Payor:   H. Philip Vierling
                                       c/o Empi Sales Corp.
                                       599 Cardigan Rd.
                                       St. Paul, MN 55126

        6.  Usury.

        Nothing contained in this Note shall be deemed to establish or require
the payment of a rate of interest in excess of the maximum rate legally
enforceable. If the rate of interest called for under this Note at any time
exceeds the maximum rate legally enforceable, the rate of interest required to
be paid hereunder shall be automatically reduced to the maximum rate legally
enforceable. If such interest rate is so reduced and thereafter the maximum rate
legally enforceable is increased, the rate of interest required to be paid
hereunder shall be automatically increased to the lesser of the maximum rate
legally enforceable and the rate otherwise provided for in this Note.

        7.  Miscellaneous.

        Each right, power or remedy of Payee under this Note or under applicable
law shall be cumulative and concurrent, and the exercise of one or more of them
shall not preclude the simultaneous or later exercise by the Payee of any or all
of such other rights, powers or remedies. No modification, change, wavier or
amendment to this Note shall be deemed to be made unless in writing signed by
the party to be charged. If it becomes necessary to employ counsel to collect
this obligation, the Payor agrees to pay reasonable attorneys' fees for legal
services involved. This Note may not be assigned by Payor without the prior
written consent of Payee in its sole discretion. The Payor and each endorser,
guarantor, accommodation party, and surety of this Note hereby waives demand,
presentment for payment, protest, notice of dishonor and notice of protest. This
Note shall inure to the benefit of and be binding upon the parties and their
respective successors and assigns. The invalidity, illegality or enforceability
of any of the provisions of this Note shall not effect or impair the validity,
legality or enforceability of any other provision. This Note shall be deemed to
be made in, and shall be governed by the laws of, the State of Minnesota.

                            [Signature Pages Follow]

                                        5



Dated: February 1, 2000                PAYOR
                                       By:  _________________________
                                            H. Philip Vierling

                                        6



                                 Acknowledgement

        Empi Corp., Payee under the attached Secured Promissory Note, dated as
of February 1, 2000 (the "Note") hereby acknowledges the provisions of this Note
and agrees to be bound by the provisions thereof.

                                        EMPI CORP.

                                        By:__________________________________
                                           Patrick D. Spangler
                                           Executive Vice President & CFO

                                        7

EX-10.8

                                                                    EXHIBIT 10.8

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.

                             SECURED PROMISSORY NOTE

$492,500                                                       February 1, 2000

         FOR VALUE RECEIVED, the undersigned (the "Payor") hereby promises to
pay to the order of Empi Corp., a Minnesota corporation (the "Payee" or the
"Company"), the principal amount Four hundred ninety-two thousand five hundred
Dollars ($492,500) (the "Principal Amount"), together with interest accrued
thereon, calculated and payable as set forth below in this Note.

         As security for the performance of his obligations herein, Payor has,
contemporaneously with this Note, entered a Stock Pledge and Security Agreement
dated as of the date hereof between Payor and Payee (the "Pledge Agreement" and,
together with this Note, the "Loan Documents").

         1. Certain Defined Terms.

         For the purposes hereof, the following terms shall have the following
meanings:

            1.1 "Affiliate" of any specified Person means any other Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person, (ii)
which beneficially owns' or holds 15% or more of any class of the Voting Stock
or other equity interest of such specified Person or (iii) of which 15% or more
of the Voting Stock or other equity interest is beneficially owned or held by
such specified Person or a Subsidiary of such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

            1.2 "Capital Stock", with respect to any Person, means any capital
stock or membership interests of such Person, regardless of class or
designation, and all warrants, options, purchase rights, conversion or exchange
rights, voting rights, calls or claims of any character with respect thereto.

            1.3 "Carlyle" means T.C. Group, L.L.C., a limited liability company
organized under the laws of the State of Delaware.

            1.4 "Carlyle Investors" means the Persons which are members of MPI
Holdings, L.L.C., a Delaware limited liability company, as of August 31, 1999.

            1.5 "Commission" means the Securities and Exchange Commission and
any Governmental Authority succeeding to the functions thereof.



            1.6  "Final Payment Date" has the meaning set forth in Section 2.3.

            1.7  "Governmental Authority" means any nation or government, any
federal, state, local or other political subdivision thereof and any
governmental entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

            1.8  "Liquidity Event" means the first occurrence of the sale,
transfer, conveyance or other disposition, in one or a series of related
transactions, of the debt and equity securities of Parent held by the Principal
Stockholder such that immediately following such transaction (or transactions),
the value (at original cost) of all debt and equity securities of Parent held by
the Principal Stockholder is less than 20% of the value (at original cost) of
the debt and equity securities of Parent held by the Principal Stockholder as of
August 31, 1999.

            1.9  "Parent" means Empi, Inc., a Minnesota corporation, the parent
of the Company.

            1.10 "Person" means any natural person, corporation, limited
partnership, limited liability company, general partnership, joint stock
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust, or other organization, whether or not a legal entity, and
any Governmental Authority.

            1.11 "Principal Stockholder" means, collectively, MPI Holdings,
L.L.C. and any of its Permitted Assignees (as such term is defined in that
certain Shareholder Voting and Control Agreement by and among the Company, GE
Capital Equity Investments, Inc. and UPI Holdings, L.L.C.).

            1.12 "Securities" means any stock, shares, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or any
certificates of interest, shares or participation in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire any of the foregoing.

            1.13 "Securities Act" means the Securities Act of 1933, as amended
from time to time, and any successor statute.

            1.14 "Shares" has the meaning set forth in Section 2.2.

            1.15 "Subsidiary" of a Person means any corporation or other entity
of which equity Securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are the time directly or indirectly owned or controlled by
such Person, one or more of the other subsidiaries of such Person or any
combination thereof.

            1.16 "Voting Stock" means, with respect to any Person, securities
with respect to any class or classes of Capital Stock of such Person entitling
the holders thereof (whether at all times or only so long as no senior class of
stock or membership interest has voting

                                        2



power by reason of any contingency) to vote in the election of members of the
board of directors or management committee of such Person.

        2.  Payment of Principal and Interest.

            2.1 Calculation and Payment of Interest. Interest on the principal
balance of this Note outstanding from time to time until paid in full shall
accrue at the rate of 9.0% per annum, computed on the basis of a 365 or 366 day
year, as appropriate, for the actual number of days elapsed, commencing on the
date hereof for this Note.

            2.2 Mandatory Payments of Principal Prior to Final Payment Date. At
any time that a distribution of cash is made by Parent to Payor in respect of
any shares of common stock, par value $0.01 per share, of Parent then held by
Payor (the "Shares"), Payor shall immediately thereupon make a payment on this
Note equal to the total amount distributed up to the Principal Amount, together
with all accrued and unpaid interest thereon, then outstanding. In the event
that (x) Payor sells or transfers, or purports to sell or transfer, all or any
portion of the Shares, or the Shares are converted into the right to receive any
consideration other than shares of capital stock of a successor in interest of
Parent, (y) Payor ceases to be an employee of Parent and its Subsidiaries other
than as a result of death, disability or retirement, or (z) Payor, at any time
after the date hereof is employed by or works as an independent contractor
providing services to, or as a consultant for, any competitor of Parent or any
of its Subsidiaries (as determined in good faith by the Board of Directors of
the Company), the Principal Amount, together with all accrued and unpaid
interest thereof, shall immediately be due and payable.

            2.3 Final Payment Date. Unless earlier repaid in full as a result of
mandatory payments of principal pursuant to Section 2.2 hereof, the Principal
Amount and any accrued interest thereon, and all other amounts as may be due
hereunder shall become due and payable upon the earlier to occur of: (A) the
eighth anniversary of the date hereof, or (B) a Liquidity Event (the "Final
Payment Date").

            2.4 Prepayment. Payor may at his or her option, at any time, without
premium or penalty, prepay all or any portion of the Note.

            2.5 Remedies on Default. Upon the occurrence of an Event of Default
(as defined below), Payee may (a) declare the Principal Amount to be due and
payable, whereupon the Principal Amount and any accrued interest thereon and all
other amounts as may be due hereunder shall become immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which the
Payor hereby expressly waives; and (b) exercise any and all rights and remedies
available to it at law or in equity or under any of the Loan Documents,
including without limitation judicial or non judicial foreclosure or public or
private sale of any of the Collateral (as defined in the Pledge Agreement)
pursuant to the Pledge Agreement. No delay or omission of the Payee to exercise
any right under the Loan Documents shall impair such right or be construed to be
a waiver of any Event of Default or an acquiescence therein. Any single or
partial exercise of any such right shall not preclude other or further exercise
thereof or the exercise of any other right. All remedies contained in the Loan
Documents or afforded by law shall be cumulative and all shall be available to
the Payee until all obligations of Payor hereunder and under the other Loan
Documents have been paid in full.

                                        3



        3.  Events of Default.

        In this Note, "Event of Default" means the occurrence of any of the
following:

            3.1 Failure to Make Payments. Payor shall fail to pay, in accordance
with the terms of this Note or any other Loan Document, any amount then due and
owing by Payor hereunder or under any other Loan Document upon the date that
such sum is due.

            3.2 Breach of Terms of Loan Documents. Any of the representations or
warranties made by Payor in any of the Loan Documents shall have been false or
misleading in any material respect or Payee shall fail to perform or observe any
covenants or obligations set forth in any of the Loan Documents (and such
failure shall continue unremedied for a period of thirty days after Payee
becomes or is made aware thereof).

            3.3 Security. The Pledge Agreement shall, except as a result of the
acts or omissions of Payee or any change in applicable law, in any material
respect fail to provide the Payee the security interest, rights, title,
remedies, powers or privileges intended to be created thereby, shall cease to be
in full force and effect, or the validity thereof or the applicability thereof
to the Note, or any other obligations purported to be secured or guaranteed
thereby, or any part thereof shall be disaffirmed by or on behalf of Payor. In
the event of such a change in applicable law, Payor shall take such actions as
may reasonably be requested by the Company, including, without limitation,
entering into such amendment of the Loan Documents as may be necessary to
provide the Payee the security interest, rights, title, remedies, powers or
privileges as are intended to be created by the Pledge Agreement.

            3.4 Insolvency of Payor. Payor shall become insolvent or shall be
unable to pay his debts as they fall due.

        4.  Recourse.

            In the event of default in payment under this Note, Payee shall have
recourse first against the Collateral, and second, against the other assets of
Payor to the full extent of the accreted value of this Note.

        5.  Place of Payment and Notices.

            5.1 Place of Payment. All payments on this Note shall be paid in
lawful currency of the United States of America at the address of the Payee set
forth for notices in Section 5.2, or such other place as may be specified by the
Payee from time to time or otherwise as Payee distributes to Payor.

            5.2 Notice. Any notice or other communication required or permitted
to be given hereunder shall be in writing, and shall be delivered to the parties
at the addresses set forth below (or to such other addresses as the parties may
specify by due notice to the others). Notices or other communications given by
certified mail, return receipt requested, postage prepaid, shall be deemed given
three (3) days after the date of mailing. Notices or other communications set in
any other manner shall be deemed given only when actually received.

                                        4



                            Payee:      Empi Corp.
                                        c/o The Carlyle Group
                                        1001 Pennsylvania Avenue, N.W.
                                        Suite 200 South
                                        Washington, D.C. 20004

                            Payor:      Patrick D. Spangler
                                        Empi Sales Corp.
                                        599 Cardigan Rd.
                                        St. Paul, MN 55126

        6.  Usury.

        Nothing contained in this Note shall be deemed to establish or require
the payment of a rate of interest in excess of the maximum rate legally
enforceable. If the rate of interest called for under this Note at any time
exceeds the maximum rate legally enforceable, the rate of interest required to
be paid hereunder shall be automatically reduced to the maximum rate legally
enforceable. If such interest rate is so reduced and thereafter the maximum rate
legally enforceable is increased, the rate of interest required to be paid
hereunder shall be automatically increased to the lesser of the maximum rate
legally enforceable and the rate otherwise provided for in this Note.

        7.  Miscellaneous.

        Each right, power or remedy of Payee under this Note or under applicable
law shall be cumulative and concurrent, and the exercise of one or more of them
shall not preclude the simultaneous or later exercise by the Payee of any or all
of such other rights, powers or remedies. No modification, change, wavier or
amendment to this Note shall be deemed to be made unless in writing signed by
the party to be charged. If it becomes necessary to employ counsel to collect
this obligation, the Payor agrees to pay reasonable attorneys' fees for legal
services involved. This Note may not be assigned by Payor without the prior
written consent of Payee in its sole discretion. The Payor and each endorser,
guarantor, accommodation party, and surety of this Note hereby waives demand,
presentment for payment, protest, notice of dishonor and notice of protest. This
Note shall inure to the benefit of and be binding upon the parties and their
respective successors and assigns. The invalidity, illegality or enforceability
of any of the provisions of this Note shall not effect or impair the validity,
legality or enforceability of any other provision. This Note shall be deemed to
be made in, and shall be governed by the laws of, the State of Minnesota.

                            [Signature Pages Follow]

                                        5



Dated: February 1, 2000              PAYOR


                                     By:______________________________
                                        Patrick D. Spangler

                                        6



                                 Acknowledgement

        Empi Corp., Payee under the attached secured Promissory Note, dated as
of February 1, 2000 (the "Note") hereby acknowledges the provisions of this Note
and agrees to be bound by the provisions thereof.

                                        EMPI CORP.


                                        By:_______________________________
                                           H. Philip Vierling
                                           President & Chief Operating Officer

                                        7

EX-10.9

                                                                  Execution Copy

                                                                    EXHIBIT 10.9

================================================================================

                                  $190,000,000


                                CREDIT AGREEMENT

                                      among

                                   EMPI, INC.,

                                   EMPI CORP.,

                                  as Borrower,

              The Several Lenders from Time to Time Parties Hereto,

                      WACHOVIA BANK, NATIONAL ASSOCIATION,

                             as Documentation Agent,

                                       and

                              JPMORGAN CHASE BANK,

                  as Administrative Agent and Syndication Agent

                          Dated as of November 24, 2003

================================================================================


     J.P. Morgan Securities Inc., as exclusive Joint Lead Arranger and Sole
                                   Bookrunner

         Wachovia Capital Markets, LLC, as exclusive Joint Lead Arranger



                                TABLE OF CONTENTS


                                                                                                      Page
                                                                                                   
SECTION 1. DEFINITIONS................................................................................   1

   1.1  Defined Terms.................................................................................   1
   1.2  Other Definitional Provisions.................................................................  20

SECTION 2. AMOUNT AND TERMS OF COMMITMENTS............................................................  20

   2.1  Term Commitments..............................................................................  20
   2.2  Procedure for Term Loan Borrowing.............................................................  21
   2.3  Repayment of Term Loans.......................................................................  21
   2.4  Revolving Commitments.........................................................................  21
   2.5  Procedure for Revolving Loan Borrowing........................................................  22
   2.6  Repayment of Loans............................................................................  22
   2.7  Commitment Fees, etc..........................................................................  23
   2.8  Termination or Reduction of Revolving Commitments.............................................  23
   2.9  Optional Prepayments..........................................................................  23
   2.10 Mandatory Prepayments and Commitment Reductions...............................................  23
   2.11 Conversion and Continuation Options...........................................................  24
   2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.....................................  25
   2.13 Interest Rates and Payment Dates..............................................................  25
   2.14 Computation of Interest and Fees..............................................................  26
   2.15 Inability to Determine Interest Rate..........................................................  26
   2.16 Pro Rata Treatment and Payments...............................................................  26
   2.17 Requirements of Law...........................................................................  28
   2.18 Taxes.........................................................................................  29
   2.19 Indemnity.....................................................................................  31
   2.20 Illegality....................................................................................  31
   2.21 Change of Lending Office......................................................................  31
   2.22 Replacement of Lenders........................................................................  31

SECTION 3. LETTERS OF CREDIT..........................................................................  32

   3.1  L/C Commitment................................................................................  32
   3.2  Procedure for Issuance of Letter of Credit....................................................  32
   3.3  Fees and Other Charges........................................................................  32
   3.4  L/C Participations............................................................................  33
   3.5  Reimbursement Obligation of the Borrower......................................................  34
   3.6  Obligations Absolute..........................................................................  34
   3.7  Letter of Credit Payments.....................................................................  34
   3.8  Applications..................................................................................  34

SECTION 4. REPRESENTATIONS AND WARRANTIES.............................................................  34

   4.1  Financial Condition...........................................................................  35




                                                                                                     
   4.2  No Change.....................................................................................  35
   4.3  Existence; Compliance with Law................................................................  35
   4.4  Corporate Power; Authorization; Enforceable Obligations.......................................  36
   4.5  No Legal Bar..................................................................................  36
   4.6  No Material Litigation........................................................................  36
   4.7  No Default....................................................................................  36
   4.8  Ownership of Property; Liens..................................................................  36
   4.9  Intellectual Property.........................................................................  36
   4.10 Taxes.........................................................................................  37
   4.11 Federal Regulations...........................................................................  37
   4.12 Labor Matters.................................................................................  37
   4.13 ERISA.........................................................................................  37
   4.14 Investment Company Act........................................................................  38
   4.15 Subsidiaries..................................................................................  38
   4.16 Environmental Matters.........................................................................  38
   4.17 Accuracy of Information, etc..................................................................  39
   4.18 Security Documents............................................................................  39
   4.19 Solvency......................................................................................  40
   4.20 Regulation H..................................................................................  40

SECTION 5. CONDITIONS PRECEDENT.......................................................................  40

   5.1  Conditions to Initial Extension of Credit.....................................................  40
   5.2  Conditions to Each Extension of Credit........................................................  42

SECTION 6. AFFIRMATIVE COVENANTS......................................................................  43

   6.1  Financial Statements..........................................................................  43
   6.2  Certificates; Other Information...............................................................  43
   6.3  Payment of Obligations........................................................................  44
   6.4  Conduct of Business and Maintenance of Existence, etc.........................................  45
   6.5  Maintenance of Property; Insurance............................................................  45
   6.6  Inspection of Property; Books and Records; Discussions........................................  45
   6.7  Notices.......................................................................................  45
   6.8  Environmental Laws............................................................................  46
   6.9  Interest Rate Protection......................................................................  46
   6.10 Additional Collateral, etc....................................................................  46
   6.11 Further Assurances............................................................................  48
   6.12 Use of Proceeds...............................................................................  48
   6.13 Title Insurance...............................................................................  48

SECTION 7. NEGATIVE COVENANTS.........................................................................  49

   7.1  Financial Condition Covenants.................................................................  49
   7.2  Indebtedness..................................................................................  51
   7.3  Liens.........................................................................................  52
   7.4  Fundamental Changes...........................................................................  53





                                                                                
    7.5   Disposition of Property................................................  54
    7.6   Restricted Payments....................................................  54
    7.7   Capital Expenditures...................................................  55
    7.8   Investments............................................................  55
    7.9   Optional Payments and Modifications of Certain Debt Instruments........  56
    7.10  Transactions with Affiliates...........................................  57
    7.11  Sales and Leasebacks...................................................  57
    7.12  Changes in Fiscal Periods..............................................  57
    7.13  Negative Pledge Clauses................................................  57
    7.14  Clauses Restricting Subsidiary Distributions...........................  58
    7.15  Lines of Business......................................................  58
    7.16  Limitations on Activities of Holdings..................................  58
    7.17  Limitation on Hedge Agreements.........................................  58
    7.18  Changes in Jurisdictions of Organization; Name.........................  58

SECTION 8.   EVENTS OF DEFAULT...................................................  59


SECTION 9.   THE AGENTS..........................................................  62

    9.1   Appointment............................................................  62
    9.2   Delegation of Duties...................................................  62
    9.3   Exculpatory Provisions.................................................  62
    9.4   Reliance by Administrative Agent.......................................  62
    9.5   Notice of Default......................................................  63
    9.6   Non-Reliance on Agents and Other Lenders...............................  63
    9.7   Indemnification........................................................  63
    9.8   Agent in Its Individual Capacity.......................................  64
    9.9   Successor Administrative Agent.........................................  64
    9.10  Authorization to Release Liens and Guarantees..........................  64
    9.11  Documentation Agent and Syndication Agent..............................  64

SECTION 10.  MISCELLANEOUS.......................................................  64

   10.1   Amendments and Waivers.................................................  64
   10.2   Notices................................................................  66
   10.3   No Waiver; Cumulative Remedies.........................................  67
   10.4   Survival of Representations and Warranties.............................  67
   10.5   Payment of Expenses; Indemnification...................................  67
   10.6   Successors and Assigns; Participations and Assignments.................  68
   10.7   Adjustments; Set-off...................................................  70
   10.8   Counterparts...........................................................  71
   10.9   Severability...........................................................  71
   10.10  Integration............................................................  71
   10.11  GOVERNING LAW..........................................................  71
   10.12  Submission To Jurisdiction; Waivers....................................  71
   10.13  Acknowledgments........................................................  72
   10.14  Confidentiality........................................................  72





                                                                                
   10.15  Release of Collateral and Guarantee Obligations........................  73
   10.16  Accounting Changes.....................................................  73
   10.17  WAIVERS OF JURY TRIAL..................................................  74





SCHEDULES:

1.1A        Commitments
1.1B        Mortgaged Property

4.4         Consents, Authorizations, Filings and Notices
4.15        Subsidiaries
4.18(a)-1   UCC Filing Jurisdictions
4.18(a)-2   UCC Financing Statements to Remain on File
4.18(a)-3   UCC Financing Statements to be Terminated
4.18(b)     Mortgage Filing Jurisdictions
7.2(d)      Existing Indebtedness
7.3(f)      Existing Liens
7.8         Existing Investments

EXHIBITS:

A           Form of Guarantee and Collateral Agreement
B           Form of Compliance Certificate
C           Form of Closing Certificate
D           Form of Mortgage
E           Form of Assignment and Assumption
F           Form of Legal Opinion of Latham & Watkins LLP
G           Form of Exemption Certificate
H           Form of Solvency Certificate



     CREDIT AGREEMENT (this "Agreement"), dated as of November 24, 2003, among
Empi, Inc., a Minnesota corporation ("Holdings"), Empi Corp., a Minnesota
corporation (the "Borrower"), the several banks and other financial institutions
or entities from time to time parties to this Agreement (the "Lenders"),
Wachovia Bank, National Association, as documentation agent (in such capacity,
the "Documentation Agent") and JPMorgan Chase Bank, as syndication agent (in
such capacity, the "Syndication Agent"), and as administrative agent.

     The parties hereto hereby agree as follows:

                             SECTION 1. DEFINITIONS

     1.1 Defined Terms. As used in this Agreement, the terms listed in this
Section 1.1 shall have the respective meanings set forth in this Section 1.1.

     "ABR": for any day, a rate per annum (rounded upwards, if necessary, to the
next 1/100 of 1%) equal to the greatest of (a) the Prime Rate in effect on such
day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of
1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by JPMorgan Chase Bank as its prime rate in
effect at its principal office in New York City (the Prime Rate not being
intended to be the lowest rate of interest charged by JPMorgan Chase Bank in
connection with extensions of credit to debtors). Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be effective
as of the opening of business on the effective day of such change in the Prime
Rate or the Federal Funds Effective Rate, respectively.

     "ABR Loans": Loans the rate of interest applicable to which is based upon
the ABR.

     "Accounting Changes": as defined in Section 10.16.

     "Adjustment Date": as defined in the Pricing Grid.

     "Administrative Agent": JPMorgan Chase Bank, as the administrative agent
for the Lenders under this Agreement and the other Loan Documents, together with
any of its successors and, for purposes of Section 9, shall include affiliates
of JPMorgan Chase Bank as the arranger of the Commitments.

     "Affiliate": as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 20% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.

     "Agents": the collective reference to the Syndication Agent, the
Documentation Agent and the Administrative Agent.

     "Aggregate Exposure": with respect to any Lender at any time, an amount
equal to (a) until the Closing Date, the aggregate amount of such Lender's
Commitments at such time and (b) thereafter, the sum of (i) the aggregate then
unpaid principal amount of such Lender's Term Loans and (ii) the amount of such
Lender's Revolving Commitment then in effect or, if the Revolving Commitments
have been terminated, the amount of such Lender's Revolving Extensions of Credit
then outstanding.



                                                                               2

     "Aggregate Exposure Percentage": with respect to any Lender at any time,
the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at
such time to the total Aggregate Exposures of all Lenders at such time.

     "Agreed Purposes": as defined in Section 10.14.

     "Agreement": this Credit Agreement, as amended, supplemented or otherwise
modified from time to time.

     "Annual Operating Budget": as defined in Section 6.2(c).

     "Applicable Margin": for each Type of Loan, the rate per annum set forth
under the relevant column heading below:

                                     ABR Loans              Eurodollar Loans
      Revolving Loans                  1.50%                      2.50%
      Term Loans                       2.00%                      3.00%

provided, that on and after the first Adjustment Date occurring after the
completion of the fiscal quarter of the Borrower ended March 31, 2004, the
Applicable Margins with respect to Revolving Loans and Term Loans will be
determined pursuant to the Pricing Grid.

     "Application": an application, in such form as the Issuing Lender may
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.

     "Approved Fund": as defined in Section 10.6(b).

     "Asset Sale": any Disposition of Property or series of related Dispositions
of Property (excluding any such Disposition permitted by clause (a), (b), (c),
(d), (g), (h) and (i) of Section 7.5 and any such Disposition which is a
Recovery Event) which yields gross proceeds to Holdings, the Borrower or any of
its Subsidiaries (valued at the initial principal amount thereof in the case of
non-cash proceeds consisting of notes or other debt securities and valued at
fair market value in the case of other non-cash proceeds) in excess of 1% of the
consolidated total assets of Holdings at such time.

     "Assignee": as defined in Section 10.6(b).

     "Assignment and Assumption": an Assignment and Assumption, substantially in
the form of Exhibit E.

     "Available Revolving Commitment": as to any Revolving Lender at any time,
an amount equal to the excess, if any, of (a) such Lender's Revolving Commitment
then in effect over (b) such Lender's Revolving Extensions of Credit then
outstanding.

     "Benefitted Lender": as defined in Section 10.7(a).

     "Billing Number": as defined in Section 7.16.

     "Board": the Board of Governors of the Federal Reserve System of the United
States (or any successor).

     "Borrower": as defined in the preamble hereto.



                                                                               3

     "Borrowing Date": any Business Day specified by the Borrower as a date on
which the Borrower requests the relevant Lenders to make Loans hereunder.

     "Business": the development, manufacture, assembly, marketing, sale or
other distribution of medical devices, products and equipment, and the licensing
of related technology, used in the orthopedic rehabilitation, pain management,
physical therapy, incontinence treatment and rehabilitative medicine industries,
and the provision of billing services in connection with the foregoing and
related lines of business (excluding, in any event, the purchase or operation of
physical therapy clinics or similar operations).

     "Business Day": a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to close,
provided, that with respect to notices and determinations in connection with,
and payments of principal and interest on, Eurodollar Loans, such day is also a
day for trading by and between banks in Dollar deposits in the interbank
eurodollar market.

     "Capital Expenditures": for any period, with respect to any Person, the
aggregate of all expenditures by such Person for the acquisition or leasing
(pursuant to a capital lease but excluding any amount representing capitalized
interest) of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period) which are
required to be capitalized under GAAP on a balance sheet of such Person,
provided, that in any event the term "Capital Expenditures" shall exclude (i)
any Permitted Acquisition, (ii) any expenditures to the extent financed with the
proceeds of an Equity Issuance or Indebtedness (other than Loans) or any
Reinvestment Deferred Amount, (iii) any expenditures for the Ormed Rental Pool
and (iv) any expenditures for the Information Technology Upgrade in an aggregate
amount under this clause (iv) not to exceed $3,000,000 per fiscal year.

     "Capital Lease Obligations": as to any Person, the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP and, for the purposes of
this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with GAAP.

     "Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation).

     "Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of one year or less from the date of acquisition
issued by any Lender or by any commercial bank organized under the laws of the
United States or any state thereof having combined capital and surplus of not
less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by
S&P or P-2 by Moody's, or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally, and maturing within
one year from the date of acquisition; (d) repurchase obligations of any Lender
or of any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days with respect to securities
issued or fully guaranteed or insured by the United States government; (e)
securities with maturities of one year or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States, by any political subdivision or



                                                                               4

taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's;(f) securities with maturities of one
year or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition; and (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition; or (h) money market funds that (i) purport
to comply generally with the criteria set forth in SEC Rule 2a-7 under the
Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P or Aaa by
Moody's or carrying an equivalent rating by a nationally recognized rating
agency, and (iii) have portfolio assets of at least $5,000,000,000.

     "Certificated Security": as defined in the Guarantee and Collateral
Agreement.

     "Chattel Paper": as defined in the Guarantee and Collateral Agreement.

     "Closing Date": the date on which the conditions precedent set forth in
Section 5.1 shall have been satisfied, which date is November 24, 2003.

     "Code": the Internal Revenue Code of 1986, as amended from time to time.

     "Collateral": all Property of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security Document.

     "Commitment": as to any Lender, the sum of the Term Commitment and the
Revolving Commitment of such Lender.

     "Commitment Fee Rate": 1/2 of 1% per annum.

     "Commonly Controlled Entity": an entity, whether or not incorporated, that
is under common control with the Borrower within the meaning of Section 4001 of
ERISA or is part of a group that includes the Borrower and that is treated as a
single employer under Section 414 of the Code.

     "Commonly Controlled Plan": as defined in Section 4.13(b).

     "Compliance Certificate": a certificate duly executed by a Responsible
Officer substantially in the form of Exhibit B.

     "Confidential Information": as defined in Section 10.14.

     "Consolidated Current Assets": at any date, all amounts (other than cash
and Cash Equivalents) that would, in conformity with GAAP, be set forth opposite
the caption "total current assets" (or any like caption) on a consolidated
balance sheet of Holdings and its Subsidiaries at such date.

     "Consolidated Current Liabilities": at any date, all amounts that would, in
conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of Holdings
and its Subsidiaries at such date, but excluding (a) the current portion of any
Indebtedness of Holdings and its Subsidiaries and (b) without duplication, all
Indebtedness consisting of Revolving Loans, to the extent otherwise included
therein.

     "Consolidated EBITDA": of any Person for any period, Consolidated Net
Income of such Person and its Subsidiaries for such period plus, without
duplication and to the extent reflected as a



                                                                               5

charge in the statement of such Consolidated Net Income for such period, the sum
of (a) income tax expense, (b) Consolidated Net Interest Expense of such Person
and its Subsidiaries, amortization or writeoff of debt discount and debt
issuance costs and commissions, discounts and other fees and charges associated
with Indebtedness (including commitment and administrative fees and charges with
respect to the Facilities), (c) depreciation and amortization expense, (d)
amortization of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary or non-recurring expenses or losses
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, losses on sales of
assets outside of the ordinary course of business), (f) any unusual non-cash or
other non-cash charges, expenses or losses, (g) restructuring and integration
costs, (h) stock-option based compensation expenses, (i) transaction fees and
expenses not to exceed 10% of Consolidated EBITDA in any fiscal year, (j)
extraordinary costs related to management options not to exceed $5,500,000
during the term of this Agreement and (k) all fees and expenses paid pursuant to
the Management Agreement and minus, to the extent included in the statement of
such Consolidated Net Income for such period, the sum of (a) interest income
(except to the extent deducted in determining Consolidated Net Interest
Expense), (b) any extraordinary or non-recurring income or gains (including,
whether or not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets outside of
the ordinary course of business), (c) any unusual non-cash or other non-cash
income, all as determined on a consolidated basis and (d) in determining
Consolidated EBITDA for Holdings only, any Restricted Payments permitted under
Section 7.6(d)(A); provided, that for purposes of calculating Consolidated
EBITDA of Holdings and its Subsidiaries for any period, (i) the Consolidated
EBITDA (determined in accordance with GAAP) of any Person acquired by Holdings
or its Subsidiaries during such period shall be included on a pro forma basis
for such period (but assuming the consummation of such acquisition and the
incurrence or assumption of any Indebtedness in connection therewith occurred on
the first day of such period, and assuming any cost savings approved by the
Administrative Agent in its reasonable discretion if the consolidated balance
sheet of such acquired Person and its consolidated Subsidiaries as at the end of
the period preceding the acquisition of such Person and the related consolidated
statements of income and stockholders' equity and of cash flows for the period
in respect of which Consolidated EBITDA is to be calculated (x) have been
previously provided to the Administrative Agent and (y) either (1) have been
reported on without a qualification arising out of the scope of the audit by
independent certified public accountants of nationally recognized standing or
(2) have been found acceptable by the Administrative Agent and (ii) the
Consolidated EBITDA of any Person Disposed of by Holdings or its Subsidiaries
during such period shall be excluded for such period (assuming the consummation
of such Disposition and the repayment of any Indebtedness in connection
therewith occurred on the first day of such period).

     "Consolidated Fixed Charge Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA of Holdings and its Subsidiaries for such period, minus
the aggregate amount actually paid by Holdings and its Subsidiaries in cash
during such period on account of Capital Expenditures to (b) Consolidated Fixed
Charges for such period.

     "Consolidated Fixed Charges": for any period, the sum (without duplication)
of (a) Consolidated Net Interest Expense of Holdings and its Subsidiaries for
such period and (b) provision for cash income taxes made by Holdings or any of
its Subsidiaries on a consolidated basis in respect of such period, including,
without limitation, Restricted Payments permitted under Section 7.6(d)(B).

     "Consolidated Net Income": of any Person for any period, the consolidated
net income (or loss) of such Person and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; provided, that in
calculating Consolidated Net Income of Holdings and its consolidated
Subsidiaries for any period, there shall be excluded (a) the income (or deficit)
of any Person accrued prior to the date it becomes a Subsidiary of Holdings or
is merged into or consolidated with Holdings or any of its Subsidiaries and (b)
the income (or deficit) of any Person (other than a Subsidiary



                                                                               6

of Holdings) in which Holdings or any of its Subsidiaries has an ownership
interest, except to the extent that any such income is actually received by
Holdings or such Subsidiary in the form of dividends or similar distributions.

     "Consolidated Net Interest Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDA of Holdings and its Subsidiaries for such period to (b)
Consolidated Net Interest Expense of Holdings and its Subsidiaries for such
period.

     "Consolidated Net Interest Expense": of any Person for any period, (a)
total cash interest expense (including that attributable to Capital Lease
Obligations) of such Person and its Subsidiaries for such period with respect to
all outstanding Indebtedness of such Person and its Subsidiaries, minus (b)
total cash interest income of such Person and its Subsidiaries for such period,
in each case determined in accordance with GAAP.

     "Consolidated Total Leverage": at any date, the aggregate principal amount
of all Funded Debt of Holdings and its Subsidiaries at such date, minus the
amount of cash and Cash Equivalents, in an aggregate amount not to exceed
$5,000,000 at any time, held by Holdings and its Subsidiaries on such date in an
account with any of the Lenders, in each case determined on a consolidated basis
in accordance with GAAP.

     "Consolidated Total Leverage Ratio": as at the last day of any period of
four consecutive fiscal quarters of Holdings, the ratio of (a) Consolidated
Total Leverage on such day to (b) Consolidated EBITDA of Holdings and its
Subsidiaries for such period.

     "Consolidated Working Capital": at any date, the difference of (a)
Consolidated Current Assets on such date less (b) Consolidated Current
Liabilities on such date.

     "Continuing Directors": the directors of Holdings on the Closing Date and
each other director of Holdings, if, in each case, such other director's
nomination for election to the board of directors of Holdings is recommended by
at least 51% of the then Continuing Directors or such other director receives
the vote of the Permitted Investors in his or her election by the shareholders
of Holdings.

     "Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its Property is bound.

     "Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.

     "Derivatives Counterparty": as defined in Section 7.6.

     "Disposition": with respect to any Property, any sale, sale and leaseback,
assignment, conveyance, transfer or other effectively complete disposition
thereof. The terms "Dispose" and "Disposed of" shall have correlative meanings.

     "Documentation Agent": as defined in the preamble hereto.

     "Dollars" and "$": dollars in lawful currency of the United States.

     "Domestic Subsidiary": any Subsidiary of the Borrower organized under the
laws of any jurisdiction within the United States.



                                                                               7

          "Environmental Laws": any and all laws, rules, orders, regulations,
statutes, ordinances, codes, decrees or other legally enforceable requirements
(including, without limitation, common law) of any international authority,
foreign government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment, as has been, is
now, or may at any time hereafter be, in effect.

          "Environmental Permits": any and all permits, licenses, approvals,
registrations, exemptions and other authorizations required under any
Environmental Law.

          "Equity Issuance": any issuance by any Group Member of its Capital
Stock in a public offering.

          "ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.

          "Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves) under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.

          "Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page
3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days
prior to the beginning of such Interest Period. In the event that such rate does
not appear on Page 3750 of the Telerate screen (or otherwise on such screen),
the "Eurodollar Base Rate" shall be determined by reference to such other
comparable publicly available service for displaying eurodollar rates as may be
selected by the Administrative Agent or, in the absence of such availability, by
reference to the rate at which the Administrative Agent is offered Dollar
deposits at or about 11:00 A.M., local time, two Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market where its
eurodollar and foreign currency and exchange operations are then being conducted
for delivery on the first day of such Interest Period for the number of days
comprised therein.

          "Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.

          "Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):

                              Eurodollar Base Rate
            --------------------------------------------------------
                    1.00 - Eurocurrency Reserve Requirements

          "Eurodollar Tranche": the collective reference to Eurodollar Loans
under a particular Facility the then current Interest Periods with respect to
all of which begin on the same date and end on the same later date (whether or
not such Loans shall originally have been made on the same day).



                                                                               8

          "Event of Default": any of the events specified in Section 8, provided
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.

          "Excess Cash Flow": for any fiscal year of Holdings, the difference,
if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) the amount of all non-cash charges (including
depreciation, amortization and deferred tax expense) deducted in arriving at
such Consolidated Net Income, (iii) the amount of the decrease, if any, in
Consolidated Working Capital for such fiscal year and (iv) the aggregate net
amount of non-cash loss on the Disposition of Property by Holdings and its
Subsidiaries during such fiscal year (other than sales of inventory in the
ordinary course of business), to the extent deducted in arriving at such
Consolidated Net Income minus, (b) the sum, without duplication, of (i) the
amount of all non-cash credits included in arriving at such Consolidated Net
Income (including, without limitation, deferred tax credits), (ii) the aggregate
amount actually paid by Holdings and its Subsidiaries in cash during such fiscal
year on account of Capital Expenditures permitted under this Agreement and
Permitted Acquisitions (other than to the extent any such Capital Expenditure or
Permitted Acquisition is made with the proceeds of Indebtedness or an Equity
Issuance or with the proceeds of any Reinvestment Deferred Amount), (iii) the
aggregate amount of all prepayments of Revolving Loans during such fiscal year
to the extent accompanying permanent optional reductions of the Revolving
Commitments and all optional prepayments of the Term Loans during such fiscal
year, (iv) the aggregate amount of all regularly scheduled principal payments of
Indebtedness (including, without limitation, the Term Loans) of Holdings and its
Subsidiaries made during such fiscal year (other than in respect of any
revolving credit facility to the extent there is not an equivalent permanent
reduction in commitments thereunder), (v) the amount of the increase, if any, in
Consolidated Working Capital for such fiscal year, (vi) the aggregate net amount
of non-cash gain on the Disposition of Property by Holdings and its Subsidiaries
during such fiscal year (other than sales of inventory in the ordinary course of
business), to the extent included in arriving at such Consolidated Net Income
and (vii) cash expenses excluded from the definition of Capital Expenditures
pursuant to the proviso thereto in connection with the Information Technology
Upgrade not in excess of $3,000,000 per fiscal year and the Ormed Rental Pool.

          "Excess Cash Flow Application Date": as defined in Section 2.10(d).

          "Excess Cash Flow Percentage": 50%.

          "Excluded Foreign Subsidiaries": any Foreign Subsidiary in respect of
which either (a) the pledge of more than 66-2/3% of the Capital Stock of such
Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of (or the
granting by such Subsidiary of a Lien on its assets to secure) the Obligations,
would, in the good faith judgment of the Borrower, result in adverse tax
consequences to the Borrower, and, in any event, Empi Europe GmbH, Empi Germany
GmbH, Empi Ormed GmbH & Co. KG, and Medireha GmbH shall each constitute an
Excluded Foreign Subsidiary.

          "Existing Credit Facility": the Credit Agreement, dated as of August
31, 1999 (as amended, supplemented or otherwise modified from time to time),
among EI Merger Corp., the Borrower, Lehman Brothers Inc., as arranger, First
Union Capital Markets Corp., as syndication agent, Union Bank of California,
N.A., as documentation agent, the lenders party thereto from time to time and
Lehman Commercial Paper Inc., as administrative agent.

          "Facility": each of (a) the Term Commitments and the Term Loans made
thereunder (the "Term Facility") and (b) the Revolving Commitments and the
extensions of credit made thereunder (the "Revolving Facility").



                                                                               9

          "Federal Funds Effective Rate": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by JPMorgan Chase Bank from
three federal funds brokers of recognized standing selected by it.

          "Fee Payment Date": (a) the third Business Day following the last day
of each March, June, September and December and (b) the last day of the
Revolving Commitment Period.

          "Foreign Subsidiary": any Subsidiary of the Borrower that is not a
Domestic Subsidiary.

          "FQ1", "FQ2", "FQ3" and "FQ4": when used with a numerical year
designation, means the first, second, third or fourth fiscal quarters,
respectively, of such fiscal year of Holdings (e.g., FQ1 2003 means the first
fiscal quarter of Holdings's 2003 fiscal year, which ended March 31, 2003).

          "Funded Debt": with respect to any Person, all Indebtedness of such
Person of the types described in clauses (a) through (e) of the definition of
"Indebtedness" in this Section.

          "Funding Office": the office of the Administrative Agent specified in
Section 10.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and
the Lenders.

          "GAAP": generally accepted accounting principles in the United States
as in effect from time to time, except that for purposes of Section 7.1, GAAP
shall be determined on the basis of such principles in effect on the date hereof
and consistent with those used in the preparation of the most recent audited
financial statements referred to in Section 4.1(b).

          "GE Equity": GE Capital Equity Investments, Inc., a Delaware
corporation, and its successors and assigns.

          "Governmental Authority": any nation or government, any state or other
political subdivision thereof and any governmental entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and, as to any Lender, any securities exchange and any self
regulatory organization (including the National Association of Insurance
Commissioners).

          "Group Members": the collective reference to Holdings, the Borrower
and their respective Subsidiaries.

          "Guarantee and Collateral Agreement": the Guarantee and Collateral
Agreement to be executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor, substantially in the form of Exhibit A.

          "Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a guarantee, reimbursement,
counterindemnity or similar obligation, in either case guaranteeing or by which
such Person becomes contingently liable for any Indebtedness, net worth, working
capital earnings, leases, dividends or other distributions upon the stock or
equity interests (the "primary obligations") of any other third Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary



                                                                              10

obligation or any Property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (i) to purchase Property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation or (ii)
otherwise to assure or hold harmless the owner of any such primary obligation
against loss in respect thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be such guaranteeing
person's maximum reasonably anticipated liability in respect thereof as
determined by the Borrower in good faith.

          "Guarantors": the collective reference to Holdings and the Subsidiary
Guarantors.

          "Hedge Agreements": all interest rate swaps, caps or collar agreements
or similar arrangements entered into by the Borrower or its Subsidiaries
providing for protection against fluctuations in interest rates or currency
exchange rates or the exchange of nominal interest obligations, either generally
or under specific contingencies.

          "Holdings": as defined in the preamble hereto.

          "Immaterial Subsidiary": on any date, each of (a) Empi Canada, Inc.
and (b) any other subsidiary of Holdings that has less than 2.0% of consolidated
total assets of Holdings at such date in book value of total assets as reflected
on the most recent financial statements delivered pursuant to Section 6.1 prior
to such date.

          "Indebtedness": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of Property or services (other than (i)
trade payables and similar obligations incurred in the ordinary course of such
Person's business and (ii) earn-outs and other contingent payments in respect of
acquisitions except to the extent that the liability on account of any such
earn-out or contingent payment becomes fixed), (c) all obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (d)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to Property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such Property, in
which case only the lesser of the amount of such obligation and the fair market
value of such Property shall constitute Indebtedness), (e) all Capital Lease
Obligations of such Person, (f) all obligations of such Person, contingent or
otherwise, as an account party or applicant under acceptance, letter of credit
or similar facilities, (g) all obligations of such Person, contingent or
otherwise, to purchase, redeem, retire or otherwise acquire for value any
Capital Stock of such Person, except for agreements with directors, officers and
employees to acquire such Capital Stock upon the death or termination of
employment of such director, officer or employee, (h) all Guarantee Obligations
of such Person in respect of obligations of the kind referred to in clauses (a)
through (f) above, and (i) all obligations of the kind referred to in clauses
(a) through (h) above secured by (or for which the holder of such obligation has
an existing right, contingent or otherwise, to be secured by) any Lien on
Property (including, without limitation, accounts and contract rights) owned by
such Person, whether or not such Person has assumed or become liable for the
payment of such obligation (and in the event such Person has not assumed or
become liable for payment of such obligation, only the lesser of the amount of
such obligation and the fair market value of such Property shall constitute
Indebtedness).

          "Information Technology Upgrade": the implementation of Oracle
applications and other applications to support the Business, including
customization of programming, servers and other



                                                                              11

hardware components, implementation services, application software, and data
storage to support the implementation.

          "Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.

          "Insolvent": pertaining to a condition of Insolvency.

          "Instrument": as defined in the Guarantee and Collateral Agreement.

          "Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, technology, know-how and processes, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.

          "Interest Payment Date": (a) as to any ABR Loan, the third Business
Day following the last day of each March, June, September and December to occur
while such Loan is outstanding and the final maturity date of such Loan, (b) as
to any Eurodollar Loan having an Interest Period of three months or less, the
last day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day that is three months, or a
whole multiple thereof, after the first day of such Interest Period and the last
day of such Interest Period and (d) as to any Loan (other than any Revolving
Loan that is an ABR Loan), the date of any repayment or prepayment made in
respect thereof.

          "Interest Period": as to any Eurodollar Loan, (a) initially, the
period commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three or six or (with the
consent of each affected Lender under the relevant Facility) nine or twelve
months thereafter, as selected by the Borrower in its notice of borrowing or
notice of conversion, as the case may be, given with respect thereto; and (b)
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loan and ending one, two, three or
six or (with the consent of each affected Lender under the relevant Facility)
nine or twelve months thereafter, as selected by the Borrower by irrevocable
notice to the Administrative Agent not later than 1:00 P.M., New York City time,
on the date that is three Business Days prior to the last day of the then
current Interest Period with respect thereto; provided that, all of the
foregoing provisions relating to Interest Periods are subject to the following:

          (i) if any Interest Period would otherwise end on a day that is not a
     Business Day, such Interest Period shall be extended to the next succeeding
     Business Day unless the result of such extension would be to carry such
     Interest Period into another calendar month in which event such Interest
     Period shall end on the immediately preceding Business Day;

          (ii) any Interest Period that would otherwise extend beyond the
     scheduled Revolving Termination Date or beyond the date final payment is
     due on the Term Loans shall end on the Revolving Termination Date or such
     due date, as applicable; and

          (iii) any Interest Period that begins on the last Business Day of a
     calendar month (or on a day for which there is no numerically corresponding
     day in the calendar month at the end of such Interest Period) shall end on
     the last Business Day of a calendar month.

          "Investments": as defined in Section 7.8.



                                                                              12

          "Issuing Lender": (a) JPMorgan Chase Bank or (b) any other Revolving
Lender from time to time designated by the Borrower as an Issuing Lender with
the consent of such other Revolving Lender and the Administrative Agent.

          "Joint Lead Arrangers": J.P. Morgan Securities Inc. and Wachovia
Capital Markets, LLC.

          "L/C Commitment": $5,000,000.

          "L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit that
have not then been reimbursed pursuant to Section 3.5.

          "L/C Participants": the collective reference to all the Revolving
Lenders other than the applicable Issuing Lender.

          "Lenders": as defined in the preamble hereto.

          "Letters of Credit": as defined in Section 3.1(a).

          "Lien": any mortgage, pledge, hypothecation, collateral assignment,
encumbrance, lien (statutory or other), charge or other security interest or any
other security agreement of any kind or nature whatsoever (including any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing). For the
avoidance of doubt, it is understood and agreed that any Loan Party may, as part
of its business, grant licenses to third parties to use Intellectual Property
owned or developed by a Loan Party. For purposes of this Agreement and the other
Loan Documents, such licensing activity shall not constitute a "Lien" on such
Intellectual Property. Each of the Administrative Agent and each Lender
understands that any such licenses may be exclusive to the applicable licensees,
and such exclusivity provisions may limit the ability of the Administrative
Agent to utilize, sell, lease or transfer the related Intellectual Property or
otherwise realize value from such Intellectual Property pursuant hereto.

          "Loan": any loan made by any Lender pursuant to this Agreement.

          "Loan Documents": this Agreement, the Security Documents, the
Applications and the Notes and any amendment, waiver, supplement or other
modification to any of the foregoing.

          "Loan Parties": Holdings, the Borrower and each Subsidiary Guarantor.

          "Majority Facility Lenders": with respect to any Facility, the holders
of more than 50% of the aggregate unpaid principal amount of the Term Loans or
the Total Revolving Extensions of Credit, as the case may be, outstanding under
such Facility (or, in the case of the Revolving Facility, prior to any
termination of the Revolving Commitments, the holders of more than 50% of the
Total Revolving Commitments).

          "Majority Revolving Facility Lenders": the Majority Facility Lenders
in respect of the Revolving Facility.

          "Management Agreement": the Management Agreement, dated as of August
31, 1999, by and among Holdings, the Sponsor and GE Equity, as in effect on the
Closing Date and as modified from time to time with the consent of the
Administrative Agent.



                                                                              13

         "Material Adverse Effect": a material adverse effect on (a) the
business, operations, property or financial condition of the Borrower and its
subsidiaries taken as a whole, or (b) the validity or enforceability of the Loan
Documents or the material rights and remedies of the Administrative Agent and
the Lenders thereunder.

         "Material Environmental Amount": an amount or amounts payable by the
Borrower and/or any of its Subsidiaries, in the aggregate in excess of
$2,000,000, for: costs to comply with any Environmental Law; costs of any
investigation, and any remediation, of any Material of Environmental Concern;
and compensatory damages (including, without limitation damages to natural
resources), punitive damages, fines and penalties pursuant to any Environmental
Law.

         "Material Subsidiary" any Subsidiary that is not an Immaterial
Subsidiary.

         "Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants,
contaminants, radioactivity and any other substances, whether or not any such
substance is defined as hazardous or toxic under any Environmental Law, that is
regulated pursuant to or could give rise to liability under any Environmental
Law.

         "Moody's": Moody's Investors Service.

         "Mortgaged Properties": the owned real properties listed on Schedule
1.1B, as to which the Administrative Agent for the benefit of the Lenders shall
be granted a Lien pursuant to the Mortgages.

         "Mortgages": each of the mortgages and deeds of trust made by any Loan
Party in favor of, or for the benefit of, the Administrative Agent for the
benefit of the Lenders, substantially in the form of Exhibit D (with such
changes thereto as shall be advisable under the law of the jurisdiction in which
such mortgage or deed of trust is to be recorded), as the same may be amended,
supplemented or otherwise modified from time to time.

         "Multiemployer Plan": a Plan that is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.

         "Net Cash Proceeds": (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of attorneys' fees, accountants' fees, investment banking
fees, consulting fees, amounts required to be applied to the repayment of
Indebtedness secured by a Lien expressly permitted hereunder on any asset which
is the subject of such Asset Sale or Recovery Event (other than any Lien
pursuant to a Security Document) and other customary fees and expenses actually
incurred in connection therewith and net of taxes paid or reasonably estimated
to be payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements) and (b) in connection
with any Equity Issuance or issuance or sale of debt securities or instruments
or the incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants' fees,
consulting fees, underwriting discounts and commissions and other customary fees
and expenses actually incurred in connection therewith.

         "Non-Excluded Taxes": as defined in Section 2.18(a).

         "Non-U.S. Lender": as defined in Section 2.18(d).



                                                                              14

         "Note": any promissory note evidencing any Loan.

         "Obligations": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans, the
Reimbursement Obligations and all other obligations and liabilities of the
Borrower to the Administrative Agent or to any Lender (or, in the case of
Specified Hedge Agreements, any affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Specified Hedge
Agreement or (to the extent the Borrower so agrees in the applicable agreements
therefor) cash management arrangements with Lenders or any other document made,
delivered or given in connection herewith or therewith, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees, charges and disbursements of
counsel to the Administrative Agent or to any Lender that are required to be
paid by the Borrower pursuant hereto) or otherwise; provided, that (a)
obligations of the Borrower or any Subsidiary under any Specified Hedge
Agreement or cash management agreement (if applicable) shall be secured and
guaranteed pursuant to the Security Documents only to the extent that, and for
so long as, the other Obligations are so secured and guaranteed and (b) any
release of Collateral or Guarantors effected in the manner permitted by this
Agreement shall not require the consent of holders of obligations under
Specified Hedge Agreements or cash management agreement (if applicable).

         "Ormed Rental Pool": equipment or devices manufactured for the purposes
of patient rentals that according to GAAP are required to be classified as
capital expenditures within property, plant and equipment on the consolidated
financial statements.

         "Other Taxes": any and all present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies arising from
any payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement or any other Loan Document.

         "Payment Amount": as defined in Section 3.5.

         "Participant": as defined in Section 10.6(c).

         "PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA (or any successor).

         "Permitted Acquisition": (i) any acquisition approved by the Required
Lenders or (ii) any acquisition by the Borrower or any of its Subsidiaries of
all or substantially all of the Capital Stock, or substantially all of the
assets, of any Person, or of all or substantially all of the assets constituting
a division, product line or business line of any Person, if such acquisition
described in this clause (ii) complies with the following criteria:

         (a) No Default or Event of Default shall be in effect after giving
     effect to such acquisition, and the Borrower shall have delivered to the
     Administrative Agent a certificate executed on its behalf by a Responsible
     Officer to such effect.

         (b) After giving effect to the consummation of such acquisition and to
     the incurrence of any Indebtedness associated therewith, the Borrower shall
     be in pro forma compliance with



                                                                              15

Section 7.1 (calculated as of the last day of the fiscal quarter immediately
preceding the fiscal quarter in which such acquisition is consummated, giving
pro forma effect to such acquisition and the issuance of the related
Indebtedness).

         (c) The Person, division, product line or line of business acquired in
     such acquisition (the "Target") shall be in the Business.

         (d) Prior to the consummation of such acquisition (i) the
     Administrative Agent shall have received (A) financial projections in
     respect of the Target for the one-year period following the consummation of
     such acquisition and (B) such financial information as it shall reasonably
     request to demonstrate pro forma compliance with the financial criteria set
     forth in paragraph (b) above, (ii) the Administrative Agent shall have
     received final copies of the documentation to be executed in connection
     with such acquisition, including all schedules and exhibits thereto and
     (iii) the Administrative Agent shall have received notice of the closing
     date for such acquisition; provided, that, such notice shall be given at
     least five Business Days prior to such closing date unless doing so would
     materially interfere with, or would cause materially adverse economic
     consequences with respect to, the consummation of such acquisition.

         (e) After giving effect to any such acquisition, the Available
     Revolving Commitment shall be at least $5,000,000.

         "Permitted Investors": the collective reference to the Sponsor, GE
Equity and their respective Affiliates and the directors, officers and other
employees of Holdings and its Subsidiaries.

         "Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.

         "Plan": at a particular time, any employee benefit plan as defined in
Section 3(3) of ERISA and in respect of which the Borrower or any of its
Subsidiaries is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.

         "Pledged Securities": as defined in the Guarantee and Collateral
Agreement.

         "Pledged Stock": as defined in the Guarantee and Collateral Agreement.

         "Pricing Grid": the table set forth below.



===============================================================================================================

  Consolidated Total    Applicable Margin   Applicable Margin for   Applicable Margin for    Applicable Margin
    Leverage Ratio     for Revolving Loans   Revolving Loans that    Term Loans that are    for Term Loans that
                       that are Eurodollar      are ABR Loans         Eurodollar Loans         are ABR Loans
                              Loans
- ---------------------------------------------------------------------------------------------------------------
                                                                                
  **** 3.00:1.00              2.50%                 1.50%                   3.00%                  2.00%
- ---------------------------------------------------------------------------------------------------------------

     * 3.00:1.00 but          2.25%                 1.25%                   2.75%                  1.75%
  **** 2.50:1.00

     * 2.50:1.00              2.00%                 1.00%                   2.75%                  1.75%
===============================================================================================================


*    denotes less than
**** denotes greater than or equal to



                                                                              16

         Changes in the Applicable Margin with respect to Revolving Loans or
Term Loans resulting from changes in the Consolidated Total Leverage Ratio shall
become effective on the date (the "Adjustment Date") on which financial
statements are delivered to the Lenders pursuant to Section 6.1 (but in any
event not later than the 45th day after the end of each of the first three
quarterly periods of each fiscal year or the 90th day after the end of each
fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, Consolidated Total Leverage
Ratio as at the end of the fiscal period that would have been covered thereby
shall for the purposes of this definition be deemed to be greater than 3.00 to
1. In addition, at all times while an Event of Default set forth in Section 8(a)
or 8(f) shall have occurred and be continuing, the Consolidated Total Leverage
Ratio shall for the purposes of this Pricing Grid be deemed to be greater than
3.00 to 1. Each determination of the Consolidated Total Leverage Ratio pursuant
to this Pricing Grid shall be made for the periods and in the manner
contemplated by Section 7.1(a).

         "Pro Forma Balance Sheet": as defined in Section 4.1(a).

         "Property": any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible,
including, without limitation, Capital Stock.

         "Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding relating to
any asset of Holdings or any Subsidiary, in an amount for each such event
exceeding 1% of consolidated total assets of Holdings at such time.

         "Refinancing": as defined in Section 5.1(b).

         "Register": as defined in Section 10.6(b)(iv).

         "Regulation H": Regulation H of the Board as in effect from time to
time.

         "Regulation U": Regulation U of the Board as in effect from time to
time.

         "Reimbursement Obligation": the obligation of the Borrower to reimburse
each Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of
Credit issued by such Issuing Lender.

         "Reinvestment Deferred Amount": with respect to any Reinvestment Event,
the aggregate Net Cash Proceeds received by any Loan Party for its own account
in connection therewith that are not applied to prepay the Term Loans or reduce
the Revolving Commitments pursuant to Section 2.10 as a result of the delivery
of a Reinvestment Notice.

         "Reinvestment Event": any Equity Issuance, Asset Sale or Recovery Event
in respect of which the Borrower has delivered a Reinvestment Notice.

         "Reinvestment Notice": a written notice executed by a Responsible
Officer stating that the Borrower (directly or indirectly through a Subsidiary)
intends and expects (a) with respect to Section 2.10(c), to use all or a
specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to
acquire assets useful in its business or (b) with respect to Section 2.10(a), to
use all or a specified portion of the Net Cash Proceeds of an Equity Issuance to
fund Capital Expenditures or Permitted Acquisitions; provided, that while an
Event of Default has occurred and is continuing, the Borrower may not use the
Net Cash Proceeds referred to in clause (a) above (or some portion thereof, as
specified in the applicable notice) upon receiving notification from the
Required Lenders to that effect.



                                                                              17

         "Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire assets
useful in the Borrower's business.

         "Reinvestment Prepayment Date": with respect to any Reinvestment Event,
the earlier of (i) the date occurring one year after such Reinvestment Event and
(ii) with respect to any portion of a Reinvestment Deferred Amount, the date on
which the Borrower shall have determined not to acquire assets useful in the
Borrower's business with such portion of such Reinvestment Deferred Amount.

         "Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.

         "Reportable Event": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty day notice period is
waived.

         "Representatives": as defined in Section 10.14.

         "Required Lenders": at any time, the holders of more than 50% of (a)
until the Closing Date, the Commitments then in effect and (b) thereafter, the
sum of (i) the aggregate unpaid principal amount of the Term Loans then
outstanding and (ii) the Total Revolving Commitments then in effect or, if the
Revolving Commitments have been terminated, the Total Revolving Extensions of
Credit then outstanding.

         "Required Prepayment Lenders": the Majority Facility Lenders in respect
of each Facility.

         "Requirement of Law": as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.

         "Responsible Officer": the chief executive officer, president or chief
financial officer of Holdings or the Borrower, and, with respect to financial
matters, the chief financial officer or Treasurer of Holdings or the Borrower.

         "Restricted Payments": as defined in Section 7.6.

         "Revolving Commitment": as to any Lender, the obligation of such
Lender, if any, to make Revolving Loans and participate in Letters of Credit in
an aggregate principal and/or face amount not to exceed the amount set forth
under the heading "Revolving Commitment" opposite such Lender's name on Schedule
1.1A or in the Assignment and Assumption pursuant to which such Lender became a
party hereto, as the same may be changed from time to time pursuant to the terms
hereof. The original amount of the Total Revolving Commitments is $25,000,000.

         "Revolving Commitment Period": the period from and including the
Closing Date to the Revolving Termination Date.

         "Revolving Extensions of Credit": as to any Revolving Lender at any
time, an amount equal to the sum of (a) the aggregate principal amount of all
Revolving Loans held by such Lender then outstanding and (b) such Lender's
Revolving Percentage of the L/C Obligations then outstanding.



                                                                              18

         "Revolving Lender": each Lender that has a Revolving Commitment or that
holds Revolving Loans.

         "Revolving Loans": as defined in Section 2.4(a).

         "Revolving Percentage": as to any Revolving Lender at any time, the
percentage which such Lender's Revolving Commitment then constitutes of the
Total Revolving Commitments or, at any time after the Revolving Commitments
shall have expired or terminated, the percentage which the aggregate principal
amount of such Lender's Revolving Loans then outstanding constitutes of the
aggregate principal amount of the Revolving Loans then outstanding, provided,
that, in the event that the Revolving Loans are paid in full prior to the
reduction to zero of the Total Revolving Extensions of Credit, the Revolving
Percentages shall be determined in a manner designed to ensure that the other
outstanding Revolving Extensions of Credit shall be held by the Revolving
Lenders on a comparable basis.

         "Revolving Termination Date": November 24, 2008.

         "S&P": Standard & Poor's Ratings Group.

         "SEC": the Securities and Exchange Commission (or successors thereto or
an analogous Governmental Authority).

         "Security Documents": the collective reference to the Guarantee and
Collateral Agreement, the Mortgages and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any Property of any
Loan Party to secure the obligations and liabilities of any Loan Party under any
Loan Document.

         "Senior Holdings Notes": the senior unsecured notes of Holdings in the
aggregate principal amount of $25,500,000 issued initially in favor of each of
the Sponsor and GE Equity pursuant to, and subject to the terms and conditions
contained in, the Note Purchase Agreement, dated as of August 31, 1999, by and
among Empi, MPI Holdings, L.L.C. and GE Equity.

         "Single Employer Plan": any Plan that is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.

         "Solvent": with respect to any Person, as of any date of determination,
(a) the amount of the "present fair saleable value" of the assets of such Person
will, as of such date, exceed the amount of all "liabilities of such Person,
contingent or otherwise", as of such date, as such quoted terms are determined
in accordance with applicable federal and state laws governing determinations of
the insolvency of debtors, (b) the present fair saleable value of the assets of
such Person will, as of such date, be greater than the amount that will be
required to pay the liability of such Person on its debts as such debts become
absolute and matured, (c) such Person will not have, as of such date, an
unreasonably small amount of capital with which to conduct its business and (d)
such Person will be able to pay its debts as they mature. For purposes of this
definition,(i) "debt" means liability on a "claim", and (ii) "claim" means any
(x) right to payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured or (y) right to an equitable
remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.



                                                                              19

         "Specified Cash Management Arrangement": as defined in the Guarantee
and Collateral Agreement.

         "Specified Hedge Agreement": any Hedge Agreement (a) entered into by
(i) the Borrower or any of its Subsidiaries and (ii) any Lender or any affiliate
thereof at the time such Hedge Agreement was entered into, as counterparty and
(b) that has been designated by such Lender and the Borrower, by notice to the
Administrative Agent, as a Specified Hedge Agreement. The designation of any
Hedge Agreement as a Specified Hedge Agreement shall not create in favor of the
Lender or affiliate thereof that is a party thereto any rights in connection
with the management or release of any Collateral or of the obligations of any
Guarantor under the Guarantee and Collateral Agreement. For the avoidance of
doubt, all Hedge Agreements in existence on the Closing Date between the
Borrower or any of its Subsidiaries and any Lender shall constitute Specified
Hedge Agreements.

         "Sponsor": TC Group L.L.C., a Delaware limited liability company, and
any Affiliates thereof.

         "Subordinated Debt": unsecured Indebtedness of Holdings or the
Borrower; provided, that (a) such Indebtedness shall be subordinated, pursuant
to subordination provisions reasonably acceptable to the Administrative Agent,
to the obligations of the Borrower or Holdings, as the case may be, under this
Agreement and the other Loan Documents, (b) such Indebtedness shall not be
guaranteed by any Subsidiary of the Borrower (provided, that such Indebtedness
may be guaranteed by the Subsidiary acquired in a Permitted Acquisition, if the
obligations of such Subsidiary under such guarantee are subordinated to the
obligations of such Subsidiary under the Loan Documents pursuant to
subordination provisions reasonably acceptable to the Administrative Agent) and
(c) the other terms and conditions of such Indebtedness are reasonably
acceptable to the Administrative Agent.

         "Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.

         "Subsidiary Guarantor": each Subsidiary of the Borrower other than any
Excluded Foreign Subsidiary.

         "Syndication Agent": as defined in the preamble hereto.

         "Term Commitment": as to any Lender, the obligation of such Lender, if
any, to make a Term Loan to the Borrower in a principal amount not to exceed the
amount set forth under the heading "Term Commitment" opposite such Lender's name
on Schedule 1.1A. The original aggregate amount of the Term Commitments is
$165,000,000.

         "Term Lender": each Lender that has a Term Commitment or that holds a
Term Loan.

         "Term Loan": as defined in Section 2.1.

         "Term Percentage": as to any Term Lender at any time, the percentage
which such Lender's Term Commitment then constitutes of the aggregate Term
Commitments (or, at any time after



                                                                              20

the Closing Date, the percentage which the aggregate principal amount of such
Lender's Term Loans then outstanding constitutes of the aggregate principal
amount of the Term Loans then outstanding).

         "Total Revolving Commitments": at any time, the aggregate amount of the
Revolving Commitments then in effect.

         "Total Revolving Extensions of Credit": at any time, the aggregate
amount of the Revolving Extensions of Credit of the Revolving Lenders
outstanding at such time.

         "Transferee": any Assignee or Participant.

         "Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.

         "United States": the United States of America.

         "Vehicles": as defined in the Guarantee and Collateral Agreement.

         "Wholly Owned Subsidiary": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.

         "Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a
Wholly Owned Subsidiary of the Borrower.

         1.2  Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.

         (b) As used herein and in the other Loan Documents, and any certificate
or other document made or delivered pursuant hereto or thereto, (i) accounting
terms relating to Holdings, the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP, (ii)
the words "include", "includes" and "including" shall be deemed to be followed
by the phrase "without limitation", and (iii) references to agreements or other
Contractual Obligations shall, unless otherwise specified, be deemed to refer to
such agreements or Contractual Obligations as amended, supplemented, restated or
otherwise modified from time to time.

         (c) The words "hereof", "herein" and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.

         (d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

                   SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

         2.1  Term Commitments. Subject to the terms and conditions hereof, each
Term Lender severally agrees to make a term loan (a "Term Loan") to the Borrower
on the Closing Date in an amount not to exceed the amount of the Term Commitment
of such Lender. The Term Loans may from



                                                                              21

time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2 and 2.11.

         2.2  Procedure for Term Loan Borrowing. The Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 Noon, New York City time, on the day of the
anticipated Closing Date) requesting that the Term Lenders make the Term Loans
on the Closing Date and specifying the amount to be borrowed. The Term Loans
made on the Closing Date shall initially be ABR Loans. Upon receipt of such
notice the Administrative Agent shall promptly notify each Term Lender thereof.
Not later than 1:00 P.M., New York City time, on the Closing Date each Term
Lender shall make available to the Administrative Agent at the Funding Office an
amount in immediately available funds equal to the Term Loan or Term Loans to be
made by such Lender. The Administrative Agent shall credit the account of the
Borrower on the books of such office of the Administrative Agent with the
aggregate of the amounts made available to the Administrative Agent by the Term
Lenders in immediately available funds.

         2.3  Repayment of Term Loans. The Term Loan of each Term Lender shall
mature in twenty-four (24) consecutive quarterly installments, commencing on
March 31, 2004, each of which shall be in an amount equal to such Lender's Term
Percentage multiplied by the amount set forth below opposite such installment:

         Installment                                 Principal Amount
         -----------                                 ----------------

         March 31, 2004                                      $412,500
         June 30, 2004                                       $412,500
         September 30, 2004                                  $412,500
         December 31, 2004                                   $412,500
         March 31, 2005                                      $412,500
         June 30, 2005                                       $412,500
         September 30, 2005                                  $412,500
         December 31, 2005                                   $412,500
         March 31, 2006                                      $412,500
         June 30, 2006                                       $412,500
         September 30, 2006                                  $412,500
         December 31, 2006                                   $412,500
         March 31, 2007                                      $412,500
         June 30, 2007                                       $412,500
         September 30, 2007                                  $412,500
         December 31, 2007                                   $412,500
         March 31, 2008                                      $412,500
         June 30, 2008                                       $412,500
         September 30, 2008                                  $412,500
         December 31, 2008                                   $412,500
         March 31, 2009                                   $39,187,500
         June 30, 2009                                    $39,187,500
         September 30, 2009                               $39,187,500
         November 24, 2009                                $39,187,500

         2.4  Revolving Commitments. (a) Subject to the terms and conditions
hereof, each Revolving Lender severally agrees to make revolving credit loans
("Revolving Loans") to the Borrower from time to time during the Revolving
Commitment Period in an aggregate principal amount at any one time outstanding
which, when added to such Lender's Revolving Percentage of the L/C Obligations
then



                                                                              22

outstanding does not exceed the amount of such Lender's Revolving Commitment.
During the Revolving Commitment Period the Borrower may use the Revolving
Commitments by borrowing, prepaying the Revolving Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof. The
Revolving Loans may from time to time be Eurodollar Loans or ABR Loans, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.5 and 2.11.

         (b) The Borrower shall repay all outstanding Revolving Loans on the
Revolving Termination Date.

         2.5  Procedure for Revolving Loan Borrowing. The Borrower may borrow
under the Revolving Commitments during the Revolving Commitment Period on any
Business Day, provided that the Borrower shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
prior to 1:00 P.M., New York City time, (a) three Business Days prior to the
requested Borrowing Date, in the case of Eurodollar Loans, or (b) on the
requested Borrowing Date, in the case of ABR Loans) (provided that any such
notice of a borrowing of ABR Loans under the Revolving Facility to finance
payments required by Section 3.5 may be given not later than 1:00 P.M., New York
City time, on the date of the proposed borrowing), specifying (i) the amount and
Type of Revolving Loans to be borrowed, (ii) the requested Borrowing Date and
(iii) in the case of Eurodollar Loans, the respective amounts of each such Type
of Loan and the respective lengths of the initial Interest Period therefor. Any
Revolving Loans made on the Closing Date shall initially be ABR Loans. Each
borrowing under the Revolving Commitments shall be in an amount equal to (x) in
the case of ABR Loans, $250,000 or a whole multiple of $100,000 in excess
thereof (or, if the then aggregate Available Revolving Commitments are less than
$250,000, such lesser amount) and (y) in the case of Eurodollar Loans, $500,000
or a whole multiple of $500,000 in excess thereof. Upon receipt of any such
notice from the Borrower, the Administrative Agent shall promptly notify each
Revolving Lender thereof. Each Revolving Lender will make the amount of its pro
rata share of each borrowing available to the Administrative Agent for the
account of the Borrower at the Funding Office prior to 2:00 P.M., New York City
time (or 3:30 P.M., New York City time in the case of same-day borrowings of ABR
Loans) on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent crediting the account of
the Borrower on the books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Revolving Lenders and in like funds
as received by the Administrative Agent.

         2.6  Repayment of Loans. (a) The Borrower hereby unconditionally
promises to pay to the Administrative Agent for the account of the appropriate
Revolving Lender or Term Lender, as the case may be, (i) the then unpaid
principal amount of each Revolving Loan of such Revolving Lender outstanding on
the Revolving Termination Date (or on such earlier date on which the Loans
become due and payable pursuant to Section 8) and (ii) the principal amount of
each outstanding Term Loan of such Term Loan Lender in installments according to
the relevant amortization schedule set forth in Section 2.3 (or on such earlier
date on which the Loans become due and payable pursuant to Section 8). The
Borrower hereby further agrees to pay interest on the unpaid principal amount of
the Loans from time to time outstanding from the date hereof until payment in
full thereof at the rates per annum, and on the dates, set forth in Section
2.13.

         (b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.



                                                                              23

     (c) The Administrative Agent, on behalf of the Borrower, shall maintain the
Register pursuant to Section 10.6(b)(iv), and a subaccount therein for each
Lender, in which shall be recorded (1) the amount of each Loan made hereunder
and any Note evidencing such Loan, the Type of such Loan and each Interest
Period applicable thereto, (2) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (3) both the amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof.

     (d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
the Borrower by such Lender in accordance with the terms of this Agreement.

     2.7 Commitment Fees, etc. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Revolving Lender a commitment fee
for the period from and including the Closing Date to the last day of the
Revolving Commitment Period, computed at the Commitment Fee Rate on the average
daily amount of the Available Revolving Commitment of such Lender during the
period for which payment is made, payable quarterly in arrears on each Fee
Payment Date, commencing on the first such date to occur after the date hereof.

     (b) The Borrower agrees to pay to the Administrative Agent the fees in the
amounts and on the dates as set forth in any fee agreements with the
Administrative Agent.

     2.8 Termination or Reduction of Revolving Commitments. The Borrower shall
have the right, upon not less than two Business Days' notice to the
Administrative Agent, to terminate the Revolving Commitments or, from time to
time, to reduce the amount of the Revolving Commitments; provided that no such
termination or reduction of Revolving Commitments shall be permitted if, after
giving effect thereto and to any prepayments of the Revolving Loans made on the
effective date thereof, the Total Revolving Extensions of Credit would exceed
the Total Revolving Commitments. Any such reduction shall be in an amount equal
to $1,000,000, or a whole multiple thereof, and shall reduce permanently the
Revolving Commitments then in effect.

     2.9 Optional Prepayments. The Borrower may at any time and from time to
time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Administrative Agent no later than 1:00
P.M., New York City time, three Business Days prior thereto, in the case of
Eurodollar Loans, and no later than 1:00 P.M., New York City time, one Business
Day prior thereto, in the case of ABR Loans, which notice shall specify the date
and amount of prepayment and whether the prepayment is of Eurodollar Loans or
ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day other than
the last day of the Interest Period applicable thereto, the Borrower shall also
pay any amounts owing pursuant to Section 2.19. Upon receipt of any such notice
the Administrative Agent shall promptly notify each relevant Lender thereof. If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with (except in the case of
Revolving Loans that are ABR Loans) accrued interest to such date on the amount
prepaid. Partial prepayments of Term Loans and Revolving Loans shall be in an
aggregate principal amount of $250,000 or a whole multiple of $100,000 in excess
thereof (in the case of prepayments of ABR Loans) or $500,000 or a whole
multiple of $500,000 in excess thereof (in the case of prepayments of Eurodollar
Loans) and shall be subject to the provisions of Section 2.16.

     2.10 Mandatory Prepayments and Commitment Reductions. (a) Unless the
Required Prepayment Lenders shall otherwise agree, if any Capital Stock shall be
issued by any Loan Party in a



                                                                              24

public offering, then, unless a Reinvestment Notice shall be delivered in
respect thereof, an amount equal to 50% of the Net Cash Proceeds thereof shall
be applied on the date of such issuance toward the prepayment of the Term Loans
as set forth in Section 2.10(e); provided, that, notwithstanding the foregoing,
on each Reinvestment Prepayment Date the Term Loans shall be prepaid by an
amount equal to the Reinvestment Prepayment Amount with respect to the relevant
Reinvestment Event, as set forth in Section 2.10(e).

     (b) Unless the Required Prepayment Lenders shall otherwise agree, if any
Indebtedness shall be incurred by any Loan Party (excluding any Indebtedness
incurred in accordance with Section 7.2), an amount equal to 100% of the Net
Cash Proceeds thereof shall be applied on the date of the receipt of such Net
Cash Proceeds toward the prepayment of the Term Loans and the reduction of the
Revolving Commitments as set forth in Section 2.10(e).

     (c) Unless the Required Prepayment Lenders shall otherwise agree, if on any
date any Loan Party shall for its own account receive Net Cash Proceeds from any
Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be
delivered in respect thereof, such Net Cash Proceeds shall be applied on such
date toward the prepayment of the Term Loans and the reduction of the Revolving
Commitments as set forth in Section 2.10(e); provided, that, notwithstanding the
foregoing, on each Reinvestment Prepayment Date the Term Loans shall be prepaid,
and/or the Revolving Commitments shall be reduced, by an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event,
as set forth in Section 2.10(e).

     (d) Unless the Required Prepayment Lenders shall otherwise agree, if, for
any fiscal year of the Borrower commencing with the fiscal year ending December
31, 2004, there shall be Excess Cash Flow, the Borrower shall, on the relevant
Excess Cash Flow Application Date, apply the Excess Cash Flow Percentage of such
Excess Cash Flow toward the prepayment of the Term Loans as set forth in Section
2.10(e). Each such prepayment shall be made on a date (an "Excess Cash Flow
Application Date") no later than five days after the date on which the financial
statements of the Borrower referred to in Section 6.1(a), for the fiscal year
with respect to which such prepayment is made, are required to be delivered to
the Lenders.

     (e) Amounts to be applied in connection with prepayments and Commitment
reductions made pursuant to Sections 2.10(b) and (c) above shall be applied,
first, to the prepayment of the Term Loans in accordance with Section 2.16(b)
until paid in full and, second, to reduce permanently the Revolving Commitments.
Any such reduction of the Revolving Commitments shall be accompanied by
prepayment of the Revolving Loans to the extent, if any, that the Total
Revolving Extensions of Credit exceed the amount of the Total Revolving
Commitments as so reduced, provided that if the aggregate principal amount of
Revolving Loans then outstanding is less than the amount of such excess (because
L/C Obligations constitute a portion thereof), the Borrower shall, to the extent
of the balance of such excess, replace outstanding Letters of Credit and/or
deposit an amount in cash in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
reasonably satisfactory to the Administrative Agent. The application of any
prepayment pursuant to Section 2.10 shall be made, first, to ABR Loans and,
second, to Eurodollar Loans. Each prepayment of the Loans under Section 2.10
(except in the case of Revolving Loans that are ABR Loans) shall be accompanied
by accrued interest to the date of such prepayment on the amount prepaid.

     2.11 Conversion and Continuation Options. (a) The Borrower may elect from
time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent prior irrevocable notice of such election no later than
1:00 P.M., New York City time, on the Business Day preceding the proposed
conversion date, provided that any such conversion of Eurodollar Loans may only
be made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to



                                                                              25

convert ABR Loans to Eurodollar Loans by giving the Administrative Agent prior
irrevocable notice of such election no later than 1:00 P.M., New York City time,
on the third Business Day preceding the proposed conversion date (which notice
shall specify the length of the initial Interest Period therefor), provided that
no ABR Loan under a particular Facility may be converted into a Eurodollar Loan
when any Event of Default has occurred and is continuing and the Administrative
Agent or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such conversions. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof.

     (b) Any Eurodollar Loan may be continued as such upon the expiration of the
then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan under a particular Facility may be continued as such
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations, and
provided, further, that if the Borrower shall fail to give any required notice
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period. Upon receipt of
any such notice the Administrative Agent shall promptly notify each relevant
Lender thereof.

     2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans and all
selections of Interest Periods shall be in such amounts and be made pursuant to
such elections so that (a) after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal
to $500,000 or a whole multiple of $500,000 in excess thereof and (b) no more
than nine Eurodollar Tranches shall be outstanding at any one time.

     2.13 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear
interest for each day during each Interest Period with respect thereto at a rate
per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.

     (b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR
plus the Applicable Margin.

     (c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to (x) in the case of the Loans, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section plus 2% or (y) in the case of Reimbursement Obligations, the rate
applicable to ABR Loans under the Revolving Facility plus 2%, and (ii) if all or
a portion of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate then applicable
to ABR Loans under the relevant Facility plus 2% (or, in the case of any such
other amounts that do not relate to a particular Facility, the rate then
applicable to ABR Loans under the Revolving Facility plus 2%), in each case,
with respect to clauses (i) and (ii) above, from the date of such non-payment
until such amount is paid in full (as well after as before judgment).

     (d) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (c) of this Section shall
be payable from time to time on demand.



                                                                              26

     2.14 Computation of Interest and Fees. (a) Interest and fees payable
pursuant hereto shall be calculated on the basis of a 360-day year for the
actual days elapsed, except that, with respect to ABR Loans the rate of interest
on which is calculated on the basis of the Prime Rate, the interest thereon
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the relevant Lenders of the effective date and the amount of each
such change in interest rate.

     (b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be presumptively correct in
the absence of manifest error. The Administrative Agent shall, at the request of
the Borrower, deliver to the Borrower a statement showing the quotations used by
the Administrative Agent in determining any interest rate pursuant to Section
2.13(a).

     2.15 Inability to Determine Interest Rate. If prior to the first day of any
Interest Period:

          (a) the Administrative Agent shall have determined (which
     determination shall be presumptively correct absent manifest error) that,
     by reason of circumstances affecting the relevant market, adequate and
     reasonable means do not exist for ascertaining the Eurodollar Rate for such
     Interest Period, or

          (b) the Administrative Agent shall have received notice from the
     Majority Facility Lenders in respect of the relevant Facility that by
     reason of any changes arising after the date of this Agreement the
     Eurodollar Rate determined or to be determined for such Interest Period
     will not adequately and fairly reflect the cost to such Lenders (as
     certified by such Lenders) of making or maintaining their affected Loans
     during such Interest Period,

the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as ABR Loans,
(y) any Loans under the relevant Facility that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be continued as
ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility
shall be converted, on the last day of the then-current Interest Period with
respect thereto, to ABR Loans. Until such notice has been withdrawn by the
Administrative Agent (which action the Administrative Agent will take promptly
after the conditions giving rise to such notice no longer exist), no further
Eurodollar Loans under the relevant Facility shall be made or continued as such,
nor shall the Borrower have the right to convert Loans under the relevant
Facility to Eurodollar Loans.

     2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower
from the Lenders hereunder, each payment by the Borrower on account of any
commitment fee and any reduction of the Commitments of the Lenders shall be made
pro rata according to the respective Term Percentages or Revolving Percentages,
as the case may be, of the relevant Lenders. Each payment (other than
prepayments) in respect of principal or interest in respect of the Term Loans
and each payment in respect of fees payable hereunder shall be applied to the
amounts of such obligations owing to the Term Lenders pro rata according to the
respective amounts then due and owing to such Lenders.



                                                                              27

     (b) Each optional prepayment of the Term Loans shall be applied as
specified by the Borrower. Each mandatory prepayment by the Borrower on account
of principal of and interest on the Term Loans shall be made pro rata according
to the respective outstanding principal amounts of the Term Loans then held by
the Term Lenders (except as otherwise provided in Section 2.10(e)). Each
mandatory prepayment by the Borrower shall be applied pro rata to the Term Loans
based upon the respective then remaining principal amounts thereof and shall be
applied, first, to any installments coming due within 12 months of the date of
such prepayment and, second, ratably to the respective remaining installments
thereof. Amounts prepaid on account of the Term Loans may not be reborrowed.

     (c) Each payment (including each prepayment) by the Borrower on account of
principal of and interest on the Revolving Loans shall be made pro rata
according to the respective outstanding principal amounts of the Revolving Loans
then held by the Revolving Lenders. Each payment in respect of Reimbursement
Obligations in respect of any Letter of Credit shall be made to the Issuing
Lender that issued such Letter of Credit.

     (d) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 2:00 P.M., New
York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Funding Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.

     (e) Unless the Administrative Agent shall have been notified in writing by
any Lender prior to a borrowing that such Lender will not make the amount that
would constitute its share of such borrowing available to the Administrative
Agent, the Administrative Agent may assume that such Lender is making such
amount available to the Administrative Agent, and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower a corresponding
amount. If such amount is not made available to the Administrative Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon, at a rate
equal to the greater of (i) the Federal Funds Effective Rate and (ii) a rate
determined by the Administrative Agent in accordance with banking industry rules
on interbank compensation, for the period until such Lender makes such amount
immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this paragraph shall be conclusive in the absence of manifest error. If
such Lender's share of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days after such
Borrowing Date, the Administrative Agent shall give notice of such fact to the
Borrower and the Administrative Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to ABR Loans under
the relevant Facility, on demand, from the Borrower. Nothing herein shall be
deemed to limit the rights of the Administrative Agent or the Borrower against
any defaulting Lender.

     (f) Unless the Administrative Agent shall have been notified in writing by
the Borrower prior to the date of any payment due to be made by the Borrower
hereunder that the Borrower will not make such payment to the Administrative
Agent, the Administrative Agent may assume that the Borrower



                                                                              28

is making such payment, and the Administrative Agent may, but shall not be
required to, in reliance upon such assumption, make available to the Lenders
their respective pro rata shares of a corresponding amount. If such payment is
not made to the Administrative Agent by the Borrower within three Business Days
after such due date, the Administrative Agent shall be entitled to recover, on
demand, from each Lender to which any amount which was made available pursuant
to the preceding sentence, such amount with interest thereon at the rate per
annum equal to the daily average Federal Funds Effective Rate. Nothing herein
shall be deemed to limit the rights of the Administrative Agent or any Lender
against the Borrower.

     2.17 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority first made, in each
case, subsequent to the date hereof:

          (i) shall subject any Lender to any tax of any kind whatsoever with
     respect to this Agreement, any Letter of Credit, any Application or any
     Eurodollar Loan made by it, or change the basis of taxation of payments to
     such Lender in respect thereof (except for Non-Excluded Taxes covered by
     Section 2.18 and changes in the rate of tax on the overall net income of
     such Lender);

          (ii) shall impose, modify or hold applicable any reserve, special
     deposit, compulsory loan or similar requirement against assets held by,
     deposits or other liabilities in or for the account of, advances, loans or
     other extensions of credit by, or any other acquisition of funds by, any
     office of such Lender that is not otherwise included in the determination
     of the Eurodollar Rate hereunder; or

          (iii) shall impose on such Lender any other condition not otherwise
     contemplated hereunder;

and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender reasonably deems to be material, of making,
converting into, continuing or maintaining Eurodollar Loans or issuing or
participating in Letters of Credit, or to reduce any amount receivable hereunder
in respect thereof, then, in any such case, the Borrower shall promptly pay such
Lender, within ten Business Days after the Borrower's receipt of a reasonably
detailed invoice therefor (showing with reasonable detail the calculations
thereof), any additional amounts necessary to compensate such Lender for such
increased cost or reduced amount receivable. If any Lender becomes entitled to
claim any additional amounts pursuant to this Section, it shall promptly notify
the Borrower (with a copy to the Administrative Agent) of the event by reason of
which it has become so entitled.

     (b) If any Lender shall have determined that the adoption of or any change
in any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or any corporation controlling
such Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority first made, in each
case, subsequent to the date hereof shall have the effect of reducing the rate
of return on such Lender's or such corporation's capital as a consequence of its
obligations hereunder or under or in respect of any Letter of Credit to a level
below that which such Lender or such corporation could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's or
such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, after submission
by such Lender to the Borrower (with a copy to the Administrative Agent) of a
reasonably detailed written request therefor (consistent with the detail



                                                                              29

provided by such Lender to similarly situated borrowers), the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
or such corporation for such reduction.

         (c) A certificate as to any additional amounts payable pursuant to this
Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be presumptively correct in the absence of manifest
error. Notwithstanding anything to the contrary in this Section, the Borrower
shall not be required to compensate a Lender pursuant to this Section for any
amounts incurred more than nine months prior to the date that such Lender
notifies the Borrower of such Lender's intention to claim compensation therefor;
provided that, if the circumstances giving rise to such claim have a retroactive
effect, then such nine-month period shall be extended to include the period of
such retroactive effect. The obligations of the Borrower pursuant to this
Section shall survive the termination of this Agreement and the payment of the
Obligations.

         2.18 Taxes. (a) Except as required by applicable law, all payments made
by the Borrower under this Agreement shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
income taxes, levies, imposts, duties, charges, fees, deductions, withholdings
or Other Taxes, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent
or any Lender as a result of a present or former connection between the
Administrative Agent or such Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes
are required to be withheld from any amounts payable to the Administrative Agent
or any Lender hereunder, the amounts so payable to the Administrative Agent or
such Lender shall be increased to the extent necessary to yield to the
Administrative Agent or such Lender (after payment of all Non-Excluded Taxes and
Other Taxes) interest or any such other amounts payable hereunder at the rates
or in the amounts specified in this Agreement, provided, however, that the
Borrower shall not be required to increase any such amounts payable to any
Lender with respect to any Non-Excluded Taxes (i) that are attributable to such
Lender's failure to comply with the requirements of paragraph (d) or (e) of this
Section or (ii) that are United States withholding taxes imposed on amounts
payable to such Lender at the time such Lender becomes a party to this
Agreement, except to the extent that such Lender's assignor (if any) was
entitled, at the time of assignment, to receive additional amounts from the
Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph (and
subject to Section 10.6(c), in the case of payments made to a Lender for the
account of any Participant, the Borrower shall not be required to increase any
amounts payable to such Lender for the account of such Participant with respect
to any Non-Excluded Taxes that are United States withholding taxes imposed on
amounts payable to such Lender for the account of such Participant at the time
such Participant purchases the related participation, except to the extent that
the Lender who transferred such interest to the Participant was entitled, at the
time of the transfer, to receive additional amounts from the Borrower with
respect to such Non-Excluded Taxes pursuant to this paragraph).

         (b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.

         (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for the account of the Administrative Agent or Lender, as
the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof if such receipt is obtainable, or, if not,
such other evidence of payment as may reasonably be required by the
Administrative Agent or such Lender. If the



                                                                              30

Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this Section shall
survive the termination of this Agreement and the payment of the Obligations.

         (d) Each Lender (or Transferee) that is not a United States person (as
such term is defined in Section 7701(a)(30) of the Code) (a "Non-US Lender")
shall deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Borrower and to the Lender from which the related
participation shall have been purchased) (i) two accurate and complete copies of
IRS Form W-8ECI or W-8BEN, or, (ii) in the case of a Non-U.S. Lender claiming
exemption from United States federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of "portfolio interest" a statement
substantially in the form of Exhibit G and two accurate and complete copies of
IRS Form W-8BEN, or any subsequent versions or successors to such forms, in each
case properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, United States federal withholding
tax on all payments by the Borrower under this Agreement and the other Loan
Documents. Such forms shall be delivered by each Non-U.S. Lender on or before
the date it becomes a party to this Agreement (or, in the case of any
Participant, on or before the date such Participant purchases the related
participation). In addition, each Non-U.S. Lender shall deliver such forms
promptly upon the obsolescence or invalidity of any form previously delivered by
such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at
any time it determines that it is no longer in a position to provide any
previously delivered certificate to the Borrower (or any other form of
certification adopted by the United States taxing authorities for such purpose).
Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall
not be required to deliver any form pursuant to this paragraph that such
Non-U.S. Lender is not legally able to deliver.

         (e) A Lender that is entitled to an exemption from or reduction of
non-United States withholding tax under the law of any jurisdiction other than
the United States in which the Borrower is located, or under any treaty to which
such jurisdiction is a party, with respect to payments under this Agreement
shall deliver to the Borrower (with a copy to the Administrative Agent), at the
time or times prescribed by applicable law or reasonably requested by the
Borrower, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate, provided, that such Lender is legally entitled to complete,
execute and deliver such documentation.

         (f) If the Administrative Agent or any Lender determines, in good
faith, that it has received a refund of any Non-Excluded Taxes or Other Taxes as
to which it has been indemnified by the Borrower or with respect to which the
Borrower has paid additional amounts pursuant to this Section 2.18, it shall pay
over such refund to the Borrower (but only to the extent of indemnity payments
made, or additional amounts paid, by the Borrower under this Section 2.18 with
respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund),
net of all out-of-pocket expenses of the Administrative Agent or such Lender and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund); provided, that the Borrower, upon the
request of the Administrative Agent or such Lender, agrees to repay the amount
paid over to the Borrower (plus any penalties, interest or other charges imposed
by the relevant Governmental Authority) to the Administrative Agent or such
Lender in the event the Administrative Agent or such Lender is required to repay
such refund to such Governmental Authority, provided the Borrower shall not be
required to repay to the Administrative Agent or the Lender an amount in excess
of the amount paid over by such party to the Borrower pursuant to this Section.
This paragraph shall not be construed to require the Administrative Agent or any
Lender to make available its



                                                                              31

tax returns (or any other information relating to its taxes which it deems
confidential) to the Borrower or any other Person.

         2.19 Indemnity. The Borrower agrees to indemnify each Lender for, and
to hold each Lender harmless from, any loss or expense (other than lost profits)
that such Lender may actually sustain or incur as a consequence of (a) default
by the Borrower in making a borrowing of, conversion into or continuation of
Eurodollar Loans after the Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement, (b) default by the Borrower in
making any prepayment of or conversion from Eurodollar Loans after the Borrower
has given a notice thereof in accordance with the provisions of this Agreement
or (c) the making of a prepayment or conversion of Eurodollar Loans on a day
that is not the last day of an Interest Period with respect thereto. A
reasonably detailed certificate as to (showing in reasonable detail the
calculation of) any amounts payable pursuant to this Section submitted to the
Borrower by any Lender shall be presumptively correct in the absence of manifest
error. This covenant shall survive the termination of this Agreement and the
payment of the Obligations.

         2.20 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof, in each case, first made after the date hereof, shall make
it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated
by this Agreement, such Lender shall promptly give notice thereof to the
Administrative Agent and the Borrower, and (a) the commitment of such Lender
hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall be suspended during the period of
such illegality and (b) such Lender's Loans then outstanding as Eurodollar
Loans, if any, shall be converted automatically to ABR Loans on the respective
last days of the then current Interest Periods with respect to such Loans or
within such earlier period as required by law. If any such conversion of a
Eurodollar Loan occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Borrower shall pay to such Lender such
amounts, if any, as may be required pursuant to Section 2.19.

         2.21 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.17, 2.18(a) or
2.20 with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no material economic, legal or
regulatory disadvantage, and provided, further, that nothing in this Section
shall affect or postpone any of the obligations of the Borrower or the rights of
any Lender pursuant to Section 2.17, 2.18(a) or 2.20.

         2.22 Replacement of Lenders. The Borrower shall be permitted to replace
with a financial institution any Lender that (a) requests reimbursement for
amounts owing pursuant to Section 2.17 or 2.18 or gives a notice of illegality
pursuant to Section 2.20, (b) defaults in its obligation to make Loans
hereunder, or (c) that has refused to consent to any waiver or amendment with
respect to any Loan Document that has been consented to by the Required Lenders,
provided, that (i) such replacement does not conflict with any Requirement of
Law, (ii) no Event of Default shall have occurred and be continuing at the time
of such replacement, (iii) prior to any such replacement, such Lender shall have
taken no action under Section 2.21 so as to eliminate the continued need for
payment of amounts owing pursuant to Section 2.17 or 2.18 or to eliminate such
illegality pursuant to Section 2.20, (iv) the replacement financial institution
shall purchase, at par, all Loans and other amounts owing to such replaced
Lender on or prior to the date of replacement, (v) the Borrower shall be liable
to such replaced Lender under Section 2.19 (as though Section 2.19 were
applicable) if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
(vi) the replacement



                                                                              32

financial institution, if not already a Lender, shall be reasonably satisfactory
to the Administrative Agent, (vii) the replaced Lender shall be obligated to
make such replacement in accordance with the provisions of Section 10.6
(provided, that the Borrower shall be obligated to pay (or cause to be paid) the
registration and processing fee referred to therein), (viii) the Borrower shall
pay all additional amounts (if any) required pursuant to Section 2.17 or 2.18,
as the case may be, in respect of any period prior to the date on which such
replacement shall be consummated, and (ix) any such replacement shall not be
deemed to be a waiver of any rights that the Borrower, the Administrative Agent
or any other Lender shall have against the replaced Lender.

                          SECTION 3. LETTERS OF CREDIT

         3.1 L/C Commitment. (a) Subject to the terms and conditions hereof, the
Issuing Lender, in reliance on the agreements of the other Revolving Lenders set
forth in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit")
for the account of the Borrower or any of its Subsidiary Guarantors on any
Business Day during the Revolving Commitment Period in such form as may be
approved from time to time by the Issuing Lender; provided that the Issuing
Lender shall have no obligation to issue any Letter of Credit if, after giving
effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment
or (ii) the aggregate amount of the Available Revolving Commitments would be
less than zero. Each Letter of Credit shall (i) be denominated in Dollars and
(ii) expire no later than the earlier of (x) the first anniversary of its date
of issuance and (y) the date that is five Business Days prior to the Revolving
Termination Date, provided that any Letter of Credit with a one-year term may
provide for the renewal thereof for additional one-year periods (which shall in
no event extend beyond the date referred to in clause (y) above).

         (b) The Issuing Lender shall not at any time be obligated to issue any
Letter of Credit if such issuance would conflict with, or cause the Issuing
Lender or any L/C Participant to exceed any limits imposed by, any applicable
Requirement of Law.

         3.2 Procedure for Issuance of Letter of Credit. The Borrower may from
time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the reasonable satisfaction of the Issuing
Lender, and such other certificates, documents and other papers and information
as the Issuing Lender may reasonably request. Upon receipt of any Application,
the Issuing Lender will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Lender be required
to issue any Letter of Credit earlier than three Business Days after its receipt
of the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Letter
of Credit (including the amount thereof).

         3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans under the Revolving Facility
(minus the fronting fee referred to below), on the face amount of such Letter of
Credit shared ratably among the Revolving Lenders and payable quarterly in
arrears on each Fee Payment Date after the issuance date. In addition, the
Borrower shall pay to the Issuing Lender for its own account a fronting fee on
the aggregate face amount of all outstanding Letters



                                                                              33

of Credit issued by it of 1/4 of 1% per annum, payable quarterly in arrears on
each Fee Payment Date after the issuance date.

         (b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.

         3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit, each L/C Participant irrevocably agrees to
accept and purchase and hereby accepts and purchases from the Issuing Lender, on
the terms and conditions set forth below, for such L/C Participant's own account
and risk an undivided interest equal to such L/C Participant's Revolving
Percentage in the Issuing Lender's obligations and rights under and in respect
of each Letter of Credit and the amount of each draft paid by the Issuing Lender
thereunder. Each L/C Participant agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Percentage of the amount of such draft, or any
part thereof, that is not so reimbursed. Each L/C Participant's obligation to
pay such amount shall be absolute and unconditional and shall not be affected by
any circumstance, including (i) any setoff, counterclaim, recoupment, defense or
other right that such L/C Participant may have against the Issuing Lender, the
Borrower or any other Person for any reason whatsoever, (ii) the occurrence or
continuance of a Default or an Event of Default or the failure to satisfy any of
the other conditions specified in Section 5, (iii) any adverse change in the
financial condition of the Borrower, (iv) any breach of this Agreement or any
other Loan Document by the Borrower, any other Loan Party or any other L/C
Participant or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing

         (b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans under the Revolving Facility. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.

         (c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
provided, however, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.



                                                                              34

         3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
reimburse each Issuing Lender the Business Day following the date on which the
Issuing Lender notifies the Borrower of the date and amount of a draft presented
under any Letter of Credit and paid by such Issuing Lender for the amount of (a)
such draft so paid and (b) any taxes, fees, charges or other costs or expenses
incurred by such Issuing Lender in connection with such payment (the amounts
described in the foregoing clauses (a) and (b) in respect of any drawing,
collectively, the "Payment Amount"). Each such payment shall be made to the
Issuing Lender at its address for notices referred to herein in Dollars and in
immediately available funds. Interest shall be payable on any such amounts from
the date on which the relevant draft is paid until payment in full at the rate
set forth (x) in, until the second Business Day next succeeding the date of the
relevant notice, Section 2.13(b) and (y) in, thereafter, Section 2.13(c).

         3.6 Obligations Absolute. The Borrower's obligations under this Section
3 shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment that the Borrower
may have or have had against the Issuing Lender, any beneficiary of a Letter of
Credit or any other Person. The Borrower also agrees with the Issuing Lender
that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee, or any other events
or circumstances that, pursuant to applicable law or the applicable customs and
practices promulgated by the International Chamber of Commerce, are not within
the responsibility of the Issuing Lender, except for errors or omissions found
by a final and nonappealable decision of a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of the Issuing
Lender or its employees or agents. The Issuing Lender shall not be liable for
any error, omission, interruption or delay in transmission, dispatch or delivery
of any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Issuing Lender or its employees or
agents. The Borrower agrees that any action taken or omitted by the Issuing
Lender under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards or care specified in the Uniform Commercial
Code of the State of New York, shall be binding on the Borrower and shall not
result in any liability of the Issuing Lender to the Borrower.

         3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.

         3.8 Applications. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.

                   SECTION 4. REPRESENTATIONS AND WARRANTIES

         To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Holdings and the Borrower hereby jointly



                                                                              35

and severally represent and warrant to the Administrative Agent and each Lender
which representations and warranties shall be deemed made on the Closing Date
(immediately before and immediately after giving effect to the Refinancing) and
on the date of each borrowing of Loans or issuance of a Letter of Credit
hereunder) that:

          4.1 Financial Condition. (a) The unaudited pro forma consolidated
balance sheet of Holdings and its consolidated Subsidiaries as at September 30,
2003 (the "Pro Forma Balance Sheet"), copies of which have heretofore been
furnished to each Lender, has been prepared giving effect (as if such events had
occurred on such date) to (i) the consummation of the Refinancing, (ii) the
Loans to be made on the Closing Date and the use of proceeds thereof and (iii)
the payment of fees and expenses in connection with the foregoing. The Pro Forma
Balance Sheet has been prepared based on the best information available to
Holdings as of the date of delivery thereof, and presents fairly on a pro forma
basis the estimated financial position of Holdings and its consolidated
Subsidiaries as at September 30, 2003, assuming that the events specified in the
preceding sentence had actually occurred at such date subject to normal year-end
adjustments and the absence of footnotes.

          (b) The audited consolidated balance sheets of Holdings and its
consolidated Subsidiaries as at December 31, 2000, December 31, 2001 and
December 31, 2002, and the related consolidated statements of income and of cash
flows for the fiscal years ended on such dates, reported on by and accompanied
by an unqualified report from Arthur Andersen LLP (with respect to the financial
statements for the 2000 and 2001 fiscal years) and Ernst & Young LLP (with
respect to the financial statements for the 2002 fiscal year), present fairly in
all material respects the consolidated financial condition of Holdings and its
consolidated Subsidiaries as at such date, and the consolidated results of its
operations and its consolidated cash flows for the respective fiscal years then
ended. The unaudited consolidated balance sheet of Holdings and its consolidated
Subsidiaries as at September 30, 2003, and the related unaudited consolidated
statements of income and cash flows for the nine-month period ended on such
date, present fairly in all material respects the consolidated financial
condition of Holdings and its consolidated Subsidiaries as at such date, and the
consolidated results of its operations and its consolidated cash flows for the
nine-month period then ended (subject to normal year-end audit adjustments and
the absence of notes). All such financial statements have been prepared in
accordance with GAAP. Except as set forth in Schedule 4.1(b), Holdings, the
Borrower and its Subsidiaries do not have, as of September 30, 2003, any
material Guarantee Obligations, contingent liabilities and liabilities for
taxes, including without limitation any material interest rate or foreign
currency swap or exchange transaction or other material obligation in respect of
derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from December 31, 2002 to and
including the date hereof there has been no Disposition by any Group Member of
any material part of its business or property.

          4.2 No Change. Since December 31, 2002, there has been no event,
development or circumstance that has had or will have a Material Adverse Effect.

          4.3 Existence; Compliance with Law. Each of Holdings, the Borrower and
its Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has the corporate
power and authority, and the legal right, to own and operate its Property, to
lease the Property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of Property or the conduct of its business requires such qualification
except to the extent that the failure to be so qualified or in good standing
would not have a Material Adverse Effect and (d) is in compliance with all
Requirements of Law except, in each case, to the extent that any such failure
could not reasonably be expected to have a Material Adverse Effect.



                                                                              36

          4.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan
Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow or have Letters of Credit issued hereunder. Each Loan
Party has taken all necessary corporate or other action to authorize the
execution, delivery and performance of the Loan Documents to which it is a party
and, in the case of the Borrower, to authorize the borrowings on the terms and
conditions of this Agreement. Except as would not have a Material Adverse
Effect, no consent or authorization of, filing with, notice to or other act by
or in respect of, any Governmental Authority or any other Person is required in
connection with the Refinancing, the borrowings hereunder or the execution,
delivery, performance, validity or enforceability of this Agreement or any of
the other Loan Documents, except (i) consents, authorizations, filings and
notices described in Schedule 4.4, which consents, authorizations, filings and
notices have been obtained or made and are in full force and effect or the
failure to obtain which could not reasonably be expected to have a Material
Adverse Effect and (ii) the filings referred to in Section 4.18. Each Loan
Document has been duly executed and delivered on behalf of each Loan Party that
is a party thereto. This Agreement constitutes, and each other Loan Document
upon execution will constitute, a legal, valid and binding obligation of each
Loan Party that is a party thereto, enforceable against each such Loan Party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).

          4.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not (a) violate
the organizational or governing documents of any of the Loan Parties, (b) except
as would not have a Material Adverse Effect, violate any Requirement of Law or
(c), except as would not have a Material Adverse Effect, any Contractual
Obligation of Holdings, the Borrower or any of its Subsidiaries and will not
result in, or require, the creation or imposition of any Lien on any of their
respective properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).

          4.6 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of Holdings or the Borrower, reasonably likely to be commenced within
a reasonable time period against Holdings, the Borrower or any of its
Subsidiaries or against any of their Properties or revenues which, taken as a
whole, are material (a) with respect to any of the Loan Documents, or (b) that
would reasonably be expected to have a Material Adverse Effect.

          4.7 No Default. Neither Holdings, the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect that could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.

          4.8 Ownership of Property; Liens. Each of Holdings, the Borrower and
its Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in, all
its other Property in each case, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect, and none of such
Property is subject to any Lien except as permitted by Section 7.3. Schedule
1.1B lists all real property which is owned or leased by any Loan Party as of
the Closing Date.

          4.9 Intellectual Property. Each of Holdings, the Borrower and its
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted, except where the failure
to do so could not reasonably be expected to have a Material Adverse



                                                                              37

Effect. No holding, decision or judgment has been rendered by any Governmental
Authority which would limit, cancel or question the validity of, or any Loan
Party's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect. No material claim has
been asserted and is pending by any Person challenging or questioning the use of
any Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor does Holdings or the Borrower know of any valid basis for any such
claim, in each case, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect. The use of Intellectual Property by
Holdings, the Borrower and its Subsidiaries does not infringe on the rights of
any Person in a manner that could reasonably be expected to have a Material
Adverse Effect.

          4.10 Taxes. Each of Holdings, the Borrower and its Subsidiaries has
filed or caused to be filed all federal and other material tax returns that are
required to be filed and has paid all taxes shown to be due and payable on said
returns and all other taxes, fees or other charges imposed on it or any of its
Property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which any reserves required in conformity with GAAP have been
provided on the books of Holdings, the Borrower or its Subsidiaries, as the case
may be), except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect.

          4.11 Federal Regulations. No part of the proceeds of any Loans, and no
other extensions of credit hereunder, will be used for "buying" or "carrying"
any "margin stock" within the respective meanings of each of the quoted terms
under Regulation U as now and from time to time hereafter in effect or for any
purpose that violates the provisions of the regulations of the Board. If
requested by any Lender (through the Administrative Agent) or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1 referred to in Regulation U.

          4.12 Labor Matters. There are no strikes or other labor disputes
against Holdings, the Borrower or any of its Subsidiaries pending that could
reasonably be expected to have a Material Adverse Effect. Hours worked by and
payment made to employees of Holdings, the Borrower and its Subsidiaries have
not been in violation of the Fair Labor Standards Act or any other applicable
Requirement of Law dealing with such matters that could reasonably be expected
to have a Material Adverse Effect. All payments due from Holdings, the Borrower
or any of its Subsidiaries on account of employee health and welfare insurance
that could reasonably be expected to have a Material Adverse Effect if not paid
have been paid or accrued as a liability on the books of Holdings, the Borrower
or the relevant Subsidiary.

          4.13 ERISA. (a) Except as could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect: neither a
Reportable Event nor an "accumulated funding deficiency" (within the meaning of
Section 412(a) of the Code or Section 302(a)(2) of ERISA) has occurred during
the five-year period prior to the date on which this representation is made with
respect to any Plan, and each Plan has complied in all material respects with
the applicable provisions of ERISA and the Code; no termination of a Single
Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has
arisen, during such five-year period; the present value of all accrued benefits
under each Single Employer Plan (based on those assumptions used to fund such
Plans) did not, as of the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the value of the assets of
such Plan allocable to such accrued benefits; neither the Borrower nor any of
its Subsidiaries has had a complete or partial withdrawal from any Multiemployer
Plan that has resulted or could reasonably be expected to result in a liability
under ERISA; neither the Borrower nor any of its Subsidiaries would become
subject to any liability under ERISA if the Borrower or such Subsidiary were to
withdraw completely from all Multiemployer Plans as of the valuation date most
closely preceding the date on which this representation is made; and no
Multiemployer Plan is in Reorganization or Insolvent.



                                                                              38

          (b) The Borrower and its Subsidiaries have not incurred, and do not
reasonably expect to incur, any liability under ERISA or the Code with respect
to any plan within the meaning of Section 3(3) of ERISA which is subject to
Title IV of ERISA that is maintained by a Commonly Controlled Entity (other than
Borrower and its Subsidiaries) (a "Commonly Controlled Plan") merely by virtue
of being treated as a single employer under Title IV of ERISA with the sponsor
of such plan that would reasonably be likely to have a Material Adverse Effect
and result in a direct obligation of the Borrower and its Subsidiaries to pay
money.

          4.14 Investment Company Act. No Loan Party is an "investment company",
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.

          4.15 Subsidiaries. (a) The Subsidiaries listed on Schedule 4.15
constitute all the Subsidiaries of the Borrower at the date of this Agreement.
Schedule 4.15 sets forth as of the Closing Date the name and jurisdiction of
incorporation of each Subsidiary and, as to each Subsidiary, the percentage of
each class of Capital Stock owned by each Loan Party.

          (b) As of the Closing Date, there are no outstanding subscriptions,
options, warrants, calls, rights or other agreements or commitments (other than
stock options granted to officers, employees or directors and directors'
qualifying shares) of any nature relating to any Capital Stock of Holdings, the
Borrower or any other Loan Party.

          4.16 Environmental Matters. Other than exceptions to any of the
following that would not reasonably be expected to have a Material Adverse
Effect:

          (a) the Borrower and its Subsidiaries: (i) are, and within the period
     of all applicable statutes of limitation have been, in compliance with all
     applicable Environmental Laws; (ii) hold all Environmental Permits (each of
     which is in full force and effect) required for any of their current
     operations or for any property owned, leased, or otherwise operated by any
     of them; and (iii) are, and within the period of all applicable statutes of
     limitation have been, in compliance with all of their Environmental
     Permits.

          (b) Materials of Environmental Concern are not present at, on, under,
     in, or about any real property now or formerly owned, leased or operated by
     the Borrower or any of its Subsidiaries, or at any other location
     (including, without limitation, any location to which Materials of
     Environmental Concern have been sent for re-use or recycling or for
     treatment, storage or disposal) which could reasonably be expected to (i)
     give rise to liability of the Borrower or any of its Subsidiaries under any
     applicable Environmental Law or otherwise result in costs to the Borrower
     or any of its Subsidiaries, (ii) interfere with the Borrower's or any of
     its Subsidiaries' continued operations or (iii) impair the fair saleable
     value of any real property owned or leased by the Borrower or any of its
     Subsidiaries.

          (c) there is no judicial, administrative, or arbitral proceeding
     (including any notice of violation or alleged violation) under or relating
     to any Environmental Law to which the Borrower or any of its Subsidiaries
     is, or to the knowledge of the Borrower or any of its Subsidiaries will be,
     named as a party that is pending or, to the knowledge of the Borrower or
     any of its Subsidiaries, reasonably likely to be commenced within a
     reasonable amount of time.

          (d) neither the Borrower nor any of its Subsidiaries has received any
     written request for information, or been notified that it is a potentially
     responsible party under or relating to the



                                                                              39

     federal Comprehensive Environmental Response, Compensation, and Liability
     Act or any similar Environmental Law, or with respect to any Materials of
     Environmental Concern.

          (e) neither the Borrower nor any of its Subsidiaries has entered into
     or agreed to any consent decree, order, or settlement or other agreement,
     or is subject to any judgment, decree, or order or other agreement, in any
     judicial, administrative, arbitral, or other forum for dispute resolution,
     relating to compliance with or liability under any Environmental Law or
     with respect to any Materials of Environmental Concern.

          (f) neither the Borrower nor any of its Subsidiaries has assumed or
     retained, by contract or operation of law, any liabilities of any kind,
     fixed or contingent, known or unknown, under any Environmental Law or with
     respect to any Materials of Environmental Concern.

          4.17 Accuracy of Information, etc. No statement or information
contained in this Agreement, any other Loan Document or any certificate
furnished to the Administrative Agent or the Lenders or any of them, by or on
behalf of any Loan Party for use in connection with the transactions
contemplated by this Agreement or the other Loan Documents when taken as a
whole, contained as of the date such statement, information, or certificate was
so furnished, any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. The projections and pro forma financial information
contained in the materials referenced above are based upon good faith estimates
and assumptions believed by management of the Borrower to be reasonable at the
time made, it being recognized by the Lenders that such financial information as
it relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein by a material amount.

          4.18 Security Documents. (a) The Guarantee and Collateral Agreement is
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein (including any proceeds of any item of Collateral). In the
case of the Pledged Securities described in the Guarantee and Collateral
Agreement, when any stock certificates or notes, as applicable, representing
such Pledged Securities are delivered to the Administrative Agent, and in the
case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements in appropriate form are filed in the
offices specified on Schedule 4.18(a)-1 (which financing statements have been
duly completed and executed and delivered to the Administrative Agent) and such
other filings as are specified on Schedule 3 to the Guarantee and Collateral
Agreement are made, the Administrative Agent shall have a fully perfected Lien
on, and security interest in, all right, title and interest of the Loan Parties
in such Collateral (including any proceeds of any item of Collateral) (to the
extent a security interest in such Collateral can be perfected through the
filing of financing statements in the offices specified on Schedule 4.18(a)-1
and the filings specified on Schedule 3 to the Guarantee and Collateral
Agreement and through the delivery of the Pledged Securities required to be
delivered on the Closing Date), as security for the Obligations (as defined in
the Guarantee and Collateral Agreement), in each case prior and superior in
right to any other Person (except, in the case of Collateral other than Pledged
Stock, Liens permitted by Section 7.3) to the extent required by the Guarantee
and Collateral Agreement. As of the date hereof, Schedule 4.18(a)-2 lists each
Uniform Commercial Code financing statement that (i) names any Loan Party as
debtor and (ii) will remain on file after the Closing Date. As of the date
hereof, Schedule 4.18(a)-3 lists each Uniform Commercial Code financing
statement that (i) names any Loan Party as debtor and (ii) will be terminated on
the Closing Date; and on or prior to the Closing Date, the Borrower will have
delivered to the Administrative Agent or made appropriate arrangements for the
delivery thereof, or caused to be filed, duly completed Uniform Commercial Code
termination statements, signed by the relevant secured party, in respect of each
Uniform Commercial Code financing statement listed on such Schedule.



                                                                              40

          (b) Each of the Mortgages is effective to create in favor of the
Administrative Agent for the benefit of the Lenders a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof; and when the Mortgages are filed in the offices specified on Schedule
4.18(b) (in the case of the Mortgages to be executed and delivered on the
Closing Date) or in the recording office designated by the Borrower (in the case
of any Mortgage to be executed and delivered pursuant to Section 6.10(b)), each
Mortgage shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in the Mortgaged Properties
described therein and the proceeds thereof, as security for the Obligations (as
defined in the relevant Mortgage), in each case prior and superior in right to
any other Person (other than Liens permitted by Section 7.3 or other
encumbrances or rights permitted by the relevant Mortgage).

          4.19 Solvency. Each Loan Party is, and after giving effect to the
Refinancing and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.

          4.20 Regulation H. No Mortgage encumbers improved real property which
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of 1968
(except any Mortgaged Properties as to which such flood insurance as required by
Regulation H has been obtained and is in full force and effect as required by
this Agreement).

                        SECTION 5. CONDITIONS PRECEDENT

          5.1 Conditions to Initial Extension of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:

          (a) Credit Agreement; Guarantee and Collateral Agreement. The
     Administrative Agent shall have received (i) this Agreement, executed and
     delivered by the Administrative Agent, Holdings, the Borrower and each
     Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral
     Agreement, executed and delivered by Holdings, the Borrower and each
     Subsidiary Guarantor and (iii) an Acknowledgement and Consent in the form
     attached to the Guarantee and Collateral Agreement, executed and delivered
     by each Issuer (as defined therein), if any, that is not a Loan Party.

          (b) Refinancing, etc. The following transactions shall concurrently be
     consummated (the events described in clauses (i) through (iv) below, the
     "Refinancing"):

               (i) The Borrower shall pay a dividend to Holdings in an amount
     not to exceed $27,500,000 to enable Holdings to pay the Senior Holdings
     Notes in full, and Holdings shall pay and/or redeem the Senior Holdings
     Notes in full;

               (ii) The Borrower shall pay, in an aggregate amount not to exceed
     $63,000,000 (a) a dividend to Holdings so that Holdings can make a special
     distribution to its equity holders and pay compensation to management and
     (b) compensation to management;

               (iii) (i) The Existing Credit Facility shall have been terminated
     and all amounts thereunder shall have been paid in full and (ii)
     satisfactory arrangements shall have been made for the termination of all
     Liens granted in connection therewith; and



                                                                              41

            (iv) After giving effect to clauses (i) through (iii) above, the
     Borrower shall have substantially no outstanding Indebtedness other than
     the Indebtedness permitted under Section 7.2.

        (c) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
     have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated
     financial statements of Holdings for the 2000, 2001 and 2002 fiscal years
     and (iii) unaudited interim consolidated financial statements of Holdings
     for the last fiscal quarter ended after the date of the latest applicable
     financial statements delivered pursuant to clause (ii) of this paragraph.

        (d) Approvals. All material governmental and third party approvals
     necessary in connection with the Refinancing, and the transactions
     contemplated hereby to be entered into as of the Closing Date shall have
     been obtained and be in full force and effect, and all applicable waiting
     periods shall have expired without any action being taken or threatened by
     any competent authority which would restrain, prevent or otherwise impose
     materially adverse conditions on the Refinancing or the financing
     contemplated hereby.

        (e) Fees. The Agents shall have received all fees required to be paid
     (including those to be passed on to the Lenders), and all reasonable
     out-of-pocket expenses for which reasonably detailed invoices have been
     presented (including reasonable fees, disbursements and other charges of
     counsel to the Administrative Agent), on or before the Closing Date. All
     such amounts will be paid with proceeds of Loans made on the Closing Date
     and will be reflected in the funding instructions given by the Borrower to
     the Administrative Agent on or before the Closing Date.

        (f) Solvency Certificate. The Administrative Agent shall have received a
     solvency certificate signed by the Chief Financial Officer on behalf of the
     Borrower, substantially in the form of Exhibit H hereto.

        (g) Lien Searches. The Administrative Agent shall have received the
     results of a recent lien search in each of the jurisdictions in which
     Uniform Commercial Code financing statement or other filings or
     recordations should be made to evidence or perfect security interests in
     all assets of the Loan Parties, and such search shall reveal no liens on
     any of the assets of the Loan Party, except for Liens permitted by Section
     7.3 or liens to be discharged on or prior to the Closing Date.

        (h) Closing Certificate. The Administrative Agent shall have received a
     certificate of each Loan Party, dated the Closing Date, substantially in
     the form of Exhibit C, with appropriate insertions and attachments.

        (i) Legal Opinions. The Administrative Agent shall have received the
     following executed legal opinions:

             (i) the legal opinion of Latham & Watkins LLP, counsel to Holdings,
        the Borrower and its Subsidiaries, substantially in the form of Exhibit
        F; and

             (ii) the legal opinion of local counsel in each of Minnesota and
        South Dakota.

        (j) Pledged Stock; Stock Powers; Pledged Notes. The Administrative Agent
     shall have received (i) the certificates representing the shares, if any,
     of Capital Stock pledged pursuant to the Guarantee and Collateral
     Agreement, together with an undated stock power for each such



                                                                              42

     certificate executed in blank by a duly authorized officer of the pledgor
     thereof and (ii) each promissory note (if any), excluding promissory notes
     issued by directors, officers and employees of any Loan Party, pledged to
     the Administrative Agent pursuant to the Guarantee and Collateral Agreement
     endorsed (without recourse) in blank (or accompanied by an executed
     transfer form in blank) by the pledgor thereof.

         (k) Filings, Registrations and Recordings. Each document (including,
     without limitation, any Uniform Commercial Code financing statement)
     required by the Security Documents or reasonably requested by the
     Administrative Agent to be filed, registered or recorded in order to create
     in favor of the Administrative Agent, for the benefit of the Lenders, a
     perfected Lien on the Collateral described therein, prior and superior in
     right to any other Person (other than with respect to Liens expressly
     permitted by Section 7.3), shall have been delivered to the Administrative
     Agent in proper form for filing, registration or recordation.

         (l) Mortgages, etc. (i) The Administrative Agent shall have received a
     Mortgage with respect to each Mortgaged Property, executed and delivered by
     a duly authorized officer of each party thereto.

         (ii) If requested by the Administrative Agent, the Administrative Agent
     shall have received (A) a policy of flood insurance that (1) covers any
     parcel of improved real property that is encumbered by any Mortgage and is
     located in a special flood hazard area (2) is written in an amount not less
     than the outstanding principal amount of the indebtedness secured by such
     Mortgage that is reasonably allocable to such real property or the maximum
     limit of coverage made available with respect to the particular type of
     property under the National Flood Insurance Act of 1968, whichever is less,
     and (3) has a term ending not earlier than the maturity of the Indebtedness
     secured by such Mortgage and (B) confirmation that the Borrower has
     received the notice required pursuant to Section 208(e)(3) of Regulation H
     of the Board.

         (m) Insurance. The Administrative Agent shall have received insurance
     certificates satisfying the requirements of Section 5.3 of the Guarantee
     and Collateral Agreement.

         (n) Ratings. The Facilities shall have received a rating from each of
     Moody's and S&P.

         (o) Projections. The Lenders shall have received projections of the
     Borrower through the 2009 fiscal year.

         5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any Loan or to issue or participate in any Letter of Credit
hereunder on any date (including, without limitation, its initial extension of
credit) is subject to the satisfaction of the following conditions precedent:

         (a) Representations and Warranties. Each of the representations and
     warranties made by any Loan Party in or pursuant to the Loan Documents
     shall be true and correct in all material respects on and as of such date
     as if made on and as of such date except to the extent that such
     representations and warranties relate to an earlier date, in which case
     such representations and warranties shall be true and correct in all
     material respects as of such earlier date.

         (b) No Default. No Default or Event of Default shall have occurred and
     be continuing on such date or after giving effect to the extensions of
     credit requested to be made on such date.



                                                                              43

Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section have been satisfied.

                        SECTION 6. AFFIRMATIVE COVENANTS

         Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or any Agent
hereunder, each of Holdings and the Borrower shall and shall cause each of its
Subsidiaries to:

         6.1 Financial Statements. Furnish to the Administrative Agent for
delivery to each Lender (which may be delivered via posting on Intralinks):

         (a) as soon as available, but in any event within 90 days (or 120 days,
     if a Permitted Acquisition occurred during the relevant period) after the
     end of each fiscal year of Holdings, a copy of the audited consolidated and
     unaudited consolidating balance sheet of Holdings and its consolidated
     Subsidiaries as at the end of such year and the related audited
     consolidated and unaudited consolidating statements of income and of cash
     flows for such year, setting forth in each case in comparative form the
     figures as of the end of and for the previous year, reported on without
     qualification arising out of the scope of the audit, by Ernst & Young LLP
     or other independent certified public accountants of nationally recognized
     standing;

         (b) as soon as available, but in any event not later than 45 days after
     the end of each of the first three quarterly periods of each fiscal year of
     Holdings, the unaudited consolidated and consolidating balance sheet of
     Holdings and its consolidated Subsidiaries as at the end of such quarter
     and the related unaudited consolidated and consolidating statements of
     income and of cash flows for such quarter and the portion of the fiscal
     year through the end of such quarter, setting forth in each case in
     comparative form the figures as of the end of and for the corresponding
     period in the previous year, certified by a Responsible Officer as being
     fairly stated in all material respects (subject to normal year-end audit
     adjustments and the lack of notes); and

         (c) as soon as available, but in any event not later than 45 days after
     the end of each month occurring during each fiscal year of Holdings (other
     than the third, sixth, ninth and twelfth such month), the unaudited
     consolidated and consolidating balance sheets of Holdings and its
     Subsidiaries as at the end of such month and the related unaudited
     consolidated and consolidating statements of income and of cash flows for
     such month and the portion of the fiscal year through the end of such
     month, setting forth in each case in comparative form the figures as of the
     end of and for the corresponding period in the previous year, certified by
     a Responsible Officer as being fairly stated in all material respects
     (subject to normal year-end audit adjustments and the lack of notes);

all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).

         6.2 Certificates; Other Information. Furnish to the Administrative
Agent, with sufficient copies for distribution to each Lender, or, in the case
of clause (g), to the relevant Lender:



                                                                              44

         (a) concurrently with the delivery of the financial statements referred
     to in Section 6.1(a), a certificate of the independent certified public
     accountants reporting on such financial statements stating that in making
     the examination necessary therefor no knowledge was obtained of any Default
     or Event of Default, except as specified in such certificate;

         (b) concurrently with the delivery of any financial statements pursuant
     to Sections 6.1(a) and (b), (i) a certificate of a Responsible Officer on
     behalf of the Borrower stating that such Responsible Officer has obtained
     no knowledge of any Default or Event of Default except as specified in such
     certificate and (ii) (x) a Compliance Certificate containing all
     information and calculations necessary for determining compliance by
     Holdings, the Borrower and its Subsidiaries with the provisions of this
     Agreement referred to therein as of the last day of the fiscal quarter or
     fiscal year of the Borrower, as the case may be, and (y) to the extent not
     previously disclosed to the Administrative Agent, a description of any new
     Subsidiary and of any change in the jurisdiction of organization of any
     other Loan Party and a listing of any material Intellectual Property
     filings by any Loan Party since the date of the most recent list delivered
     pursuant to this clause (y) (or, in the case of the first such list so
     delivered, since the Closing Date), together with such documents, if any,
     required to be filed or recorded in order to perfect the security interest
     of the Administrative Agent therein;

         (c) as soon as available, and in any event no later than 45 days after
     the end of each fiscal year of Holdings, a detailed consolidated budget for
     the following fiscal year (including a projected consolidated balance sheet
     of Holdings and its Subsidiaries as of the end of the following fiscal
     year, the related consolidated statements of projected cash flow, projected
     changes in financial position and projected income) (collectively, the
     "Annual Operating Budget");

         (d) promptly after the same are sent, copies of all financial
     statements and reports that Holdings or the Borrower sends to the holders
     of any class of its debt securities or public equity securities (except for
     Permitted Investors) and, promptly after the same are filed, copies of all
     financial statements and reports that Holdings or the Borrower may make to,
     or file with, the SEC;

         (e) promptly upon delivery thereof to Holdings or the Borrower and to
     the extent permitted, copies of any accountants' letters addressed to their
     respective Board of Directors (or any committee thereof);

         (f) promptly upon obtaining knowledge thereof: (i) any development,
     event, or condition that could reasonably be expected to result in the
     payment by the Borrower and its Subsidiaries of a Material Environmental
     Amount; and (ii) any notice that any Governmental Authority may deny any
     application for an Environmental Permit sought by, or revoke or refuse to
     renew any Environmental Permit held by, the Borrower; and

         (g) promptly, such additional financial and other information as the
     Administrative Agent (for its own account or upon the request from any
     Lender) may from time to time reasonably request.

         6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material taxes, assessments and governmental charges (other than Indebtedness),
except (i) where the amount or validity thereof is currently being contested in
good faith by appropriate proceedings and reserves required in conformity with
GAAP with respect thereto have been provided on the books of Holdings, the
Borrower or its



                                                                              45

Subsidiaries, as the case may be, or (ii) to the extent that failure to comply
to pay or satisfy such obligations could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.

         6.4 Conduct of Business and Maintenance of Existence, etc. Preserve,
renew and keep in full force and effect its corporate or other existence and
take all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted by Section 7.4 and except to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect.

         6.5 Maintenance of Property; Insurance. (a) Keep all Property useful
and necessary in its business in reasonably good working order and condition,
ordinary wear and tear excepted, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.

         (b) Take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office, the United States Copyright Office, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain each
registration of the material Intellectual Property, including, without
limitation, filing of applications for renewal, affidavits of use and affidavits
of incontestability, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.

         (c) Maintain insurance with financially sound and reputable insurance
companies insurance on all its Property in at least such amounts and against at
least such risks (but including in any event public liability, product liability
and business interruption) as are usually insured against in the same general
area by companies engaged in the same or a similar business. All such insurance
shall, to the extent customary (but in any event, not including business
interruption insurance and personal injury insurance) (i) provide that no
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the
Administrative Agent of written notice thereof and (ii) name the Administrative
Agent as insured party or loss payee. Upon the request of the Administrative
Agent (such request not to be made more than once per year), the Borrower shall
deliver to the Administrative Agent a report of a reputable insurance broker
with respect to such insurance.

         6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all material
dealings and transactions in relation to its business and activities, (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records upon reasonable
notice and during normal business hours (provided that such visits shall be
coordinated by the Administrative Agent, and in no event shall there be more
than one such visit per year except during the continuance of an Event of
Default), (c) permit representatives of any Lender to discuss the business,
operations, properties and financial and other condition of Holdings, the
Borrower and its Subsidiaries with officers and employees of Holdings, the
Borrower and its Subsidiaries and (d) permit representatives of the
Administrative Agent to discuss the business, operations, properties and
financial and other condition of Holdings, the Borrower and its Subsidiaries
with its independent certified public accountants; provided, that any such
discussions with the Borrower's independent certified public accountants at the
Borrower's expense shall, except while an Event of Default has occurred and is
continuing, be limited to one meeting per calendar year.

         6.7 Notices. Promptly upon a Responsible Officer of any Loan Party
obtaining knowledge thereof, give notice to the Administrative Agent and each
Lender of:

         (a) the occurrence of any Default or Event of Default;



                                                                              46

          (b) any (i) default or event of default under any Contractual
     Obligation of Holdings, the Borrower or any of its Subsidiaries or (ii)
     litigation, investigation or proceeding which may exist at any time between
     Holdings, the Borrower or any of its Subsidiaries and any other Person,
     that in either case, could reasonably be expected to have a Material
     Adverse Effect;

          (c) the following events, that, individually or in the aggregate,
     could reasonably be expected to have a Material Adverse Effect, as soon as
     possible and in any event within 30 days after Holdings, the Borrower or
     any Subsidiary knows or has reason to know thereof: (i) the occurrence of
     any Reportable Event with respect to any Plan, a failure to make any
     required contribution to a Plan, the creation of any Lien in favor of the
     PBGC or a Plan or any withdrawal from, or the termination, Reorganization
     or Insolvency of, any Multiemployer Plan, (ii) the institution of
     proceedings or the taking of any other action by the PBGC or the Borrower
     or any Commonly Controlled Entity or any Multiemployer Plan with respect to
     the withdrawal from, or the termination, Reorganization or Insolvency of,
     any Plan or (iii) the occurrence of any similar events with respect to a
     Commonly Controlled Plan that would reasonably be likely to result in a
     direct obligation of the Borrower and its Subsidiaries to pay money;

          (d) any development or event that has had or could reasonably be
     expected to have a Material Adverse Effect; and

          (e) the acquisition of any Property after the Closing Date in which a
     security interest is required to be created or perfected pursuant to
     Section 6.10.

Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action Holdings, the Borrower or the relevant Subsidiary
proposes to take with respect thereto.

     6.8 Environmental Laws. (a) Except as would not have a Material Adverse
Effect, comply in all material respects with, and make commercially reasonable
efforts to ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, and make commercially
reasonable efforts to ensure that all tenants and subtenants obtain and comply
in all material respects with and maintain, any and all Environmental Permits
required by applicable Environmental Laws.

     (b) Except as would not have a Material Adverse Effect, conduct and
complete all investigations, studies, sampling and testing, and all remedial,
removal and other actions required under Environmental Laws and promptly comply
in all material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws.

     6.9 Interest Rate Protection. In the case of the Borrower, within 90 days
after the Closing Date, enter into, and thereafter maintain, Hedge Agreements to
the extent necessary to provide that at least 40% of the aggregate principal
amount of the Term Loans outstanding from time to time is subject to either a
fixed interest rate or interest rate protection for a period of not less than
two years, which Hedge Agreements shall have terms and conditions reasonably
satisfactory to the Administrative Agent.

     6.10 Additional Collateral, etc. (a) With respect to any Property (other
than bank accounts, cash and Cash Equivalents) located in the United States
having a value, individually or in the aggregate of at least $1,000,000 acquired
after the Closing Date by any Loan Party (other than (x) any interests in real
property and any Property described in paragraph (c) or paragraph (d) of this
Section, (y) any Property subject to a Lien expressly permitted by Section
7.3(g) and (z) Instruments, Certificated



                                                                              47

Securities and Chattel Paper, which are referred to in the last sentence of this
paragraph (a)) as to which the Administrative Agent for the benefit of the
Lenders does not have a perfected Lien, promptly (i) give notice of such
Property to the Administrative Agent and execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
or such other documents as the Administrative Agent reasonably requests to grant
to the Administrative Agent for the benefit of the Lenders a security interest
in such Property and (ii) take all actions reasonably requested by the
Administrative Agent to grant to the Administrative Agent for the benefit of the
Lenders a perfected first priority security interest in such Property (with
respect to Property (other than Vehicles) of a type owned by a Loan Party as of
the Closing Date to the extent the Administrative Agent, for the benefit of the
Lenders, has a perfected security interest in such Property as of the Closing
Date), including, without limitation, the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Guarantee
and Collateral Agreement or by law or as may be requested by the Administrative
Agent. If any amount in excess of $1,000,000 payable under or in connection with
any of the Collateral shall be or become evidenced by any Instrument,
Certificated Security or Chattel Paper (or, if more than $5,000,000 in the
aggregate payable under or in connection with the Collateral shall become
evidenced by Instruments, Certificated Securities or Chattel Paper), such
Instrument, Certificated Security or Chattel Paper shall be promptly delivered
to the Administrative Agent, duly indorsed in a manner reasonably satisfactory
to the Administrative Agent, to be held as Collateral pursuant to this
Agreement; provided, however, that in no event shall the Borrower be required to
deliver to the Administrative Agent any Pledged Notes issued by directors,
officers or employees of any Loan Party.

     (b) With respect to any fee interest in any real property having a value
(together with improvements thereof) of at least $1,000,000 acquired after the
Closing Date by any Loan Party (other than any such real property subject to a
Lien expressly permitted by Section 7.3(g)), (i) give notice of such acquisition
to the Administrative Agent and, if requested by the Administrative Agent,
execute and deliver a first priority Mortgage in favor of the Administrative
Agent, for the benefit of the Lenders, covering such real property (provided,
that no Mortgage nor survey shall be obtained if the Administrative Agent
determines in consultation with the Borrower that the costs of obtaining such
Mortgage or survey are excessive in relation to the value of the security to be
afforded thereby), (ii) if reasonably requested by the Administrative Agent, (x)
provide the Lenders with title and extended coverage insurance covering such
real property in an amount at least equal to the purchase price of such real
property (or such other amount as shall be reasonably specified by the
Administrative Agent) as well as a current ALTA survey thereof, together with a
surveyor's certificate and (y) use commercially reasonable efforts to obtain any
consents or estoppels reasonably deemed necessary by the Administrative Agent in
connection with such Mortgage, each of the foregoing in form and substance
reasonably satisfactory to the Administrative Agent and (iii) if requested by
the Administrative Agent, deliver to the Administrative Agent legal opinions (of
the type delivered on the Closing Date) relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.

     (c) With respect to any new Subsidiary (other than an Excluded Foreign
Subsidiary) created or acquired after the Closing Date (which, for the purposes
of this paragraph, shall include any existing Subsidiary that ceases to be an
Excluded Foreign Subsidiary), by any Loan Party, promptly (i) give notice of
such acquisition or creation to the Administrative Agent and, if requested by
the Administrative Agent, execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement or such other documents as
the Administrative Agent reasonably deems necessary to grant to the
Administrative Agent for the benefit of the Lenders a perfected first priority
security interest in the Capital Stock of such new Subsidiary that is owned by
such Loan Party, (ii) deliver to the Administrative Agent the certificates, if
any, representing such Capital Stock, together with undated stock powers, in
blank, executed and delivered by a duly authorized officer of such Loan Party,
and (iii) at the reasonable request of the Administrative Agent, cause such new
Subsidiary (A) to



                                                                              48

become a party to the Guarantee and Collateral Agreement and (B) to take such
actions necessary or advisable to grant to the Administrative Agent for the
benefit of the Lenders a perfected first priority security interest in the
Collateral described in the Guarantee and Collateral Agreement with respect to
such new Subsidiary (to the extent the Administrative Agent, for the benefit of
the Lenders, has a perfected security interest in the same type of Collateral as
of the Closing Date), including, without limitation, the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be required by
the Guarantee and Collateral Agreement or by law or as may be reasonably
requested by the Administrative Agent.

     (d) With respect to any new Excluded Foreign Subsidiary created or acquired
after the Closing Date by any Loan Party, promptly (i) give notice of such
acquisition or creation to the Administrative Agent and, if requested by the
Administrative Agent, execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement or such other documents as
the Administrative Agent deems necessary or reasonably advisable in order to
grant to the Administrative Agent, for the benefit of the Lenders, a perfected
first priority security interest in the Capital Stock of such new Subsidiary
that is owned by such Loan Party (provided, that in no event shall more than 65%
of the total outstanding Capital Stock of any such new Excluded Foreign
Subsidiary be required to be so pledged), and (ii) deliver to the Administrative
Agent the certificates, if any, representing such Capital Stock, together with
undated stock powers, in blank, executed and delivered by a duly authorized
officer of such Loan Party, and take such other action as may be necessary or,
in the opinion of the Administrative Agent, desirable to perfect the Lien of the
Administrative Agent thereon.

     6.11 Further Assurances. Maintain the security interest created by the
Guarantee and Collateral Agreement as a perfected security interest having at
least the priority described in Section 4.18 (to the extent such security
interest can be perfected through the filing of UCC-1 financing statements, the
Intellectual Property filings to be made pursuant to Schedule 3 of the Guarantee
and Collateral Agreement on the Closing Date or the delivery of Pledged
Securities required to be delivered under the Guarantee and Collateral
Agreement), subject to the rights of the Loan Parties under the Loan Documents
to dispose of the Collateral. From time to time the Loan Parties shall execute
and deliver, or cause to be executed and delivered, such additional instruments,
certificates or documents, and take all such actions, as the Administrative
Agent may reasonably request for the purposes of implementing or effectuating
the provisions of this Agreement and the other Loan Documents, or of more fully
perfecting or renewing the rights of the Administrative Agent and the Lenders
with respect to the Collateral as to which the Administrative Agent, for the
ratable benefit of the Lenders, has a perfected Lien as of the Closing Date
pursuant hereto or thereto, including, without limitation, filing any financing
or continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby. Upon the exercise by the Administrative Agent or any Lender of
any power, right, privilege or remedy pursuant to this Agreement or the other
Loan Documents which requires any consent, approval, recording, qualification or
authorization of any Governmental Authority, the Borrower will execute and
deliver, or will cause the execution and delivery of, all applications,
certifications, instruments and other documents and papers that the
Administrative Agent or such Lender may be required to obtain from the Borrower
or any of its Subsidiaries for such governmental consent, approval, recording,
qualification or authorization.

     6.12 Use of Proceeds. The proceeds of the Term Loans shall be used to
effect the Refinancing and to pay related fees and expenses. The proceeds of the
Revolving Loans, and the Letters of Credit, shall be used to finance Permitted
Acquisitions and for other general corporate purposes of the Borrower and its
Subsidiaries.

     6.13 Title Insurance.



                                                                              49

     (a) Within 60 days after the Closing Date, the Administrative Agent shall
have received in respect of each Mortgaged Property a mortgagee's title
insurance policy (or policies) or marked up unconditional binder for such
insurance. Each such policy shall (i) be in an amount satisfactory to the
Administrative Agent; (ii) be issued at ordinary rates; (iii) insure that the
Mortgage insured thereby creates a valid first Lien on such Mortgaged Property
free and clear of all defects and encumbrances, except as disclosed therein;
(iv) name the Administrative Agent for the benefit of the Lenders as the insured
thereunder; (v) be in the form of ALTA Loan Policy - 1970 (Amended 10/17/70 and
10/17/84) (or equivalent policies); (vi) contain such endorsements and
affirmative coverage as the Administrative Agent may reasonably request and
(vii) be issued by title companies satisfactory to the Administrative Agent
(including any such title companies acting as co-insurers or reinsurers, at the
option of the Administrative Agent). The Administrative Agent shall have
received evidence satisfactory to it that all premiums in respect of each such
policy, all charges for mortgage recording tax, and all related expenses, if
any, have been paid.

     (b) To the extent reasonably available and within 60 days after the Closing
Date, the Administrative Agent shall have received a copy of (i) all recorded
documents referred to, or listed as exceptions to title in, the title policy or
policies referred to in clause (a) above and (ii) all other material documents
affecting the Mortgaged Properties.

                          SECTION 7. NEGATIVE COVENANTS

     Holdings and the Borrower hereby jointly and severally agree that, so long
as the Commitments remain in effect, any Letter of Credit remains outstanding or
any Loan or other amount is owing to any Lender or the Administrative Agent
hereunder, each of Holdings and the Borrower shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly:

     7.1 Financial Condition Covenants.

     (a) Consolidated Total Leverage Ratio. Permit the Consolidated Total
Leverage Ratio of Holdings as at the last day of any period of four consecutive
fiscal quarters of Holdings ending with any fiscal quarter set forth below to
exceed the ratio set forth below opposite such fiscal quarter:

                                                        Consolidated
               Fiscal Quarter                          Leverage Ratio
               --------------                          --------------
              December 31, 2003                         4.50 to 1.00
               March 31, 2004                           4.43 to 1.00
                June 30, 2004                           4.43 to 1.00
             September 30, 2004                         4.43 to 1.00
              December 31, 2004                         4.18 to 1.00
               March 31, 2005                           4.18 to 1.00
                June 30, 2005                           4.18 to 1.00
             September 30, 2005                         3.93 to 1.00
              December 31, 2005                         3.93 to 1.00
               March 31, 2006                           3.43 to 1.00
                June 30, 2006                           3.43 to 1.00
             September 30, 2006                         3.43 to 1.00
              December 31, 2006                         3.43 to 1.00
               March 31, 2007                           2.93 to 1.00
                June 30, 2007                           2.93 to 1.00
             September 30, 2007                         2.93 to 1.00



                                                                              50

                                                    Consolidated
           Fiscal Quarter                          Leverage Ratio
           --------------                          --------------
          December 31, 2007                         2.93 to 1.00
           March 31, 2008                           2.43 to 1.00
            June 30, 2008                           2.43 to 1.00
         September 30, 2008                         2.43 to 1.00
          December 31, 2008                         2.43 to 1.00
           March 31, 2009                           2.43 to 1.00
            June 30, 2009                           2.43 to 1.00
         September 30, 2009                         2.43 to 1.00
          December 31, 2009                         2.43 to 1.00

     (b) Consolidated Net Interest Coverage Ratio. Permit the Consolidated Net
Interest Coverage Ratio of Holdings for any period of four consecutive fiscal
quarters of Holdings ending with any fiscal quarter set forth below to be less
than the ratio set forth below opposite such fiscal quarter:

                                                Consolidated Interest
           Fiscal Quarter                          Coverage Ratio
           --------------                          --------------
           March 31, 2004                           3.25 to 1.00
            June 30, 2004                           3.25 to 1.00
         September 30, 2004                         3.25 to 1.00
          December 31, 2004                         3.25 to 1.00
           March 31, 2005                           3.50 to 1.00
            June 30, 2005                           3.50 to 1.00
         September 30, 2005                         3.50 to 1.00
          December 31, 2005                         3.50 to 1.00
           March 31, 2006                           3.75 to 1.00
            June 30, 2006                           3.75 to 1.00
         September 30, 2006                         3.75 to 1.00
          December 31, 2006                         3.75 to 1.00
           March 31, 2007                           4.00 to 1.00
            June 30, 2007                           4.00 to 1.00
         September 30, 2007                         4.00 to 1.00
          December 31, 2007                         4.00 to 1.00
           March 31, 2008                           4.50 to 1.00
            June 30, 2008                           4.50 to 1.00
         September 30, 2008                         4.50 to 1.00
          December 31, 2008                         4.50 to 1.00
           March 31, 2009                           5.00 to 1.00
            June 30, 2009                           5.00 to 1.00
         September 30, 2009                         5.00 to 1.00
          December 31, 2009                         5.00 to 1.00

     (c) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed
Charge Coverage Ratio of Holdings for any period of four consecutive fiscal
quarters of Holdings ending with any fiscal quarter set forth below to be less
than the ratio set forth below opposite such fiscal quarter:



                                                                              51

                                                 Consolidated Fixed
           Fiscal Quarter                      Charge Coverage Ratio
           --------------                      ---------------------

           March 31, 2004                           1.25 to 1.00
            June 30, 2004                           1.25 to 1.00
         September 30, 2004                         1.25 to 1.00
          December 31, 2004                         1.25 to 1.00
           March 31, 2005                           1.25 to 1.00
            June 30, 2005                           1.25 to 1.00
         September 30, 2005                         1.25 to 1.00
          December 31, 2005                         1.25 to 1.00
           March 31, 2006                           1.25 to 1.00
            June 30, 2006                           1.25 to 1.00
         September 30, 2006                         1.25 to 1.00
          December 31, 2006                         1.25 to 1.00
           March 31, 2007                           1.50 to 1.00
            June 30, 2007                           1.50 to 1.00
         September 30, 2007                         1.50 to 1.00
          December 31, 2007                         1.50 to 1.00
           March 31, 2008                           1.50 to 1.00
            June 30, 2008                           1.50 to 1.00
         September 30, 2008                         1.50 to 1.00
          December 31, 2008                         1.50 to 1.00
           March 31, 2009                           1.50 to 1.00
            June 30, 2009                           1.50 to 1.00
         September 30, 2009                         1.50 to 1.00
          December 31, 2009                         1.50 to 1.00

          7.2 Indebtedness. Create, issue, incur, assume, or suffer to exist any
Indebtedness, except:

          (a) Indebtedness of any Loan Party pursuant to any Loan Document or
     Hedge Agreements;

          (b) Indebtedness (i) of the Borrower to any Subsidiary, (ii) of any
     Subsidiary Guarantor to the Borrower or any other Subsidiary and (iii) of
     any Excluded Foreign Subsidiary to another Excluded Foreign Subsidiary;

          (c) Indebtedness (including, without limitation, Capital Lease
     Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate
     principal amount not to exceed 10% of consolidated total assets of Holdings
     at any one time outstanding;

          (d) Indebtedness outstanding on the date hereof and listed on Schedule
     7.2(d) and any refinancings, refundings, renewals or extensions thereof
     (without any increase in the principal amount thereof or any shortening of
     the maturity of any principal amount thereof);

          (e) Guarantee Obligations made in the ordinary course of business (i)
     by the Borrower or any of its Subsidiaries of obligations of the Borrower
     or any Subsidiary Guarantor and (ii) by Excluded Foreign Subsidiaries of
     obligations of Excluded Foreign Subsidiaries;



                                                                              52

          (f) Indebtedness of Holdings or the Borrower pursuant to Subordinated
     Debt; provided, that in the case of any such Indebtedness of Holdings, the
     Net Cash Proceeds (or, in the event such Indebtedness is for the deferred
     purchase price of Property or services, the Property or services acquired)
     are received by or promptly contributed to the Borrower;

          (g) Indebtedness of Excluded Foreign Subsidiaries in respect of local
     lines of credit, letters of credit, bank guarantees, factoring
     arrangements, sale/leaseback transactions and similar extensions of credit
     in the ordinary course of business;

          (h) Indebtedness of the Borrower or any of its Subsidiaries arising
     from the honoring by a bank or other financial institution of a check,
     draft or similar instrument inadvertently drawn by the Borrower or such
     Subsidiary in the ordinary course of business against insufficient funds,
     so long as such Indebtedness is repaid within five Business Days;

          (i) Indebtedness of an Excluded Foreign Subsidiary to a Loan Party in
     an aggregate principal amount for all Excluded Foreign Subsidiaries not to
     exceed $7,500,000 at any time;

          (j) Indebtedness in the form of earn-outs and other contingent
     payments in respect of acquisitions (both before or after any liability
     associated therewith becomes fixed); and

          (k) additional Indebtedness of the Borrower or any of its Subsidiaries
     in an aggregate principal amount (for the Borrower and all Subsidiaries)
     not to exceed 20% of Consolidated EBITDA of the Borrower and its
     Subsidiaries at any one time outstanding.

          7.3 Liens. Create, incur, assume or suffer to exist any Lien upon any
of its Property, whether now owned or hereafter acquired, except for:

          (a) Liens for taxes not yet due or which are being contested in good
     faith by appropriate proceedings, provided, that adequate reserves with
     respect thereto are maintained on the books of the Borrower or its
     Subsidiaries, as the case may be, to the extent required by GAAP;

          (b) landlords', carriers', warehousemen's, mechanics', materialmen's,
     repairmen's or other like Liens arising in the ordinary course of business
     which are not overdue for a period of more than 30 days or that are being
     contested in good faith by appropriate proceedings;

          (c) pledges or deposits in connection with workers' compensation,
     unemployment insurance and other social security legislation;

          (d) deposits to secure the performance of bids, trade contracts (other
     than for borrowed money), leases, subleases, statutory obligations, surety
     and appeal bonds, performance bonds and other obligations of a like nature
     incurred in the ordinary course of business;

          (e) easements, rights-of-way, restrictions and other similar
     encumbrances incurred in the ordinary course of business that, in the
     aggregate, do not materially detract from the value of the Property subject
     thereto or materially interfere with the ordinary conduct of the business
     of the Borrower or any of its Subsidiaries;

          (f) Liens in existence on the date hereof listed on Schedule 7.3(f),
     securing Indebtedness permitted by Section 7.2(d), provided, that no such
     Lien is spread to cover any additional Property after the Closing Date and
     that the amount of Indebtedness secured thereby is not increased;



                                                                              53

          (g) Liens securing Indebtedness of the Borrower or any other
     Subsidiary incurred pursuant to Section 7.2(c) or 7.2(k) to finance the
     acquisition of fixed or capital assets, provided, that (i) such Liens shall
     be created substantially simultaneously with the acquisition of such fixed
     or capital assets, (ii) such Liens do not at any time encumber any Property
     other than the Property financed by such Indebtedness and the proceeds
     thereof and (iii) the principal amount of Indebtedness secured thereby is
     not increased;

          (h) Liens created pursuant to the Security Documents;

          (i) any interest or title of a lessor under any lease entered into by
     the Borrower or any other Subsidiary in the ordinary course of its business
     and covering only the assets so leased, and any financing statement filed
     in connection with any such lease;

          (j) (i) inchoate Liens arising from judgments in circumstances not
     constituting an Event of Default under Section 8(h) and (ii) Liens (other
     than inchoate Liens) arising from judgments in circumstances not
     constituting an Event of Default under Section 8(h) for a period not in
     excess of sixty (60) days after such Lien attaches to specific assets of a
     Loan Party;

          (k) Liens on property or assets acquired pursuant to an acquisition
     permitted under Section 7.8(h) (and the proceeds thereof) or assets of a
     Subsidiary of the Borrower in existence at the time such Subsidiary is
     acquired pursuant to an acquisition permitted under Section 7.8(h) and not
     created in contemplation thereof;

          (l) Liens on Property of Excluded Foreign Subsidiaries securing
     Indebtedness permitted by this Agreement to be incurred by such Excluded
     Foreign Subsidiaries; and

          (m) receipt of progress payments and advances from customers in the
     ordinary course of business to the extent same creates a Lien on the
     related inventory and proceeds thereof.

          7.4 Fundamental Changes. Enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of all or substantially all of its
Property or business, except that:

          (a) any Subsidiary of the Borrower may be merged or consolidated with
     or into the Borrower (provided, that the Borrower shall be the continuing
     or surviving corporation) or with or into any Subsidiary Guarantor
     (provided, that (i) such Subsidiary Guarantor shall be the continuing or
     surviving corporation or (ii) simultaneously with such transaction, the
     continuing or surviving corporation shall become a Subsidiary Guarantor and
     the Borrower shall comply with Section 6.9 in connection therewith);

          (b) any Subsidiary of the Borrower may Dispose of any or all of its
     assets (upon voluntary liquidation or otherwise) to the Borrower or any
     Subsidiary Guarantor;

          (c) any Excluded Foreign Subsidiary may be merged or consolidated with
     or into, or be liquidated into, another Excluded Foreign Subsidiary;

          (d) any Excluded Foreign Subsidiary may Dispose of any or all of its
     assets (upon voluntary liquidation or otherwise) to any other Excluded
     Foreign Subsidiary;

          (e) Dispositions permitted by Section 7.5 may be consummated; and



                                                                              54

          (f) any Investment expressly permitted by Section 7.8 may be
     structured as a merger, consolidation or amalgamation.

          7.5 Disposition of Property. Dispose of any of its Property
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person, except:

          (a) the Disposition of obsolete or worn out property in the ordinary
     course of business;

          (b) (i) the sale of inventory in the ordinary course of business, (ii)
     the cross-licensing or non-exclusive licensing of Intellectual Property, in
     the ordinary course of business and (iii) the contemporaneous exchange, in
     the ordinary course of business, of Property for Property of a like kind
     (other than as set forth in clause (ii)), to the extent that the Property
     received in such exchange is of a value equivalent to the value of the
     Property exchanged (provided, that after giving effect to such exchange,
     the value of the Property of the Loan Parties subject to perfected first
     priority Liens in favor of the Administrative Agent under the Security
     Documents is not materially reduced);

          (c) Dispositions permitted by Section 7.4;

          (d) the sale or issuance of any Subsidiary's Capital Stock to the
     Borrower or any Subsidiary Guarantor;

          (e) the Disposition of other assets having a fair market value not to
     exceed 5% of consolidated total assets of Holdings in the aggregate for any
     fiscal year of the Borrower;

          (f) any Recovery Event, provided, that the requirements of Section
     2.10(c) are complied with in connection therewith;

          (g) the leasing or sub-leasing of Property that would not materially
     interfere with the required use of such Property by the Borrower or its
     Subsidiaries;

          (h) the transfer for fair value of Property (including Capital Stock
     of Subsidiaries) to another Person in connection with a joint venture
     arrangement with respect to the transferred Property; provided, that the
     aggregate book value of all Property so transferred, plus, without
     duplication, the aggregate amount of Investments made pursuant to Section
     7.8(h), shall not exceed 5% of consolidated total assets of Holdings while
     this Agreement is in effect;

          (i) the Disposition by any Excluded Foreign Subsidiary of any of its
     Property in an arms'-length transaction for the fair market value thereof;
     and

          (j) the Disposition by any Loan Party of any equity interest of any
     Excluded Foreign Subsidiary held by such Loan Party in an arms'-length
     transaction for the fair market value thereof.

          7.6 Restricted Payments. Declare or pay any dividend on, or make any
payment on account of, or set apart assets for a sinking or other analogous fund
for, the purchase, redemption, defeasance, retirement or other acquisition of,
any Capital Stock of Holdings, the Borrower or any Subsidiary, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of
Holdings, the Borrower or any Subsidiary, or enter into any derivatives or other
transaction with any financial institution, commodities



                                                                              55

or stock exchange or clearinghouse (a "Derivatives Counterparty") obligating
Holdings, the Borrower or any Subsidiary to make payments to such Derivatives
Counterparty as a result of any change in market value of any such Capital Stock
(collectively, "Restricted Payments"), except that:

          (a) any Subsidiary may make Restricted Payments to the Borrower or any
     Subsidiary Guarantor;

          (b) Holdings may make Restricted Payments (i) in the form of common
     stock of Holdings or (ii) with the proceeds of any Capital Stock issued by
     Holdings to Permitted Investors;

          (c) (i) the Borrower may pay dividends to Holdings to permit Holdings
     to purchase Holdings' common stock or common stock options from present or
     former officers or employees of Holdings, the Borrower or any Subsidiary
     upon the death, disability or termination of employment of such officer or
     employee, provided, that the aggregate amount of payments under this clause
     (i) subsequent to the date hereof (net of any proceeds received by Holdings
     and contributed to the Borrower subsequent to the date hereof in connection
     with resales of any common stock or common stock options so purchased)
     shall not exceed $6,000,000 and (ii) the Borrower may pay dividends to
     Holdings to permit Holdings to pay management fees to the Sponsor and GE
     Equity pursuant to the terms of the Management Agreement;

          (d) the Borrower may pay dividends to Holdings to permit Holdings to
     (A) pay general and administrative expenses incurred in the ordinary course
     of business not to exceed $1,750,000 in any fiscal year and (B) pay any
     taxes which are due and payable by Holdings and the Borrower as part of a
     consolidated group; and

          (e) the Borrower may make Restricted Payments to Holdings to effect
     the Refinancing.

          7.7 Capital Expenditures. Make any Capital Expenditure, except Capital
Expenditures of the Borrower and its Subsidiaries in the ordinary course of
business not to exceed in any fiscal year 1.75% of the annual gross revenue of
the Borrower and its Subsidiaries for the immediately preceding fiscal year;
provided, that (A) up to $500,000 of any such amount referred to above, if not
so expended in the fiscal year for which it is permitted, may be carried over
for expenditure in the next succeeding fiscal year and (B) Capital Expenditures
made during any fiscal year shall be deemed made, first, in respect of amounts
permitted for such fiscal year as provided above and second, in respect of
amounts carried over from the prior fiscal year as provided above.

          7.8 Investments. Make any advance, loan, extension of credit (by way
of guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or all or
substantially all of the assets constituting an ongoing business from, or make
any other investment in, any other Person (all of the foregoing, "Investments"),
except:

          (a) extensions of trade credit in the ordinary course of business;

          (b) Investments in Cash Equivalents;

          (c) Investments arising in connection with the incurrence of
     Indebtedness permitted by Sections 7.2(b) and (e);

          (d) loans and advances to employees of Holdings, the Borrower or any
     of its Subsidiaries in the ordinary course of business (including, without
     limitation, for travel,



                                                                              56

     entertainment and relocation expenses) in an aggregate amount (for
     Holdings, the Borrower and all Subsidiaries) not to exceed $250,000 at any
     one time outstanding;

          (e) Investments (other than those relating to the incurrence of
     Indebtedness permitted by Section 7.8(c)) by Holdings, the Borrower or any
     of its Subsidiaries in the Borrower or any Person that, prior to such
     Investment, is a Subsidiary Guarantor;

          (f) Permitted Acquisitions in an aggregate purchase price (other than
     purchase price paid through the issuance of equity) amount not to exceed
     $40,000,000 for any single Permitted Acquisition and (ii) 80,000,000 during
     any fiscal year of the Borrower;

          (g) loans by Holdings or the Borrower to the officers and directors of
     Holdings or the Borrower or any of their Subsidiaries in connection with
     management incentive plans in an aggregate amount not to exceed $4,000,000
     at any one time outstanding, provided that such officers and directors
     invest such loans in the Capital Stock of Holdings;

          (h) Investments by the Borrower and its Subsidiaries in joint ventures
     or similar arrangements; provided, that the aggregate amount of such
     Investments, plus, without duplication, the aggregate book value of
     Property transferred by the Borrower and its Subsidiaries to joint ventures
     or similar arrangements pursuant to Section 7.5(h), shall not exceed 5% of
     consolidated total assets of Holdings while this Agreement is in effect;

          (i) Investments (including debt obligations) received in the ordinary
     course of business by the Borrower or any Subsidiary in connection with the
     bankruptcy or reorganization of suppliers and customers and in settlement
     of delinquent obligations of, and other disputes with, customers and
     suppliers arising out of the ordinary course of business;

          (j) Investment by any Excluded Foreign Subsidiary in other Excluded
     Foreign Subsidiaries;

          (k) Investments in existence on the Closing Date and listed on
     Schedule 7.8;

          (l) Investments of the Borrower or any Subsidiary under Hedge
     Agreements permitted hereunder;

          (m) Investments of any Person in existence at the time such Person
     becomes a Subsidiary of the Borrower; provided such Investment was not made
     in connection with or anticipation of such Person becoming a Subsidiary of
     the Borrower;

          (n) Investments by the Borrower and the Subsidiary Guarantors in the
     form of loans and advances to Excluded Foreign Subsidiaries permitted to be
     incurred by the Excluded Foreign Subsidiaries under Section 7.2(c); and

          (o) Investments so long as the aggregate amount thereof (determined as
     the amount originally advanced, loaned or otherwise invested, less any
     returns on the respective Investment not to exceed the original amount
     invested) at no time exceeds 3.0% of consolidated total assets of Holdings
     at the time made.

          7.9 Optional Payments and Modifications of Certain Debt Instruments.
(a) Make or offer to make any optional or voluntary payment, prepayment,
repurchase or redemption of, or otherwise voluntarily or optionally defease, any
Subordinated Debt, or segregate funds for any such payment,



                                                                              57

prepayment, repurchase, redemption or defeasance, or enter into any derivative
or other transaction with any Derivatives Counterparty obligating Holdings, the
Borrower or any Subsidiary to make payments to such Derivatives Counterparty as
a result of any change in market value of any Subordinated Debt, (b) amend,
modify or otherwise change, or consent or agree to any amendment, modification,
waiver or other change to, any of the terms of any Subordinated Debt, if such
modification would (i) increase the principal amount thereof (other than any
such increase in principal amount arising from interest payments paid in kind),
(ii) increase the interest rate payable in cash, (iii) reduce the ability of
Holdings to pay interest in kind, (iv) shorten the maturity thereof, (v) make
the subordination terms thereof less favorable to the Lenders, (vi) require
Holdings to maintain compliance with any financial covenants, whether compliance
with such covenants is required at all times or is tested only at the end of any
fiscal period, (vii) provide for any default under such Subordinated Debt in the
case of a Default or Event of Default under this Agreement or (viii) prohibit,
restrict or limit the ability of Holdings to act, or refrain from acting, in a
manner permitted by this Agreement or (c) amend its certificate of incorporation
in any manner reasonably determined by the Borrower to be adverse to the
Lenders.

          7.10 Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of
Property, the rendering of any service or the payment of any management,
advisory or similar fees, with any Affiliate (other than Holdings, the Borrower,
any Subsidiary Guarantor or any Excluded Foreign Subsidiary) unless such
transaction is (a) otherwise not prohibited under this Agreement and (b) upon
fair and reasonable terms no less favorable to Holdings, the Borrower or such
Subsidiary, as the case may be, than it would obtain in a comparable arm's
length transaction with a Person that is not an Affiliate. Notwithstanding the
foregoing, Holdings and its Subsidiaries may (i) pay to the Sponsor and its
Affiliates fees and expenses pursuant to the Management Agreement and (ii) enter
into any transaction with an Affiliate that is expressly permitted by the terms
of this Agreement to be entered into by Holdings or such Subsidiary with an
Affiliate. For the avoidance of doubt, this Section 7.10 shall not apply to
employment arrangements with, and payments of compensation or benefits to or for
the benefit of, management.

          7.11 Sales and Leasebacks. Enter into any arrangement with any Person
providing for the leasing by Holdings, the Borrower or any Subsidiary of real or
personal property which is to be sold or transferred by Holdings, the Borrower
or such Subsidiary (i) to such Person or (ii) to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of Holdings, the Borrower or such Subsidiary, except for
sales or transfers that, together with Dispositions consummated pursuant to
Section 7.5(h), do not exceed 5% of consolidated total assets of Holdings in the
aggregate.

          7.12 Changes in Fiscal Periods. Permit the fiscal year of the Borrower
to end on a day other than December 31 or change the Borrower's method of
determining fiscal quarters.

          7.13 Negative Pledge Clauses. Enter into any agreement that prohibits
or limits the ability of Holdings, the Borrower or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of its Property or
revenues, whether now owned or hereafter acquired, to secure the Obligations or,
in the case of any guarantor, its obligations under the Guarantee and Collateral
Agreement, other than (a) this Agreement and the other Loan Documents, (b) any
agreements governing any purchase money Liens or Capital Lease Obligations
otherwise permitted hereby (in which case, any prohibition or limitation shall
only be effective against the assets financed thereby and the proceeds thereof),
(c) software and other Intellectual Property licenses pursuant to which the
Borrower is the licensee of the relevant software or Intellectual Property, as
the case may be, (in which case, any prohibition or limitation shall relate only
to the assets subject of the applicable license), (d) Contractual Obligations
incurred in the ordinary course of business and on customary terms which limit
Liens on the assets subject of the applicable Contractual Obligation and (e) the
lease for the Borrower's corporate



                                                                              58

headquarters located at 599 Cardigan Road in St. Paul, Minnesota, which
prohibits Liens on such leasehold.

          7.14 Clauses Restricting Subsidiary Distributions. Enter into any
consensual encumbrance or restriction on the ability of any Subsidiary to (a)
make Restricted Payments in respect of any Capital Stock of such Subsidiary held
by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary or (b)
make Investments in the Borrower or any other Subsidiary, except for such
encumbrances or restrictions existing under or by reason of (i) any restrictions
existing under the Loan Documents and (ii) any restrictions with respect to a
Subsidiary imposed pursuant to an agreement that has been entered into in
connection with the Disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary.

          7.15 Lines of Business. Enter into any business, either directly or
through any Subsidiary, except for the Business.

          7.16 Limitations on Activities of Holdings. Permit Holdings to (a)
conduct, transact or otherwise engage in any business or operations other than
those incidental to its ownership of the Capital Stock of the Borrower and its
other property referred to herein, except to (i) make Dispositions of Property
in accordance with Section 7.5(a), (b), (c), (f), (h) and (j), (ii) make
Restricted Payments in accordance with Section 7.6, (iii) make Investments in
accordance with Section 7.8(e) and (g), (iv) enter into transactions otherwise
permitted for Holdings under this Section 7.16 with Affiliates permitted by
Section 7.10, (v) enter into sales and leaseback transactions pursuant to
Section 7.11, (vi) enter into agreements that prohibit or limit its ability to
create, incur, assume or suffer to exist any Lien upon any of its Property or
revenues permitted under Section 7.13 and (vii) issue its Capital Stock in a
public offering, (b) incur, create, assume or suffer to exist any Indebtedness,
except (i) nonconsensual obligations imposed by operation of law, (ii) pursuant
to the Loan Documents to which it is a party, (iii) Indebtedness incurred in
accordance with Section 7.2(f), (iv) obligations with respect to its Capital
Stock and (v) to enter into and perform its obligations pursuant to the
Management Agreement, or (c) own, lease, manage or otherwise operate any
properties or assets other than (i) the ownership of shares of Capital Stock of
the Borrower and its other property referred to herein, (ii) cash and Cash
Equivalents and deposit and securities accounts comprised of cash and Cash
Equivalents and (iii) other assets not material in amount incidental to the
operations of Holdings. Notwithstanding anything contained in this Section to
the contrary, nothing in this Section shall limit Holdings ability to (i) hold,
maintain and exercise Holdings' rights in connection with its United States
Medicare and other third-party payors' billing number (the "Billing Number"),
including, without limitation, the right to accept payments from Medicare and
such other third-party payors pursuant to contracts relating thereto, (ii) take
all action necessary to satisfy its obligations with respect to the Billing
Number including, without limitation, the payment of any money, (iii) receive
payments for use of the Billing Number, (iv) distribute revenues received in
connection with the Billing Number and (v) hire, retain, pay, insure and
otherwise manage no more than 5 employees.

          7.17 Limitation on Hedge Agreements. Enter into any Hedge Agreement
other than Hedge Agreements entered into in the ordinary course of business, and
not for speculative purposes, to protect against changes in interest rates or
foreign exchange rates.

          7.18 Changes in Jurisdictions of Organization; Name. Except upon
prompt written notice (but in any event no later than five (5) days after
consummating an activity referred to in clause (i) or (ii) below) to the
Administrative Agent and delivery to the Administrative Agent of all additional
executed financing statements and other documents reasonably requested by the
Administrative Agent to maintain the validity, perfection and priority of the
security interests provided for in the Security Documents:



                                                                              59

          (i)  change its jurisdiction of organization; or

          (ii) change its name.

                          SECTION 8. EVENTS OF DEFAULT


          If any of the following events shall occur and be continuing:

          (a)  The Borrower shall fail to pay any principal of any Loan when due
     in accordance with the terms hereof; or the Borrower shall fail to pay any
     Reimbursement Obligation or interest on any Loan or Reimbursement
     Obligation, or any other amount payable hereunder or under any other Loan
     Document, within three Business Days after any such interest or other
     amount becomes due in accordance with the terms hereof; or

          (b)  Any representation or warranty made or deemed made by any Loan
     Party herein or in any other Loan Document or that is contained in any
     certificate, document or financial or other statement furnished by it at
     any time under or in connection with this Agreement or any such other Loan
     Document shall prove to have been inaccurate in any material respect on or
     as of the date made or deemed made or furnished; or

          (c)  Any Loan Party shall default in the observance or performance of
     any agreement contained in Section 6.7(a) or Section 7; or

          (d)  Any Loan Party shall default in the observance or performance of
     any other agreement contained in this Agreement or any other Loan Document
     (other than as provided in paragraphs (a) through (c) of this Section), and
     such default shall continue unremedied for a period of 30 days after such
     Loan Party receives from the Administrative Agent or any Lender notice or
     any Lender of the existence of such default; or

          (e)  Holdings, the Borrower or any of its Subsidiaries shall (i)
     default in making any payment of any principal of any Indebtedness
     (excluding the Loans and Reimbursement Obligations) on the scheduled or
     original due date with respect thereto; or (ii) default in making any
     payment of any interest on any such Indebtedness beyond the period of
     grace, if any, provided in the instrument or agreement under which such
     Indebtedness was created; or (iii) default in the observance or performance
     of any other agreement or condition relating to any such Indebtedness or
     contained in any instrument or agreement evidencing, securing or relating
     thereto, or any other event of default shall occur, the effect of which
     payment or other default or other event of default is to cause, or to
     permit the holder or beneficiary of such Indebtedness (or a trustee or
     agent on behalf of such holder or beneficiary) to cause, with the giving of
     notice if required, such Indebtedness to become due prior to its stated
     maturity or to become subject to a mandatory offer to purchase by the
     obligor thereunder or to become payable; provided, that (x) a default,
     event or condition described in this paragraph shall not at any time
     constitute an Event of Default unless, at such time, one or more defaults
     or events of default of the type described in this paragraph shall have
     occurred and be continuing with respect to Indebtedness the outstanding
     principal amount of which exceeds in the aggregate $5,000,000 and (y) this
     paragraph (e) shall not apply to (i) secured Indebtedness that becomes due
     as a result of the sale, transfer, destruction or other disposition of the
     Property or assets securing such Indebtedness if such sale, transfer,
     destruction or other disposition is not prohibited hereunder and under the
     documents providing for such Indebtedness or (ii) any Guarantee Obligations
     except to the extent such Guarantee Obligations shall become due and
     payable by Holdings, the Borrower or any of its Subsidiaries



                                                                              60

     and remain unpaid after any applicable grace period or period permitted
     following demand for the payment thereof; or

          (f) (i) Holdings, the Borrower or any of its Material Subsidiaries
     shall commence any case, proceeding or other action (A) under any existing
     or future law of any jurisdiction, domestic or foreign, relating to
     bankruptcy, insolvency, reorganization or relief of debtors, seeking to
     have an order for relief entered with respect to it, or seeking to
     adjudicate it a bankrupt or insolvent, or seeking reorganization,
     arrangement, adjustment, winding-up, liquidation, dissolution, composition
     or other relief with respect to it or its debts, or (B) seeking appointment
     of a receiver, trustee, custodian, conservator or other similar official
     for it or for all or any substantial part of its assets, or Holdings, the
     Borrower or any of its Subsidiaries (other than any Immaterial Subsidiary)
     shall make a general assignment for the benefit of its creditors; or(ii)
     there shall be commenced against Holdings, the Borrower or any of its
     Subsidiaries (other than any Immaterial Subsidiary) any case, proceeding or
     other action of a nature referred to in clause (i) above that (A) results
     in the entry of an order for relief or any such adjudication or appointment
     or (B) remains undismissed, undischarged or unbonded for a period of 60
     days; or (iii) there shall be commenced against Holdings, the Borrower or
     any of its Subsidiaries (other than any Immaterial Subsidiary) any case,
     proceeding or other action seeking issuance of a warrant of attachment,
     execution, distraint or similar process against substantially all of its
     assets that results in the entry of an order for any such relief that shall
     not have been vacated, discharged, or stayed or bonded pending appeal
     within 60 days from the entry thereof; or (iv) Holdings, the Borrower or
     any of its Subsidiaries (other than any Immaterial Subsidiary) shall
     consent to or approve of, or acquiescence in, any of the acts set forth in
     clause (i), (ii), or (iii) above; or (v) Holdings, the Borrower or any of
     its Subsidiaries (other than any Immaterial Subsidiary) shall generally
     not, or shall be unable to, or shall admit in writing its inability to, pay
     its debts as they become due; or

          (g) (i) The Borrower or any of its Subsidiaries shall incur any
     liability in connection with any "prohibited transaction" (as defined in
     Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii)
     any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
     whether or not waived, shall exist with respect to any Plan or any Lien in
     favor of the PBGC or a Plan shall arise on the assets of the Borrower or
     any Subsidiary, (iii) a Reportable Event shall occur with respect to, or
     proceedings shall commence to have a trustee appointed, or a trustee shall
     be appointed, to administer or to terminate, any Single Employer Plan,
     which Reportable Event or commencement of proceedings or appointment of a
     trustee is, in the reasonable opinion of the Required Lenders, likely to
     result in the termination of such Plan for purposes of Title IV of ERISA,
     (iv) any Single Employer Plan shall terminate for purposes of Title IV of
     ERISA, (v) the Borrower or any Subsidiary shall, or in the reasonable
     opinion of the Required Lenders is likely to, incur any liability as a
     result of a withdrawal from, or the Insolvency or Reorganization of, a
     Multiemployer Plan or (vi) any other event or condition (other than one
     which could not reasonably be expected to result in a violation of any
     applicable law or of the qualification requirements of the Code) shall
     occur or exist with respect to a Plan or a Commonly Controlled Plan; and in
     each case in clauses (i) through (vi) above, such event or condition,
     together with all other such events or conditions, if any, could reasonably
     be expected to result in a direct obligation of the Borrower and its
     Subsidiaries to pay money that could have a Material Adverse Effect; or

          (h) One or more judgments or decrees shall be entered against
     Holdings, the Borrower or any of its Material Subsidiaries involving for
     Holdings, the Borrower and its Material Subsidiaries taken as a whole a
     liability (not paid or fully covered by insurance or effective indemnity)
     of $5,000,000 or more, and all such judgments or decrees shall not have
     been vacated, discharged, stayed or bonded pending appeal within 30 days
     from the entry thereof; or



                                                                              61

          (i) Any of the Security Documents shall cease, for any reason (other
     than by reason of the express release thereof pursuant to Section 10.15),
     to be in full force and effect in any material respect, or any Loan Party
     shall so assert, or any Lien created by any of the Security Documents shall
     cease in any material respect to be enforceable and of the same effect and
     priority purported to be created thereby; provided, that there shall be no
     Event of Default under this clause (i) to the extent such Event of Default
     arises from (a) the resignation of the Administrative Agent or (b) the
     negligence or willful misconduct of the Administrative Agent following a
     reasonable request from the Borrower to execute any document or take any
     other action relating to such Security Document or the Liens granted
     thereunder; or

          (j) The guarantee contained in Section 2 of the Guarantee and
     Collateral Agreement shall cease, for any reason (other than by reason of
     the express release thereof pursuant to Section 10.15), to be in full force
     and effect in any material respect or any Loan Party shall so assert; or

          (k) (i) Holdings shall cease to own 100% of the Capital Stock of the
     Borrower; or (ii) if Holdings' Capital Stock is not traded on a
     nationally-recognized stock exchange, the Permitted Investors shall cease
     to own, free and clear of all Liens, at least 50.1% of the Capital Stock of
     Holdings; or (iii) if Holdings' Capital Stock is traded on a
     nationally-recognized stock exchange, the Permitted Investors shall cease
     to own, free and clear of all Liens, at least 30% of the Capital Stock of
     Holdings and no other shareholder owns a greater amount, or (iv) at any
     time for any reason, the Sponsor shall not have the right to elect a
     majority of the Board of Directors of Holdings, or (v) at any time and for
     any reason whatsoever, a majority of the Board of Directors of Holdings
     shall not be Continuing Directors;

then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Revolving Facility Lenders, the
Administrative Agent may, or upon the request of the Majority Revolving Facility
Lenders, the Administrative Agent shall, by notice to the Borrower declare the
Revolving Commitments to be terminated forthwith, whereupon the Revolving
Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the other Loan Documents (including,
without limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) to be due and payable forthwith, whereupon the
same shall immediately become due and payable. In the case of all Letters of
Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be applied
by the Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower then due and owing hereunder and under the other Loan Documents
shall have been paid in full, the balance, if any, in such cash collateral
account shall be returned to the Borrower (or such other Person as may be



                                                                              62

lawfully entitled thereto). Except as expressly provided above in this Section
or otherwise in any Loan Document, presentment, demand and protest of any kind
are hereby expressly waived by the Borrower.

                             SECTION 9. THE AGENTS

          9.1  Appointment. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.

          9.2  Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.

          9.3  Exculpatory Provisions. Neither any Agent nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agents shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.

          9.4  Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to Holdings or the Borrower),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or, if so specified
by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. The



                                                                              63

Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders (or, if so specified by this
Agreement, all Lenders), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.

         9.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
unless the Administrative Agent has received notice from a Lender, Holdings or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.

         9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party that may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.

         9.7 Indemnification. The Lenders agree to indemnify each Agent in its
capacity as such (to the extent not reimbursed by Holdings or the Borrower and
without limiting the obligation of Holdings or the Borrower to do so), ratably
according to their respective Aggregate Exposure Percentages in effect on the
date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against such Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or any action taken or
omitted by such Agent under or in connection with any of the foregoing;



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provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from such Agent's
gross negligence or willful misconduct. The agreements in this Section shall
survive the payment of the Loans and all other amounts payable hereunder.

         9.8  Agent in Its Individual Capacity. Each Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent were not an Agent. With
respect to its Loans made or renewed by it and with respect to any Letter of
Credit issued or participated in by it, each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.

         9.9  Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Lenders and the
Borrower effective upon appointment of a successor Agent. If the Administrative
Agent shall resign as Administrative Agent under this Agreement and the other
Loan Documents, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders, which successor agent shall (unless an Event of
Default under Section 8(a) or Section 8(f) with respect to the Borrower shall
have occurred and be continuing) be subject to approval by the Borrower (which
approval shall not be unreasonably withheld or delayed), whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor Administrative Agent shall have been so
appointed by the Required Lenders with such consent of the Borrower and shall
have accepted such appointment within 30 days after the retiring Administrative
Agent's giving of notice of resignation of the retiring Administrative Agent,
then the retiring Administrative Agent may, on behalf of the Lenders and with
the consent of the Borrower (such consent not to be unreasonably withheld or
delayed), appoint a successor Administrative Agent, that shall be a bank that
has an office in New York, New York with a combined capital and surplus of at
least $500,000,000. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents.

         9.10 Authorization to Release Liens and Guarantees. The Administrative
Agent is hereby irrevocably authorized by each of the Lenders to effect any
release of Liens or Guarantee Obligations contemplated by Section 10.15.

         9.11 Documentation Agent and Syndication Agent. Neither the
Documentation Agent nor the Syndication Agent shall have any duties or
responsibilities hereunder in its capacity as such.

                            SECTION 10. MISCELLANEOUS

         10.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and



                                                                              65

conditions as the Required Lenders or the Administrative Agent, as the case may
be, may specify in such instrument, any of the requirements of this Agreement or
the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall (i) forgive the principal amount or extend the
final scheduled date of maturity of any Loan, extend the scheduled date of any
amortization payment in respect of any Term Loan, reduce the stated rate of any
interest or fee payable hereunder (except (x) in connection with the waiver of
applicability of any post-default increase in interest rates (which waiver shall
be effective with the consent of the Majority Facility Lenders of each adversely
affected Facility) and (y) that any amendment or modification of defined terms
used in the financial covenants in this Agreement shall not constitute a
reduction in the rate of interest or fees for purposes of this clause (i)) or
extend the scheduled date of any payment thereof, or increase the amount or
extend the expiration date of any Lender's Revolving Commitment, in each case
without the written consent of each Lender directly and adversely affected
thereby; (ii) eliminate or reduce the voting rights of any Lender under this
Section 10.1 without the written consent of such Lender; (iii) reduce any
percentage specified in the definition of Required Lenders, consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, release all or substantially
all of the Collateral or release all or substantially all of the Subsidiary
Guarantors from their obligations under the Guarantee and Collateral Agreement,
in each case without the written consent of all Lenders; (iv) amend, modify or
waive any provision of Section 2.16 without the written consent of the Majority
Facility Lenders in respect of each Facility adversely affected thereby; (v)
reduce the percentage specified in the definition of Majority Facility Lenders
with respect to any Facility without the written consent of all Lenders under
such Facility; (vi) amend, modify or waive any provision of Section 9 without
the written consent of the Administrative Agent; or (vii) amend, modify or waive
any provision of Section 3 without the written consent of the Issuing Lender.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Loan Parties, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Loan Parties, the Lenders and the Administrative Agent
shall be restored to their former position and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be deemed
to be cured and not continuing unless limited by the terms of such waiver; but
no such waiver shall extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereon.

         Notwithstanding the foregoing, this Agreement may be amended (or
amended and restated) with the written consent of the Required Lenders, the
Administrative Agent and the Borrower (a) to add one or more additional credit
facilities to this Agreement and to permit the extensions of credit from time to
time outstanding thereunder and the accrued interest and fees in respect thereof
to share ratably in the benefits of this Agreement and the other Loan Documents
with the Term Loans and Revolving Extensions of Credit and the accrued interest
and fees in respect thereof and (b) to include appropriately the Lenders holding
such credit facilities in any determination of the Required Lenders and Majority
Facility Lenders.

         In addition, notwithstanding the foregoing, this Agreement may be
amended with the written consent of the Administrative Agent, the Borrower and
the Lenders providing the relevant Replacement Term Loans (as defined below) to
permit the refinancing of all outstanding Term Loans ("Refinanced Term Loans")
with a replacement term loan tranche hereunder ("Replacement Term Loans"),
provided that (a) the aggregate principal amount of such Replacement Term Loans
shall not exceed the aggregate principal amount of such Refinanced Term Loans,
(b) the Applicable Margin for such Replacement Term Loans shall not be higher
than the Applicable Margin for such Refinanced Term Loans, (c) the weighted
average life to maturity of such Replacement Term Loans shall not be shorter
than the weighted average life to maturity of such Refinanced Term Loans at the
time of such refinancing and (d) all other terms applicable to such Replacement
Term Loans shall be substantially identical to, or less favorable to the Lenders
providing such Replacement Term Loans than, those applicable to such



                                                                              66

Refinanced Term Loans, except to the extent necessary to provide for covenants
and other terms applicable to any period after the latest final maturity of the
Term Loans in effect immediately prior to such refinancing.

         10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings, the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:

     Holdings:                   Empi, Inc.
                                 599 Cardigan Road
                                 St. Paul, Minnesota 55126
                                 Attention: Patrick D. Spangler
                                 Telecopy:  (651) 415-7511
                                 Telephone: (651) 415-7404

                                 with a copy to:

                                 The Carlyle Group
                                 520 Madison Avenue, 41/st/ Floor
                                 New York, New York 10022
                                 Attention: Walter S. Jin
                                 Telecopy:  (212) 381-4990
                                 Telephone: (212) 381-4922

     Borrower:                   Empi Corp.
                                 599 Cardigan Road
                                 St. Paul, Minnesota 55126
                                 Attention: Patrick D. Spangler
                                 Telecopy:  (651) 415-7511
                                 Telephone: (651) 415-7404

                                 with a copy to:

                                 The Carlyle Group
                                 520 Madison Avenue, 41/st/ Floor
                                 New York, New York 10022
                                 Attention: Walter S. Jin
                                 Telecopy:  (212) 381-4990
                                 Telephone: (212) 381-4922

      Administrative Agent:      JPMorgan Chase Bank
                                 1111 Fannin, 10/th/ Floor
                                 Loan and Agency Services Group
                                 Houston, Texas 77002
                                 Attention: Angelica Luong
                                 Telecopy:  (713) 750-2782
                                 Telephone: (713) 750-2199



                                                                              67

     With a copy to:      JPMorgan Chase Bank
                          270 Park Avenue, 4th Floor
                          New York, New York 10017
                          Attention: Dawn Lee Lum
                          Telecopy:  (212) 270-3279
                          Telephone: (212) 270-2472

provided that any notice, request or demand to or upon the Administrative Agent,
the Lenders, Holdings or the Borrower shall not be effective until received.

         Notices and other communications to the Lenders hereunder may be
delivered or furnished by electronic communications pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not
apply to notices pursuant to Section 2 unless otherwise agreed by the
Administrative Agent and the applicable Lender. The Administrative Agent or the
Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.

         10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of any Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.

         10.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.

         10.5 Payment of Expenses; Indemnification. The Borrower agrees (a) to
pay or reimburse the Administrative Agent and the Joint Lead Arrangers for all
their respective reasonable out-of-pocket costs and expenses actually incurred
in connection with the syndication of the Facilities (other than fees payable to
syndicate members) and the development, preparation, execution and delivery of
this Agreement and the other Loan Documents and any other documents prepared in
connection herewith or therewith and any amendment, supplement or modification
thereto, and, as to the Administrative Agent only, the administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements and other charges of counsel to the
Administrative Agent in connection with all of the foregoing, (b) to pay or
reimburse each Lender and the Administrative Agent for all their costs and
expenses actually incurred in connection with the enforcement or preservation of
any rights under this Agreement, the other Loan Documents and any such other
documents, including, without limitation, the reasonably documented fees and
disbursements of counsel to each Lender and of counsel to the Administrative
Agent, (c) to pay, indemnify, or reimburse each Lender and the Administrative
Agent for, and hold each Lender and the Administrative Agent harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and similar other taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents



                                                                              68

and (d) to pay, indemnify or reimburse each Lender, each Agent, their respective
affiliates, and their respective officers, directors, trustees, employees,
advisors, agents and controlling Persons (each, an "Indemnitee") for, and hold
each Indemnitee harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, costs, expenses or disbursements
arising out of any actions, judgments or suits of any kind or nature whatsoever,
arising out of or in connection with any claim, action or proceeding relating to
or otherwise with respect to the execution, delivery, enforcement, performance
and administration of this Agreement, the other Loan Documents and any such
other documents, including, without limitation, any of the foregoing relating to
the use of proceeds of the Loans or the violation of, noncompliance with or
liability under, any Environmental Law applicable to the operations of the
Borrower any of its Subsidiaries or any of the Properties and the fees and
disbursements and other charges of legal counsel in connection with claims,
actions or proceedings by any Indemnitee against the Borrower hereunder (all the
foregoing in this clause (d), collectively, the "Indemnified Liabilities"),
provided, that the Borrower shall have no obligation hereunder to any Indemnitee
with respect to Indemnified Liabilities to the extent such Indemnified
Liabilities are found to have resulted from the gross negligence or willful
misconduct of such Indemnitee or its affiliates, officers, directors, employees,
advisors or agents. Without limiting the foregoing, and to the extent permitted
by applicable law, the Borrower agrees not to assert and to cause its
Subsidiaries not to assert, and hereby waives and agrees to cause its
Subsidiaries so to waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee. All amounts due under this Section shall be
payable promptly after receipt of a reasonably detailed invoice therefor.
Statements payable by the Borrower pursuant to this Section shall be submitted
to Patrick D. Spangler (Telephone No. (651) 415-7404) (Fax No. (651) 415-7447),
at the address of the Borrower set forth in Section 10.2, or to such other
Person or address as may be hereafter designated by the Borrower in a written
notice to the Administrative Agent. The agreements in this Section shall survive
repayment of the Obligations.

         10.6 Successors and Assigns; Participations and Assignments. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted hereby
(including any affiliate of the Issuing Lender that issues any Letter of
Credit), except that (i) the Borrower may not assign or otherwise transfer any
of its rights or obligations hereunder without the prior written consent of each
Lender (and any attempted assignment or transfer by the Borrower without such
consent shall be null and void) and (ii) no Lender may assign or otherwise
transfer its rights or obligations hereunder except in accordance with this
Section.

         (b)(i) Subject to the conditions set forth in paragraph (b)(ii) below,
any Lender may assign to one or more assignees (each, an "Assignee") all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitments and the Loans at the time owing to it) with the prior
written consent (such consent not to be unreasonably withheld) of:

         (A) the Borrower, provided that no consent of the Borrower shall be
     required for an assignment to a Lender, an affiliate of a Lender, an
     Approved Fund (as defined below) or, if an Event of Default under Section
     8(a) or (f) has occurred and is continuing, any other Person; and

         (B) the Administrative Agent, provided that no consent of the
     Administrative Agent shall be required for an assignment of (x) any
     Revolving Commitment or Revolving Loans to an assignee that is a Lender
     with a Revolving Commitment immediately prior to giving effect to such
     assignment or (y) all or any portion of a Term Loan to a Lender, an
     Affiliate of a Lender or an Approved Fund.

         (ii) Assignments shall be subject to the following additional
     conditions:



                                                                              69

               (A) except in the case of an assignment to a Lender, an affiliate
         of a Lender or an Approved Fund or an assignment of the entire
         remaining amount of the assigning Lender's Commitments or Loans under
         any Facility, the amount of the Commitments or Loans of the assigning
         Lender subject to each such assignment (determined as of the date the
         Assignment and Assumption with respect to such assignment is delivered
         to the Administrative Agent) shall not be less than $5,000,000 (or, in
         the case of the Term Facility, $1,000,000) unless each of the Borrower
         and the Administrative Agent otherwise consent, provided that (1) no
         such consent of the Borrower shall be required if an Event of Default
         under Section 8(a) or (f) has occurred and is continuing and (2) such
         amounts shall be aggregated in respect of each Lender and its
         affiliates or Approved Funds, if any;

               (B) the parties to each assignment shall execute and deliver to
         the Administrative Agent an Assignment and Assumption, together with a
         processing and recordation fee of $3,500; and

               (C) the Assignee, if it shall not be a Lender, shall deliver to
         the Administrative Agent an administrative questionnaire.

               For the purposes of this Section 10.6, "Approved Fund" means any
Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the
ordinary course of its business and that is administered or managed by (a) a
Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an
entity that administers or manages a Lender.

               (iii) Subject to acceptance and recording thereof pursuant to
paragraph (b)(iv) below, from and after the effective date specified in each
Assignment and Assumption the Assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Assumption, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.17, 2.18, 2.19 and 10.5). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this Section 10.6
shall be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (c) of
this Section.

               (iv)  The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitments of, and principal
amount of the Loans and L/C Obligations owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive, and the Borrower, the Administrative Agent, the Issuing
Lender and the Lenders may treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Lender and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.

               (v)   Upon its receipt of a duly completed Assignment and
Assumption executed by an assigning Lender and an Assignee, the Assignee's
completed administrative questionnaire (unless the Assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Assumption and record the



                                                                              70

information contained therein in the Register. No assignment shall be effective
for purposes of this Agreement unless it has been recorded in the Register as
provided in this paragraph.

               (c)(i) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitments and the
Loans owing to it); provided that (A) such Lender's obligations under this
Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower, the Administrative Agent, the Issuing Lender and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Any
agreement pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this
Agreement; provided that such agreement may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or
waiver that (1) requires the consent of each Lender directly and adversely
affected thereby pursuant to the proviso to the second sentence of Section 10.1
and (2) directly affects such Participant. Subject to paragraph (c)(ii) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.17, 2.18 and 2.19 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section.

               (ii)   A Participant shall not be entitled to receive any greater
payment under Section 2.17 or 2.18 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent to such greater amounts. Any Participant that
is a Non-U.S. Lender shall not be entitled to the benefits of Section 2.18
unless such Participant complies with Section 2.18(d).

               (d)    Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided, that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or Assignee for such Lender
as a party hereto.

               (e)    The Borrower, upon receipt of written notice from the
relevant Lender, agrees to issue Notes to any Lender requiring Notes to
facilitate transactions of the type described in paragraph (d) above.

               10.7   Adjustments; Set-off. (a) Except to the extent that this
Agreement provides for payments to be allocated to a particular Lender or to the
Lenders under a particular Facility, if any Lender (a "Benefitted Lender") shall
at any time receive any payment of all or part of the Obligations owing to it,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise) in a greater proportion than any such
payment to or collateral received by any other Lender, if any, in respect of
such other Lender's Obligations, such Benefitted Lender shall purchase for cash
from the other Lenders a participating interest in such portion of each such
other Lender's Obligations, or shall provide such other Lenders with the
benefits of any such collateral, as shall be necessary to cause such Benefitted
Lender to share the excess payment or benefits of such collateral ratably with
each of the Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such Benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.



                                                                              71

               (b)   In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to
Holdings or the Borrower, any such notice being expressly waived by Holdings and
the Borrower to the extent permitted by applicable law, upon any amount becoming
due and payable by Holdings or the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise) after the expiration of any cure or
grace periods, to set off and appropriate and apply against such amount any and
all deposits (general or special, time or demand, provisional or final but
excluding trust accounts), in any currency, and any other credits, indebtedness
or claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of Holdings or
the Borrower, as the case may be. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such setoff and application made
by such Lender, provided, that the failure to give such notice shall not affect
the validity of such setoff and application.

               10.8  Counterparts. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.

               10.9  Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

               10.10 Integration. This Agreement and the other Loan Documents
represent the entire agreement of Holdings, the Borrower, the Administrative
Agent and the Lenders with respect to the subject matter hereof and thereof.

               10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

               10.12 Submission To Jurisdiction; Waivers. Each of Holdings and
the Borrower hereby irrevocably and unconditionally:

               (a)   submits for itself and its Property in any legal action or
         proceeding relating to this Agreement and the other Loan Documents to
         which it is a party, or for recognition and enforcement of any judgment
         in respect thereof, to the non-exclusive general jurisdiction of the
         courts of the State of New York, the courts of the United States for
         the Southern District of New York, and appellate courts from any
         thereof;

               (b)   consents that any such action or proceeding may be brought
         in such courts and waives any objection that it may now or hereafter
         have to the venue of any such action or proceeding in any such court or
         that such action or proceeding was brought in an inconvenient court and
         agrees not to plead or claim the same;

               (c)   agrees that service of process in any such action or
         proceeding may be effected by mailing a copy thereof by registered or
         certified mail (or any substantially similar form of mail),



                                                                              72

         postage prepaid, to Holdings or the Borrower, as the case may be at its
         address set forth in Section 10.2 or at such other address of which the
         Administrative Agent shall have been notified pursuant thereto;

               (d)   agrees that nothing herein shall affect the right to
         effect service of process in any other manner permitted by law or shall
         limit the right to sue in any other jurisdiction; and

               (e)   waives, to the maximum extent not prohibited by law, any
         right it may have to claim or recover in any legal action or proceeding
         referred to in this Section any special, exemplary, punitive or
         consequential damages.

               10.13 Acknowledgments. Each of Holdings and the Borrower hereby
acknowledges that:

               (a)   it has been advised by counsel in the negotiation,
         execution and delivery of this Agreement and the other Loan Documents;

               (b)   neither the Administrative Agent nor any Lender has any
         fiduciary relationship with or duty to Holdings or the Borrower arising
         out of or in connection with this Agreement or any of the other Loan
         Documents, and the relationship between Administrative Agent and
         Lenders, on one hand, and Holdings and the Borrower, on the other hand,
         in connection herewith or therewith is solely that of debtor and
         creditor; and

               (c)   no joint venture is created hereby or by the other Loan
         Documents or otherwise exists by virtue of the transactions
         contemplated hereby among the Lenders or among Holdings, the Borrower
         and the Lenders.

               10.14 Confidentiality. The Agents and the Lenders agree to treat
any and all information, regardless of the medium or form of communication, that
is disclosed, provided or furnished, directly or indirectly, by or on behalf of
the Borrower or any of its affiliates, whether in writing, orally, by
observation or otherwise and whether furnished before or after the Closing Date
("Confidential Information"), strictly confidential and not to use Confidential
Information for any purpose other than evaluating the Refinancing and
negotiating, making available, syndicating and administering the Credit
Agreement (the "Agreed Purposes"). Without limiting the foregoing, each Agent
and each Lender agrees to treat any and all Confidential Information with no
less than adequate means to preserve its confidentiality, and each Agent and
each Lender agrees not to disclose Confidential Information, at any time, in any
manner whatsoever, directly or indirectly, to any other Person whomsoever,
except (1) to its directors, officers, employees, counsel and other
representatives (collectively, the "Representatives"), to the extent necessary
to permit such Representatives to assist in connection with the Agreed Purposes,
(2) to prospective Lenders and participants in connection with the syndication
(including secondary trading) of the Facilities and Commitments and Loans
hereunder, in each case who are informed of the confidential nature of the
information and agree to observe and be bound by standard confidentiality terms,
(3) upon the request or demand of any Governmental Authority having jurisdiction
over it, (4) in response to any order of any Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law, (5) to the extent
reasonably required or necessary, in connection with any litigation or similar
proceeding relating to the Facilities, (6) that has been publicly disclosed
other than in breach of this Section 10.14, (7) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender or (8)
to the extent reasonably required or necessary, in connection with the exercise
of any remedy under the Loan Documents. Each Agent and each Lender acknowledges
that (i) Confidential Information includes



                                                                              73

information that is not otherwise publicly available and that such non-public
information may constitute confidential business information which is
proprietary to the Borrower and (ii) the Borrower has advised the Agents and the
Lenders that it is relying on the Confidential Information for its success and
would not disclose the Confidential Information to the Agents and the Lenders
without the confidentiality provisions of this Agreement. Notwithstanding
anything herein to the contrary, any party to this Agreement (and any employee,
representative, or other agent of any party to this Agreement) may disclose to
any and all persons, without limitation of any kind, the tax treatment and any
facts that may be relevant to the tax structure of the transactions contemplated
by this Agreement and all materials of any kind (including opinions or other tax
analyses) that are provided to it relating to such tax treatment and tax
structure. However, any such information relating to the tax treatment or tax
structure is required to be kept confidential to the extent necessary to comply
with any applicable federal or state securities laws.

               10.15 Release of Collateral and Guarantee Obligations. (a)
Notwithstanding anything to the contrary contained herein or in any other Loan
Document, upon request of the Borrower in connection with any Disposition of
Property permitted by the Loan Documents, the Administrative Agent shall
(without notice to, or vote or consent of, any Lender, or any affiliate of any
Lender that is a party to any Specified Hedge Agreement) take such actions as
shall be required to release its security interest in any Collateral being
Disposed of in such Disposition, and to release any Guarantee Obligations under
any Loan Document of any Person being Disposed of in such Disposition, to the
extent necessary to permit consummation of such Disposition in accordance with
the Loan Documents.

               (b)   Notwithstanding anything to the contrary contained herein
or any other Loan Document, when all Obligations (other than obligations in
respect of any Specified Hedge Agreement or any Specified Cash Management
Arrangement) have been paid in full, all Commitments have terminated or expired
and no Letter of Credit shall be outstanding, upon request of the Borrower, the
Administrative Agent shall (without notice to, or vote or consent of, any
Lender, or any affiliate of any Lender that is a party to any Specified Hedge
Agreement) take such actions as shall be required to release its security
interest in all Collateral, and to release all Guarantee Obligations under any
Loan Document, whether or not on the date of such release there may be
outstanding Obligations in respect of Specified Hedge Agreements. Any such
release of Guarantee Obligations shall be deemed subject to the provision that
such Guarantee Obligations shall be reinstated if after such release any portion
of any payment in respect of the Obligations guaranteed thereby shall be
rescinded or must otherwise be restored or returned upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Borrower or any
Guarantor or any substantial part of its property, or otherwise, all as though
such payment had not been made.

               10.16 Accounting Changes. In the event that any Accounting Change
(as defined below) shall occur and such change results in a change in the method
of calculation of financial covenants, standards or terms in this Agreement,
then the Borrower and the Administrative Agent agree to enter into negotiations
in order to amend such provisions of this Agreement so as to equitably reflect
such Accounting Changes with the desired result that the criteria for evaluating
the Borrower's financial condition shall be the same after such Accounting
Changes as if such Accounting Changes had not been made. Until such time as such
an amendment shall have been executed and delivered by the Borrower, the
Administrative Agent and the Required Lenders, all financial covenants,
standards and terms in this Agreement shall continue to be calculated or
construed as if such Accounting Changes had not occurred. "Accounting Changes"
refers to changes in accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC.



                                                                              74

               10.17 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.



                                                                              75

        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.

                                   EMPI, INC.

                                   By:__________________________________________
                                      Name:
                                      Title:


                                   EMPI CORP.

                                   By:__________________________________________
                                      Name:
                                      Title:


                                   JPMORGAN CHASE BANK, as Administrative Agent,
                                   Syndication Agent and as a Lender

                                   By:__________________________________________
                                      Name:
                                      Title:


                                   WACHOVIA BANK, NATIONAL ASSOCIATION, as
                                   Documentation Agent and as a Lender

                                   By:__________________________________________
                                      Name:
                                      Title:



                                          ______________________________________
                                          (Name of Lender)

                                          By:___________________________________
                                             Name:
                                             Title:



                                        _______________________________________
                                        (Name of Lender)

                                        By:____________________________________
                                           Name:
                                           Title:


                                        By:____________________________________
                                           Name:
                                           Title:

EX-10.10

                                                                   EXHIBIT 10.10

                                STOCK OPTION PLAN
                                       OF
                                   EMPI, INC.

     Empi, Inc. ("the Company"), a Minnesota corporation, hereby adopts this
1999 Stock Option Plan of Empi, Inc. (the "Plan"), effective as of August 31,
1999. This Plan shall constitute an amendment and restatement of both the Empi,
Inc. 1987 Stock Option Plan and the Empi, Inc. 1997 Stock Option Plan for
purposes of all options granted under either of such plans outstanding on August
31, 1999 for which the optionee elects continuation of his or her option(s) as
of the closing of the Merger pursuant to that certain Agreement and Plan of
Merger dated as of May 27, 1999, by and among the Company, MPI Holdings, L.L.C.,
a Delaware limited liability company and EI Merger Corp., a Minnesota
corporation. The purposes of this Plan are as follows:

     (1) To further the growth, development and financial success of the Company
         and its Subsidiaries (as defined herein), by providing additional
         incentives to employees and directors of the Company and its
         Subsidiaries who have been or will be given responsibility for the
         management or administration of the Company's (or one of its
         Subsidiaries') business affairs, by assisting them to become owners of
         Common Stock, thereby benefiting directly from the growth, development
         and financial success of the Company and its Subsidiaries.

     (2) To enable the Company (and its Subsidiaries) to obtain and retain the
         services of the type of professional, technical and managerial
         employees and directors considered essential to the long-range success
         of the Company (and its Subsidiaries) by providing and offering them an
         opportunity to become owners of Common Stock under Options, including,
         in the case of employees, Options that are intended to qualify as
         "incentive stock options" under Section 422 of the Code (as defined
         herein).

                                   ARTICLE I.
                                   DEFINITIONS

     Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The singular pronoun shall include the plural where the context so indicates.

Section 1.1 Affiliate

     "Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
such Person where "control" shall have the meaning given such term under Rule
405 of the Securities Act.

Section 1.2 Board

     "Board" shall mean the Board of Directors of the Company.

Section 1.3 CEO



     "CEO" shall mean Chief Executive Officer of the Company.

Section 1.4  Code

     "Code" shall mean the Internal Revenue Code of 1986, as amended.

Section 1.5  Committee

     "Committee" shall mean the Committee appointed as provided in Section 6.1.

Section 1.6  Common Stock

     "Common Stock" shall mean the common stock, par value $0.01 per share, of
the Company.

Section 1.7  Company

     "Company" shall mean Empi, Inc. In addition, "Company" shall mean any
corporation assuming, or issuing new employee stock options in substitution for,
Incentive Stock Options outstanding under the Plan in a transaction to which
Section 424(a) of the Code applies.

Section 1.8  Corporate Event

     "Corporate Event" shall mean, as determined by the Committee (or by the
Board, in the case of Options granted to Independent Directors) in its sole
discretion, any transaction or event described in Section 7.1(a) or any unusual
or nonrecurring transaction or event affecting the Company, any Affiliate of the
Company, or the financial statements of the Company or any Affiliate, or changes
in applicable laws, regulations, or accounting principles.

Section 1.9  Director

     "Director" shall mean a member of the Board.

Section 1.10 Eligible Representative

     "Eligible Representative" for an Optionee shall mean such Optionee's
personal representative or such other person as is empowered under the deceased
Optionee's will or the then applicable laws of descent and distribution to
represent the Optionee hereunder.

Section 1.11 Employee

     "Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company or one of its Subsidiaries, whether such employee is so
employed at the time this Plan is adopted or becomes so employed subsequent to
the adoption of this Plan.

Section 1.12 Exchange Act

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

                                        2



Section 1.13 Incentive Stock Option

     "Incentive Stock Option" shall mean an Option which qualifies under Section
422 of the Code and which is designated as an Incentive Stock Option by the
Committee.

Section 1.14 Independent Director

     "Independent Director" shall mean a member of the Board who is not an
Employee of the Company or any of its Subsidiaries.

Section 1.15 Non-Qualified Option

     "Non-Qualified Option" shall mean an Option which is not an "incentive
stock option" under Section 422 of the Code and shall include an Option which is
designated as a Non-Qualified Option by the Committee.

Section 1.16 Officer

     "Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f)
under the Exchange Act, as such Rule may be amended in the future.

Section 1.17 Option

     "Option" shall mean an option granted under the Plan to purchase Common
Stock. "Options" includes both Incentive Stock Options and Non-Qualified
Options.

Section 1.18 Optionee

     "Optionee" shall mean an Employee or Independent Director to whom an Option
is granted under the Plan.

Section 1.19 Plan

     "Plan" shall mean this 1999 Stock Option Plan of Empi, Inc.

Section 1.20 Secretary

     "Secretary" shall mean the Secretary of the Company.

Section 1.21 Securities Act

     "Securities Act" shall mean the Securities Act of 1933, as amended.

Section 1.22 Stockholders Agreement

     "Stockholders Agreement" shall mean a Stockholders Agreement by and between
the Company and an Optionee, as the same may be amended from time to time.

                                        3



Section 1.23 Subsidiary

     "Subsidiary" of any entity shall mean any corporation in an unbroken chain
of corporations beginning with such entity if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

Section 1.24 Termination of Directorship

     "Termination of Directorship" shall mean the time when an Optionee who is
an Independent Director ceases to be a Director for any reason, including but
not by way of limitation, a termination by resignation, failure to be elected or
appointed, death or retirement. The Board, in its sole discretion, shall
determine the effect of all matters and questions relating to Termination of
Directorship.

Section 1.25 Termination of Employment

     "Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company (or one of its Subsidiaries)
is terminated for any reason, with or without cause, including, but not by way
of limitation, a termination by resignation, discharge, death or retirement, but
excluding a termination where there is a simultaneous reemployment by the
Company (or one of its Subsidiaries). The Committee shall determine the effect
of all matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for the purposes of Section
422(a)(2) of the Code and the then applicable regulations and revenue rulings
under said Section of the Code.

                                  ARTICLE II.
                             SHARES SUBJECT TO PLAN

Section 2.1  Shares Subject to Plan

     The shares of stock subject to Options shall be shares of Common Stock.
Subject to Section 7.1, the aggregate number of such shares which may be issued
upon exercise of Options shall not exceed 776,729.

Section 2.2  Unexercised Options

     If any Option (or portion thereof) expires or is canceled without having
been fully exercised, the number of shares subject to such Option (or portion
thereof) but as to which such Option was not exercised prior to its expiration
or cancellation may again be optioned hereunder, subject to the limitations of
Section 2.1.

                                        4



                                  ARTICLE III.
                               GRANTING OF OPTIONS

Section 3.1  Eligibility

     Any Employee of the Company or one of its Subsidiaries and any Independent
Director shall be eligible to be granted Options, except as provided in Section
3.2.

Section 3.2  Qualification of Incentive Stock Options

     No Incentive Stock Option shall be granted to any person who is not an
Employee.

Section 3.3  Granting of Options to Employees

     (a) The Committee shall from time to time:

         (i)   Select from among the Employees (including those to whom Options
     have been previously granted under the Plan) such of them as in its opinion
     should be granted Options;

         (ii)  Determine the number of shares to be subject to such Options
     granted to such Employees, and determine whether such Options are to be
     Incentive Stock Options or Non-Qualified Options; and

         (iii) Determine the terms and conditions of such Options, consistent
     with the Plan.

     (b) Upon the selection of an Employee to be granted an Option pursuant to
Section 3.3(a), the Committee shall instruct the Secretary to issue such Option
and may impose such conditions on the grant of such Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may require as a condition to the grant of an Option to an Employee
that the Employee surrender for cancellation some or all of the unexercised
Options which have been previously granted to him or her. An Option the grant of
which is conditioned upon such surrender may have an Option price lower (or
higher) than the Option price of the surrendered Option, may cover the same (or
a lesser or greater) number of shares as the surrendered Option, may contain
such other terms as the Committee deems appropriate and shall be exercisable in
accordance with its terms, without regard to the number of shares, price, period
of exercisability or any other term or condition of the surrendered Option.

Section 3.4  Granting of Option to Independent Directors

     (a) The Board shall from time to time:

         (i)   Select from among the Independent Directors (including those to
     whom Options have previously been granted under the Plan) such of them as
     in its opinion should be granted Options;

                                        5



         (ii)  Determine the number of shares to be subject to such Options
     granted to such selected Independent Directors; and

         (iii) Determine the terms and conditions of such Options, consistent
     with the Plan; provided, however, that all Options granted to Independent
     Directors shall be Non-Qualified Options.

     (b) Upon the selection of an Independent Director to be granted an Option
pursuant to Section 3.4(a), the Board shall instruct the Secretary to issue such
Option and may impose such conditions on the grant of such Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Board may require as a condition to the grant of an Option to an Independent
Director that the Independent Director surrender for cancellation some or all of
the unexercised Options which have been previously granted to him or her. An
Option the grant of which is conditioned upon such surrender may have an Option
price lower (or higher) than the Option price of the surrendered Option, may
cover the same (or a lesser or greater) number of shares as the surrendered
Option, may contain such other terms as the Board deems appropriate and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, period of exercisability or any other term or condition of the
surrendered Option.

                                  ARTICLE IV.
                                TERMS OF OPTIONS

Section 4.1 Option Agreement

     Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee (or the Board, in
the case of Options granted to Independent Directors) shall determine,
consistent with the Plan. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to qualify
such Options as "incentive stock options" under Section 422 of the Code.

Section 4.2 Exercisability of Options

     (a) Each Option shall become exercisable according to the terms of the
applicable Stock Option Agreement; provided, however, that by a resolution
adopted after an Option is granted the Committee (or the Board, in the case of
Options granted to Independent Directors) may, on such terms and conditions as
it may determine to be appropriate, accelerate the time at which such Option or
any portion thereof may be exercised.

     (b) Except as otherwise provided in the applicable Stock Option Agreement,
no portion of an Option which is unexercisable at Termination of Employment or
Termination of Directorship, as applicable, shall thereafter become exercisable.

     (c) To the extent that the aggregate fair market value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company or any Subsidiary thereof)
exceeds $100,000, such options shall be treated and taxable as Non-Qualified
Options.

                                        6



The rule set forth in the preceding sentence shall be applied by taking options
into account in the order in which they were granted, and the stock issued upon
exercise of options shall designate whether such stock was acquired upon
exercise of an Incentive Stock Option. For purposes of these rules, the fair
market value of stock shall be determined as of the date of grant of the Option
granted with respect to such stock.

Section 4.3 Option Price

     (a) The price of the shares subject to each Option shall be set by the
Committee (or the Board, in the case of Options granted to Independent
Directors); provided, however, that in the case of an Incentive Stock Option,
the price per share shall be not less than 100% of the fair market value of such
shares on the date such Option is granted; and that in the case of an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company, the
price per share shall not be less than 110% of the fair market value of such
shares on the date such Incentive Stock Option is granted.

     (b) For purposes of the Plan, the fair market value of a share of Common
Stock as of a given date shall be: (i) the closing price per share of the Common
Stock on the principal exchange on which such shares are then trading, if any,
on the day previous to such date, or, if shares were not traded on the day
previous to such date, then on the next preceding trading day during which a
sale occurred; or (ii) if such Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, (A) the last sales price (if
the Common Stock is then listed as a National Market Issue under the NASD
National Market System) or (B) the mean between the closing representative bid
and asked prices (in all other cases) for the Common Stock on the day previous
to such date as reported by NASDAQ or such successor quotation system; or (iii)
if such Common Stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the mean between the closing bid and
asked prices for the Common Stock, on the day previous to such date, as
determined in good faith by the Committee; or (iv) if the Common Stock is not
publicly traded, the fair market value established by the Committee acting in
good faith and taking account of factors applicable to such shares such as their
status as minority or non-controlling shares and any restrictions on the shares
contained in this Plan or otherwise and that by their terms will never lapse.

Section 4.4 Expiration of Options

     No Option may be exercised to any extent by anyone after the first to occur
of the following events:

     (a) The expiration of ten years from the date the Option was granted; or

     (b) With respect to an Incentive Stock Option in the case of an Optionee
owning (within the meaning of Section 424(d) of the Code), at the time the
Incentive Stock Option was granted, more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary corporation, the
expiration of five years from the date the Incentive Stock Option was granted.

                                        7



                                   ARTICLE V.
                               EXERCISE OF OPTIONS

Section 5.1 Person Eligible to Exercise

     During the lifetime of the Optionee, only he or she may exercise an Option
(or any portion thereof) granted to him or her; provided, however, that the
Optionee's Eligible Representative may exercise his or her Option during the
period of the Optionee's disability (as defined in Section 22(e)(3) of the Code)
notwithstanding that an Option so exercised may not qualify as an Incentive
Stock Option. After the death of the Optionee, any exercisable portion of an
Option may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement, be exercised by his or her
Eligible Representative.

Section 5.2 Partial Exercise

     At any time and from time to time prior to the time when the Option becomes
unexercisable under the Plan or the applicable Stock Option Agreement, the
exercisable portion of an Option may be exercised in whole or in part; provided,
however, that the Company shall not be required to issue fractional shares and
the Committee (or the Board, in the case of Options granted to Independent
Directors) may, by the terms of the Option, require any partial exercise to be
with respect to a specified minimum number of shares.

Section 5.3 Manner of Exercise

     An exercisable Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary of all of the following prior to the time
when such Option or such portion becomes unexercisable under the Plan or the
applicable Stock Option Agreement:

     (a) Notice in writing signed by the Optionee or his or her Eligible
Representative, stating that such Option or portion is exercised, and
specifically stating the number of shares with respect to which the Option is
being exercised;

     (b) A copy of the Stockholders Agreement signed by the Optionee or Eligible
Representative, as applicable;

     (c) (i) Full payment (in cash or by personal, certified or bank cashier
     check) for the shares with respect to which such Option or portion is
     thereby exercised; or

         (ii) With the consent of the Committee (or the Board, in the case of
     Options granted to Independent Directors), (A) shares of Common Stock owned
     by the Optionee duly endorsed for transfer to the Company or (B) except
     with respect to Incentive Stock Options, shares of the Common Stock
     issuable to the Optionee upon exercise of the Option, with a fair market
     value (as determined under Section 4.3(b)) on the date of Option exercise
     equal to the aggregate Option price of the shares with respect to which
     such Option or portion is thereby exercised; or

                                        8



          (iii) With the consent of the Committee (or the Board, in the case of
     Options granted to Independent Directors), any combination of the
     consideration provided in the foregoing subsections (i) and (ii);

     (d) The payment to the Company (in cash or by personal, certified or bank
cashier check, or by any other means of payment approved by the Committee) of
all amounts necessary to satisfy any and all federal, state and local tax
withholding requirements arising in connection with the exercise of the Option;

     (e) Such representations and documents as the Committee (or the Board, in
the case of Options granted to Independent Directors) deems necessary or
advisable to effect compliance with all applicable provisions of the Securities
Act and any other federal or state securities laws or regulations. The Committee
(or the Board, in the case of Options granted to Independent Directors) may, in
its sole discretion, also take whatever additional actions it deems appropriate
to effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to transfer agents and
registrars; and

     (f) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option
or portion thereof.

Section 5.4 Conditions to Issuance of Stock Certificates

     The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. A
certificate of shares will be delivered to the Optionee at the Company's
principal place of business within thirty days of receipt by the Company of the
written notice and payment, unless an earlier date is agreed upon.
Notwithstanding the above, the Company shall not be required to issue or deliver
any certificate or certificates for shares of stock purchased upon the exercise
of any Option or portion thereof prior to fulfillment of all of the following
conditions:

     (a) The admission of such shares to listing on any and all stock exchanges
on which such class of stock is then listed;

     (b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee (or the Board, in the case of Options granted to Independent
Directors) shall, in its sole discretion, deem necessary or advisable;

     (c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or the Board, in the case of
Options granted to Independent Directors) shall, in its sole discretion,
determine to be necessary or advisable; and

     (d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law in connection with the exercise of
the Option.

                                        9



Section 5.5 Rights as Stockholders

     The holder of an Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until such holder has
signed a Stockholders Agreement and certificates representing such shares have
been issued by the Company to such holder.

Section 5.6 Transfer Restrictions

     Shares acquired upon exercise of an Option shall be subject to the terms
and conditions of a Stockholders Agreement. In addition, the Committee (or the
Board, in the case of Options granted to Independent Directors), in its sole
discretion, may impose further restrictions on the transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement and may
be referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of stock, acquired by exercise of an Incentive Stock Option, within two
years from the date of granting such Option or one year after the transfer of
such shares to such Employee. The Committee may direct that the certificates
evidencing shares acquired by exercise of an Incentive Stock Option refer to
such requirement.

                                  ARTICLE VI.
                                 ADMINISTRATION

Section 6.1 Committee

     The Committee shall consist of two or more Independent Directors, appointed
by and holding office at the pleasure of the Board. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee shall be filled by the Board.

Section 6.2 Delegation by Committee

     Except as otherwise determined by the Committee, all rights, powers and
duties of the Committee under the Plan (except those granted pursuant to
Sections 3.3, 4.3, 5.3(c), 5.3(e), 5.6 and Article VII) shall be exercised by
the CEO, subject to the approval of the Committee.

Section 6.3 Duties and Powers of CEO and the Committee

     It shall be the duty of the CEO, subject to the approval of the Committee,
to conduct the general administration of the Plan in accordance with its
provisions. The CEO, subject to the approval of the Committee, shall have the
power to interpret the Plan and the Options and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to Options granted
to Independent Directors. Any such interpretations and rules in regard to
Incentive Stock Options shall be consistent with the terms and conditions
applicable to "incentive stock options" within the meaning of Section 422 of the
Code. All

                                       10



determinations and decisions made by the CEO and approved by the Committee under
any provision of the Plan or of any Option granted thereunder shall be final,
conclusive and binding on all persons.

Section 6.4 Compensation; Professional Assistance; Good Faith Actions

     The members of the Committee shall receive such compensation for their
services hereunder as may be determined by the Board. All expenses and
liabilities incurred by the members of the Committee or the Board in connection
with the administration of the Plan shall be borne by the Company. The Committee
or the Board may employ attorneys, consultants, accountants, appraisers, brokers
or other persons. The Committee, the Company and its Officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the CEO, the Committee and the Board, in good faith shall be final and binding
upon all Optionees, the Company and all other interested persons. No member of
the Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Board shall be fully protected by the Company in respect to
any such action, determination or interpretation.

                                  ARTICLE VII.
                                OTHER PROVISIONS

Section 7.1 Changes in Common Stock or Assets of the Company, Acquisition or
            Liquidation of the Company and Other Corporate Events

     (a) Subject to Section 7.1(d), in the event that the Committee (or the
Board, in the case of Options granted to Independent Directors) determines that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, liquidation, dissolution, or change of
control in respect of the Company or its capital stock or any sale, transfer,
exchange or other disposition of all or substantially all of the assets of the
Company or any of its Subsidiaries, or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event, in the Committee's sole discretion (or in the case of
Options granted to Independent Directors, the Board's sole discretion), affects
the Common Stock such that an adjustment is determined by the Committee (or the
Board, in the case of Options granted to Independent Directors) to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, then the Committee (or the Board, in the case of Options granted
to Independent Directors) shall, in such manner as it may deem equitable, adjust
any or all of:

          (i) The number and kind of shares of Common Stock (or other securities
     or property) with respect to which Options may be granted under the Plan
     (including, but not limited to, adjustments of the limitations in Section
     2.1 on the maximum number and kind of shares which may be issued);

                                       11



          (ii)  The number and kind of shares of Common Stock (or other
     securities or property) subject to outstanding Options;

          (iii) The exercise price with respect to any Option; and

          (iv)  The financial or other "targets" specified in each Stock Option
     Agreement for determining the exercisability of Options.

     (b) Subject to subsection (vi) below and Section 7.1(d), upon the
occurrence of any Corporate Event, the Committee (or the Board, in the case of
Options granted to Independent Directors), in its sole discretion, is hereby
authorized to take any one or more of the following actions whenever the
Committee (or the Board, in the case of Options granted to Independent
Directors) determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to any Option under this Plan, to
facilitate such Corporate Event or to give effect to such changes in laws,
regulations or principles:

          (i) In its sole discretion, and on such terms and conditions as it
     deems appropriate, the Committee (or the Board, in the case of Options
     granted to Independent Directors) may provide, either by the terms of the
     applicable Stock Option Agreement or by action taken prior to the
     occurrence of such Corporate Event and either automatically or upon the
     Optionee's request, for either the purchase of any such Option for an
     amount of cash equal to the amount that could have been attained upon the
     exercise of the vested portion of such Option (and such additional portion
     of the Option as the Board or Committee may determine) immediately prior to
     the occurrence of such transaction or event, or the replacement of such
     vested (and other) portion of such Option with other rights or property
     selected by the Committee (or the Board, in the case of Options granted to
     Independent Directors) in its sole discretion;

          (ii)  In its sole discretion, the Committee (or the Board, in the case
     of Options granted to Independent Directors) may provide, either by the
     terms of the applicable Stock Option Agreement or by action taken prior to
     the occurrence of such Corporate Event, that the Option (or any portion
     thereof) cannot be exercised after such event;

          (iii) In its sole discretion, and on such terms and conditions as it
     deems appropriate, the Committee (or the Board, in the case of Options
     granted to Independent Directors) may provide, either by the terms of the
     applicable Stock Option Agreement or by action taken prior to the
     occurrence of such Corporate Event, that for a specified period of time
     prior to such Corporate Event, such Option shall be exercisable as to all
     shares covered thereby or a specified portion of such shares,
     notwithstanding anything to the contrary in (A) Section 4.2 or (B) the
     provisions of the applicable Stock Option Agreement;

          (iv)  In its sole discretion, and on such terms and conditions as it
     deems appropriate, the Committee (or the Board, in the case of Options
     granted to Independent Directors) may provide, either by the terms of the
     applicable Stock Option Agreement or by action taken prior to the
     occurrence of such Corporate Event, that upon such event,

                                       12



     such Option (or any portion thereof) be assumed by the successor or
     survivor corporation, or a parent or subsidiary thereof, or shall be
     substituted for by similar options, rights or awards covering the stock of
     the successor or survivor corporation, or a parent or subsidiary thereof,
     with appropriate adjustments as to the number and kind of shares and
     prices;

          (v) In its sole discretion, and on such terms and conditions as it
     deems appropriate, the Committee (or the Board, in the case of Options
     granted to Independent Directors) may make adjustments in the number and
     type of shares of Common Stock (or other securities or property) subject to
     outstanding Options (or any portion thereof) and/or in the terms and
     conditions of (including the exercise price), and the criteria included in,
     outstanding Options and Options which may be granted in the future; and

     (c) Subject to Section 7.1(d), the Committee (or the Board, in the case of
Options granted to Independent Directors) may, in its sole discretion, include
such further provisions and limitations in any Stock Option Agreement as it may
deem equitable and in the best interests of the Company and its Subsidiaries.

     (d) With respect to Incentive Stock Options, no adjustment or action
described in this Section 7.1 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code or any successor provisions, thereto,
unless the Committee determines that the Plan and/or the Options are not to
comply with Section 422(b)(1) of the Code. The number of shares of Common Stock
subject to any Option shall always be rounded up to the next higher whole
number.

Section 7.2 Options Not Transferable

     No Option or interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of the Optionee or his or her successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law, by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that nothing in this Section 7.2 shall
prevent transfers by will or by the applicable laws of descent and distribution.

Section 7.3 Amendment, Suspension or Termination of the Plan

     The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board or the
Committee. However, without stockholder approval within twelve months before or
after such action no action of the Board or the Committee may, except as
provided in Section 7.1, increase any limit imposed in Section 2.1 on the
maximum number of shares which may be issued on exercise of Options, reduce the
minimum Option price requirements of Section 4.3(a), or extend the limit imposed
in this Section 7.3 on the period during which options may be granted. Except as
provided by Section 7.1, neither the amendment, suspension nor termination of
the Plan shall, without the consent of the holder of the Option, alter or impair
any rights or obligations under any Option theretofore

                                       13



granted. No Option may be granted during any period of suspension nor after
termination of the Plan, and in no event may any Option be granted under this
Plan after the expiration of ten years from the date the Plan is adopted by the
Board.

Section 7.4 Effect of Plan Upon Other Option and Compensation Plans

     The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in this
Plan shall be construed to limit the right of the Company or any Subsidiary (a)
to establish any other forms of incentives or compensation for directors or
employees of the Company (or any Subsidiary) or (b) to grant or assume options
otherwise than under this Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association.

Section 7.5 Approval of Plan by Stockholders

     This Plan will be submitted for the approval of the Company's stockholders
within twelve months after the date of the Board's initial adoption of this Plan
and the Plan and the Options granted hereunder will be effective upon approval
by such stockholders as contemplated by Section 280G(b)(5)(A)(ii) of the Code
and regulations thereunder as if a "change in control" occurred immediately
following such approval. No Option may be exercised to any extent by anyone
unless and until the Plan is so approved by the stockholders, and if such
approval has not been obtained by the end of said twelve-month period, the Plan
and all Options theretofore granted shall thereupon be canceled and become null
and void.

Section 7.6 Titles

     Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.

Section 7.7 Conformity to Securities Laws

     The Plan is intended to conform to the extent necessary with all provisions
of the Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder to the extent
the Company or any Optionee are subject to the provisions thereof.
Notwithstanding anything herein to the contrary, the Plan shall be administered,
and Options shall be granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and Options granted hereunder shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.

Section 7.8 Governing Law

     To the extent not preempted by federal law, the Plan shall be construed in
accordance with and governed by the laws of the State of Minnesota.

Section 7.9 Severability

                                       14



     In the event any portion of the Plan or any action taken pursuant thereto
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provisions had not been
included, and the illegal or invalid action shall be null and void.

     I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of EMPI, Inc. on August 31, 1999.

     Executed on this 31/st/ day of August 1999.

                                                   _____________________________
                                                   Chief Financial Officer

                                       15



                   FORM OF AMENDMENT TO STOCK OPTION AGREEMENT

     THIS AGREEMENT, dated August 31, 1999, is made by and between Empi Inc., a
Minnesota corporation (the "Company"), and ________________, an employee of the
Company (or one of its Subsidiaries, as defined herein), hereinafter referred to
as "Optionee." This Agreement amends the following stock option agreement(s)
between the Company and Optionee:

                 Name of Agreement                Date of Agreement

     WHEREAS, Optionee has previously been granted one or more options (the
"Prior Options") to purchase shares of the Company's common stock, par value
$0.01 per share (the "Common Stock"), pursuant to the stock option agreements
listed above and the Empi, Inc. 1997 Stock Option Plan and the Empi, Inc. 1987
Stock Option Plan (the "Prior Plan"); and

     WHEREAS, as a result of the Merger pursuant to that certain Agreement and
Plan of Merger dated as of May 27, 1999 by and among the Company, MPI Holdings,
L.L.C., a Delaware limited liability company, and EI Merger Corp., a Minnesota
corporation ("Merger Sub"), pursuant to which Merger Sub will merge with any
into the Company (the "Merger"), the Company will become the surviving
corporation and the Company's Common Stock will no longer publicly traded as of
August 31, 1999; and

     WHEREAS, pursuant to the Merger, the Committee has provided that unless
exercised by Optionee prior to consummation of the Merger, all Prior Options
that are not exercised prior to August 31, 1999 will be cancelled immediately
upon the consummation the Merger; and

     WHEREAS, Optionee has not exercised certain of his or her Prior Options
prior to the Merger; and

     WHEREAS, the Company has adopted the 1999 Stock Option Plan of Empi, Inc.,
effective as of August 31, 1999 (the "Plan"), in part as an amendment and
restatement of the Prior Plan;

     NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:

     1. Optionee has not exercised the Prior Options identified below (the
"Continuing Options"), and Optionee hereby acknowledges that such Continuing
Options will remain outstanding immediately following the consummation of the
Merger.

  Number of Shares Covered by Option       Exercise Price        ISO/NOSO


                                       16



     2. Optionee agrees and acknowledges that, effective as of the consummation
of the Merger, notwithstanding anything to the contrary in the Prior Plan or the
option agreements identified above, as a condition to the exercise of any
Continuing Option, Optionee will execute a Stockholders Agreement in the form
attached hereto as Exhibit A, which agreement will govern and impose certain
restrictions on the shares of Common Stock acquired by exercise of any
Continuing Option.

     3. Optionee agrees and acknowledges that, from and after the consummation
of the Merger, the Continuing Options shall be subject to the terms and
provisions of the option agreements in effect immediately prior to the Merger,
as amended hereby, and as the same may be amended from time to time.

     4. Optionee agrees and acknowledges that, from and after the consummation
of the Merger, the Continuing Options shall be subject to the terms and
provisions of the Plan, as the same may be amended from time to time.

     5. The Continuing Options shall be fully vested and exercisable as of the
consummation of the merger, and shall expire in accordance with the terms of the
applicable option agreements identified above.

     6. In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby.

     7. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, heirs, legatees,
successors and assigns.

     8. This Agreement shall be governed by and construed in accordance with the
laws of the State of Minnesota.

                                       17



     IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.

                                             Empi, INC.

                                             By:________________________________
                                                Name:  Patrick D. Spangler
                                                Title: Chief Financial Officer


                                             Name:______________________________
                                             Address:___________________________
                                             ___________________________________
                                             ___________________________________
                                             ___________________________________

                                        18

EX-10.11

                                                                   EXHIBIT 10.11

                        INCENTIVE STOCK OPTION AGREEMENT

         THIS AGREEMENT, dated _______________, ___, ___, is made by and between
Empi, Inc., a Minnesota corporation (the "Company"), and ________________, an
employee of the Company (or one of its Subsidiaries, as defined herein),
hereinafter referred to as "Optionee."

         WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its common stock, par value $0.01 per share (the "Common
Stock"); and

         WHEREAS, the Company wishes to carry out the 1999 Stock Option Plan of
Empi, Inc. (the "Plan") (the terms of which are hereby incorporated by reference
and made a part of this Agreement); and

         WHEREAS, the Committee appointed to administer the Plan has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Incentive Stock Option provided for herein to the
Optionee as an inducement to enter into or remain in the service of the Company
(or one of its Subsidiaries) and as an incentive for increased efforts during
such service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option;

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. Capitalized terms used in this Agreement and not defined below shall
have the meaning given such terms in the Plan. The singular pronoun shall
include the plural, where the context so indicates.

Section 1.1    Cash Flow; Cumulative Cash Flow

         "Cash Flow" for a given fiscal year shall mean (i) EBITDA for such
period minus (ii) consolidated capital expenditures actually paid during such
period, plus (iii) the Net Change In Working Capital for such period.
"Cumulative Cash Flow" as of a given date shall mean the total of Cash Flow from
and after September 1, 1999 through such date.

Section 1.2    Cash Flow Target; Cumulative Cash Flow Target

         "Cash Flow Target" and "Cumulative Cash Flow Target" for a given period
shall be as set forth in Appendix A to this Agreement, subject to the provisions
of Section 4.6.

Section 1.3    Determination Date

         "Determination Date" with respect to a given fiscal year shall mean a
date, no later than 90 days following December 31/st/ of such year, as of which
the Committee determines, pursuant to Section 3.1(e) herein, that a Cash Flow or
Cumulative Cash Flow Target has been met with respect to such fiscal year.



Section 1.4    EBITDA

         "EBITDA" for a given period shall mean consolidated earnings before
taxes, interest, amortization, depreciation and extraordinary items, all as
reflected on the Company's audited consolidated financial statements for such
period.

Section 1.5    Investor Return.

         "Investor Return" as of the date of a Liquidity Event shall mean the
annual compounded pre-tax internal rate of return on the aggregate amount of
funds invested by the Principal Stockholder in debt and equity securities or
instruments of the Company and its Subsidiaries through such date of
determination, assuming exercise of all options outstanding as of such date
(after giving effect to different dates of investment, if any, and after giving
effect to any dilution of such securities or instruments arising in connection
with such Liquidity Event).

Section 1.6    Liquidity Event.

         "Liquidity Event" shall mean the first occurrence of the sale,
transfer, conveyance or other disposition, in one or a series of related
transactions, of the debt and equity securities of the Company held by the
Principal Stockholder such that immediately following such transaction (or
transactions), the value (at original cost) of all debt and equity securities
held by the Principal Stockholder is less than 20% of the value (at original
cost) of the debt and equity securities held by the Principal Stockholder as of
August 31, 1999.

Section 1.7    Net Change In Working Capital; Average Working Capital

         "Net Change In Working Capital" for any given fiscal year shall mean
(i) the Average Working Capital for the immediately preceding fiscal year minus
(ii) the Average Working Capital for such fiscal year, where "Average Working
Capital" for a given fiscal year shall mean the result of:

         (a)   the sum of the four quarterly working capital amounts (excluding
cash and short term borrowings) determined as of the last day of each calendar
quarter of such fiscal year, all as determined on a consolidated basis for the
Company and its subsidiaries,

divided by

         (b)   four;

provided, however, that for purposes of this Section 1.7, fiscal year 2000 shall
mean the period beginning October 1, 1999 and ending December 31, 2000; Average
Working Capital for fiscal year 2000 shall mean the result of (x) the sum of the
five quarterly working capital amounts (excluding cash and short term
borrowings) determined as of the last day of each calendar quarter during such
period, all as determined on a consolidated basis for the Company and its
subsidiaries, divided by (y) five; and "Net Change in Working Capital" for
fiscal year 2000 shall mean the consolidated working capital (excluding cash and
short term borrowings) of the Company and its Subsidiaries as of August 31, 1999
minus Average Working Capital for fiscal year 2000.

Section 1.8    Option

         "Option" shall mean the Incentive Stock Option to purchase Common Stock
granted under this Agreement.

                                        2



Section 1.9    Person

         "Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.

Section 1.10   Plan

         "Plan" shall mean the 1999 Stock Option Plan of Empi, Inc.

Section 1.11   Principal Stockholder.

         "Principal Stockholder" shall mean, collectively, MPI Holdings, L.L.C.
and any of its Permitted Assignees (as such term is defined in that certain
Shareholder Voting and Control Agreement by and among the Company, GE Capital
Equity Investments, Inc. and MPI Holdings, L.L.C.).

Section 1.12   Subsidiary

         "Subsidiary" of any entity shall mean any corporation in an unbroken
chain of corporations beginning with such entity if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

Section 1.13   Stockholders Agreement

         "Stockholders Agreement" shall mean that certain agreement by and
between the Optionee and the Company which contains certain restrictions and
limitations applicable to the shares of Common Stock acquired upon Option
exercise (and, possibly, to other shares of Common Stock held by the Optionee),
substantially in the form of Exhibit A attached hereto. The Committee, in its
discretion, shall determine the terms of the Stockholders Agreement. If no
Stockholders Agreement is effective at the time of exercise of the Option (or
any portion thereof), the exercise of the Option shall be subject to the
condition that the Optionee enter into such an agreement with the Company.

                                   ARTICLE II.
                                 GRANT OF OPTION

Section 2.1    Grant of Option

         In consideration of the Optionee's agreement to remain in the employ of
the Company or one of its Subsidiaries and for other good and valuable
consideration, on the date hereof the Company irrevocably grants to the Optionee
the Option to purchase any part or all of an aggregate of ____________ shares of
Common Stock upon the terms and conditions set forth in the Plan and this
Agreement. The Optionee hereby agrees that except as required by law, he or she
will not disclose to any person other than the Optionee's spouse (if any) the
grant of the Option or any of the terms or provisions hereof without the prior
approval of the Committee, and the Optionee agrees that, in the discretion of
the Committee, the Option shall terminate and any unexercised portion of such
Option (whether or not then exercisable) shall be forfeited if the Optionee
violates the non-disclosure provisions of this Section 2.1.

                                        3



Section 2.2    Option Subject to Plan

         The Option granted hereunder is subject to the terms and provisions of
the Plan, including without limitation, Article V and Sections 7.1, 7.2 and 7.3
thereof.

Section 2.3    Option Price

         The purchase price of the shares of Common Stock covered by the Option
shall be $9.85 per share (without commission or other charge).

                                  ARTICLE III.
                                 EXERCISABILITY

Section 3.1    Commencement of Exercisability

         (a)   Subject to subsections (e) and (f) and Section 3.3, 25% of the
Option shall become exercisable in five equal and cumulative installments as
follows:

               (i)     The first installment shall consist of five percent of
the shares covered by such Option and shall become exercisable on December 31,
2000;

               (ii)    The second installment shall consist of five percent of
the shares covered by such Option and shall become exercisable on December 31,
2001;

               (iii)   The third installment shall consist of five percent of
the shares covered by such Option and shall become exercisable on December 31,
2002;

               (iv)    The fourth installment shall consist of five percent of
the shares covered by such Option and shall become exercisable on December 31,
2003;

               (v)     The fifth installment shall consist of five percent of
the shares covered by such Option and shall become exercisable on December 31,
2004.

         (b)   Subject to subsections (e) and (f) and Section 3.3, 75% of the
Option shall become exercisable in full on the day immediately preceding the
tenth anniversary of the date of grant provided that the Optionee remains
continuously employed in active service by the Company from the date of grant
through such date.

         (c)   Notwithstanding Section 3.1(b), but subject to subsections (e)
and (f) Section 3.3,

               (i)     An installment consisting of 10% of the shares covered by
the Option shall become exercisable on the Determination Date for each fiscal
year 2000 through 2004 if the Cash Flow for such fiscal year equals or exceeds
the Cash Flow Target for such year.

               (ii)    If any installment subject to accelerated exercisability
pursuant to Section 3.1(c)(i) fails to become exercisable in accordance
therewith, such installment shall become exercisable on the Determination Date
following for the first fiscal year ending on or prior to December 31, 2005 as
of which (A) the Cash Flow for such fiscal year equals or exceeds the Cash Flow
Target for such year, and (B) the Cumulative Cash Flow as of the last day of
such fiscal year equals or exceeds the Cumulative Cash Flow Target for such
date.

                                        4



         (d)   Notwithstanding Section 3.1(b), but subject to subsection (f) and
Section 3.3, an installment consisting of 25% of the shares covered by the
Option shall become exercisable upon the occurrence of the first Liquidity Event
as of which the Investor Return equals or exceeds 30%.

         (e)   Notwithstanding the foregoing, but subject to subsection (f) and
Section 3.3., that portion, if any, of the 75% of the Option subject to vesting
under subsections (a) and (c) that has not then become exercisable or expired,
shall become exercisable in full as of the occurrence of the first Liquidity
Event.

         (f)   No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.

         (g)   The Committee shall make the determination as to whether the
respective Cash Flow Targets and Cumulative Cash Flow Targets have been met with
respect to any fiscal year, and shall determine the extent, if any, to which the
Option has become exercisable no later that the Determination Date for such
year.

Section 3.2    Duration of Exercisability

         The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable.

Section 3.3    Expiration of Option

         The Option may not be exercised to any extent by anyone after the first
to occur of the following events:

         (a)   The expiration of ten years from the date the Option was granted;
or

         (b)   In the case of an Optionee owning (within the meaning of Section
424(d) of the Code), at the time the Incentive Stock Option was granted, more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary corporation, the expiration of five years from the
date the Incentive Stock Option was granted; or

         (c)   Except as the Committee may otherwise approve, the 90th day
following the date of the Optionee's Termination of Employment for any reason
other than (x) termination by the Company for "cause" as determined by the
Committee in its discretion, (y) the Optionee's death or disability (as defined
in Section 22(e)(3) of the Code); or

         (d)   Except as the Committee may otherwise approve, the date of the
Optionee's Termination of Employment by reason of termination by the Company for
"cause" as determined by the Committee in its discretion; or

         (e)   In the case of an Optionee whose Termination of Employment is by
reason of his or her disability (within the meaning of Section 22(e)(3) of the
Code), the expiration of 12 months from the date of the Optionee's Termination
of Employment, unless the Optionee dies within said 12 month period, in which
case the Option shall cease to be exercisable upon the expiration of 180 days
from the date of the Optionee's death; or

         (f)   The expiration of 180 days from the date of the Optionee's
Termination of Employment by reason of his or her death.

                                        5



Section 3.4    Partial Exercise

         Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable; provided,
however, that each partial exercise shall be for not less than one hundred (100)
shares (or the minimum installment set forth in Section 3.1(c), if a smaller
number of shares) and shall be for whole shares only.

Section 3.5    Exercise of Option

         The exercise of the Option shall be governed by the terms of this
Agreement and the terms of the Plan, including, without limitation, the
provisions of Article V of the Plan.

Section 3.6    Special Tax Consequences

         The Optionee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Optionee during any fiscal year (under the Plan and all other stock option plans
of the Company, any Subsidiary and any parent corporation) exceeds $100,000,
such options shall be treated as not qualifying under Section 422 of the Code
but rather shall be treated and taxable as non-qualified options. The Optionee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted,
and the stock certificate issued upon exercise of options shall designate
whether such stock was acquired upon exercise of an Incentive Stock Option. For
purposes of these rules, the fair market value of stock shall be determined as
of the date of grant of the applicable option covering such stock.

                                   ARTICLE IV.
                                OTHER PROVISIONS

Section 4.1    Not a Contract of Employment

         Nothing in this Agreement or in the Plan shall confer upon the Optionee
any right to continue in the employ of the Company or any of its Subsidiaries or
shall interfere with or restrict in any way the rights of the Company or its
Subsidiaries, which are hereby expressly reserved, to discharge the Optionee at
any time for any reason whatsoever, with or without cause.

Section 4.2    Shares Subject to Plan and Management Stockholders Agreement

         The Optionee acknowledges that any shares acquired upon exercise of the
Option are subject to the terms of the Plan and the Stockholders Agreement
including without limitation, the restrictions set forth in Section 5.6 of the
Plan.

Section 4.3    Construction

         This Agreement shall be administered, interpreted and enforced under
the laws of the State of Minnesota.

                                       6



Section 4.4    Conformity to Securities Laws

         The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated thereunder by the Securities
and Exchange Commission, including without limitation Rule 16b-3.

         Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent :necessary to conform to such laws, rules and regulations.

Section 4.5    Stockholder Approval

         This Agreement will be effective upon approval by the stockholders of
the Company as provided in Section 280G(b)(5)(A)(ii) of the Code and regulations
thereunder as if a "change in control" occurred immediately following the date
such approval is obtained. This Option may not be exercised to any extent by
anyone unless and until the Agreement is so approved by the Company's
stockholders, and if such approval has not been obtained by the end of the
twelve-month period beginning on the date hereof, this Option shall thereupon be
canceled and become null and void. The Company shall take such actions as may be
necessary to satisfy any applicable requirements of Rule 16b-3(b).

Section 4.6    Adjustments in Cash Flow Targets

         The Cash Flow Targets and Cumulative Cash Flow Targets specified in
Appendix A are based upon certain revenue and expense assumptions about the
future business of the Company as of the date the Option is granted.
Accordingly, in the event that, after such date, the Committee determines, in
its sole discretion, that any acquisition or any divestiture of any business or
any product by the Company or any dividend or other distribution (whether in the
form of cash, Common Stock, other securities, or other property),
recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, any unusual or nonrecurring transactions or events
affecting the Company, or the financial statements of the Company, or change in
applicable laws, regulations, or accounting principles occurs such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to the Option, then the Committee
shall, in good faith and in such manner as it may deem equitable, adjust the
financial targets set forth on Appendix A to reflect the projected effect of
such transaction(s) or event(s) on Cash Flow.

                            (Signature Page Follows)

                                        7



         IN WITNESS WHEREOF, this Incentive Stock Option Agreement has been
executed and delivered by the parties hereto.

                              EMPI, INC.


                              By:
                              Title:

                              __________________________________________________
                              Patrick D. Spangler
                              Executive Vice President & Chief Financial Officer


__________________________
Optionee


__________________________

__________________________
Address


Taxpayer Identification Number:______________________

                                       8



                                                                       EXHIBIT A

                             STOCKHOLDERS AGREEMENT

     This Stockholders Agreement (the "Agreement") is entered into as of this
___ day of _____________, 19__ by and between EMPI, Inc., a Minnesota
corporation (the "Company"), and __________________ ("Optionee").

                                    Recitals:

     WHEREAS, the Company (i) pursuant to the 1999 Stock Option Plan of EMPI,
Inc. (the "Plan") or otherwise, has granted to certain employees and/or
independent directors of the Company and/or its subsidiaries, including
Optionee, options to purchase shares of the common stock, par value $0.01 per
share, of the Company (the "Common Stock") and (ii) as of the date hereof will
issue, or may in the future issue, to Optionee shares of Common Stock pursuant
to the exercise of such options (all of the shares of Common Stock acquired by
Optionee during the term of this Agreement by exercise of options or otherwise,
being referred to collectively as the "Restricted Shares");

     WHEREAS, as a condition to the issuance of the Restricted Shares to
Optionee under the terms of the option, the Company and Optionee are entering
into this Agreement to provide for certain matters with respect to the ownership
and transfer of the Restricted Shares by Optionee; and

     WHEREAS, this Agreement is one of several substantially identical
agreements which have been, or which in the future will be, entered into by the
Company and independent directors and employees of the Company and/or its
subsidiaries who may hold shares of Common Stock.

                                   Agreement:

     NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:

     Section 1. Restrictions on Transfer. Optionee shall not sell, assign,
transfer, convey, pledge or otherwise dispose of (collective, a "Transfer") any
Restricted Shares without the prior written consent of the Company, which
consent shall have been authorized by a majority of the members of the board of
directors of the Company (the "Board"); provided, however, that this Section 1
shall not prevent the Transfer of any Restricted Shares by will or pursuant to
laws of descent and distribution. Any purported Transfer in violation of the
provisions of this Section 1 shall be null and void and shall have no force or
effect.

     Section 2. Rights to Repurchase Shares.

          (a) For a period a nine (9) months following the Termination of
Employment of Optionee (as defined below), the Company shall have the option to
repurchase all

                                       9



(but not less than all) of the Restricted Shares held by Optionee or his or her
successor in interest (the "Call Right"). The repurchase price payable by the
Company upon exercise of the Call Right (the "Repurchase Price") shall be the
fair market value of the Restricted Shares subject to the Call Right, as
determined on the date of the Call Notice (as defined below). The Call Right
shall be exercised by written notice (the "Call Notice") to Optionee or, in the
event of Optionee's death, Optionee's Eligible Representative (as defined in the
Plan) given within nine (9) months after the Termination of Employment of
Optionee. "Termination of Employment of Optionee" shall mean the time when the
employee-employer relationship between Optionee and the Company or one of its
subsidiaries is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding termination where there is a simultaneous reemployment
by the Company or one of its subsidiaries.

          (b) The repurchase of Restricted Shares pursuant to the exercise of a
Call Right shall take place on a date specified by the Company, but in no event
later than thirty (30) days following the date of the Call Notice. On such date,
Optionee or Optionee's Eligible Representative (as applicable) shall deliver to
the Company the certificates representing the Restricted Shares to be purchased,
duly endorsed for transfer to the Company, and the Company shall pay to Optionee
or Optionee's Eligible Representative (as applicable) the Repurchase Price in
cash or by bank or cashier's check. The Company and Optionee or Optionee's
Eligible Representative (as applicable) shall each use its reasonable efforts to
expedite all proceedings contemplated hereunder in order to facilitate a
repurchase of the shares hereunder.

          (c) The fair market value of the Restricted Shares to be repurchased
shall be determined in accordance with the procedures described in Section
4.3(b) of the Plan, as of the date of the Call Notice.

          (d) In the event that, pursuant to the terms of the relevant option
agreements or otherwise, any Restricted Shares are issued to Optionee (or his or
her successor in interest) following the Termination of Employment of Optionee
("Subsequently Issued Shares"), then the Company shall also have an additional
Call Right with respect to such Subsequently Issued Shares, which Call Right
must be exercised as to such Subsequently Issued Shares within nine (9) months
of the issuance thereof (and which shall otherwise be subject to the provisions
set forth above).

     Section 3. Company Sale.

          (a) If the Board and the holders of a majority of the outstanding
shares of Common Stock approve a Company Sale (as defined below), Optionee shall
consent to and raise no objections against such Company Sale, and if the Company
Sale is structured as a sale of stock, Optionee will sell all or any portion of
the Restricted Shares on the terms and conditions approved by the Board and the
holders of a majority of the outstanding shares of Common Stock. Optionee will
take all actions that the Board and the holders of a majority of the outstanding
shares of Common Stock reasonably deem necessary or desirable in connection with
the consummation of such Company Sale, including without limitation, voting the
Restricted Shares in favor of such Company Sale and refraining from the exercise
of dissenters' appraisal rights with respect to such Company Sale.

                                       10



          (b) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated under the Securities Act of 1933, as amended (the "Act"),
may be available with respect to such negotiation or transaction (including a
merger, consolidation or other reorganization), Optionee will, if requested by
the Company, appoint a purchaser representative (as such term is defined in Rule
501 of the Act) reasonably acceptable to the Company. If Optionee appoints a
purchaser representative designated by the Company, the Company will pay the
fees of such purchaser representative, but if Optionee declines to appoint the
purchaser representative designated by the Company, Optionee will appoint
another purchaser representative (reasonably acceptable to the Company), and
Optionee will be responsible for the fees of the purchaser representative so
appointed.

          (c) Optionee will bear Optionee's pro-rata share (based upon the
number of shares held by such holders that are sold) of the costs of any sale of
Common Stock pursuant to a Company Sale to the extent such costs are incurred
for the benefit of all holders of Common Stock and are not otherwise paid by the
Company or the acquiring party.

     For the purpose hereof, "Company Sale" means the consummation of the sale
to any person or entity which, at the time of such sale, does not hold five
percent (5%) or more of the outstanding shares of the Common Stock and is not an
Affiliate (as defined in the Plan) of any such person or entity, pursuant to
which such party or parties acquire (i) capital stock of the Company possessing
the voting power sufficient to elect a majority of the members of the Board
(whether such acquisition is effected by merger, consolidation or sale or
transfer of the Company's capital stock) or (ii) all or substantially all of the
assets of the Company and its subsidiaries.

     Section 4. Miscellaneous.

          (a) Legend. Each certificate representing the Restricted Shares will
bear the following legend:

     "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
     LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
     EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SAID LAWS OR AN
     EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF."

          (b) Additional Legend. In addition to the foregoing, each certificate
representing Restricted Shares will bear the following legend:

     "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO ADDITIONAL RESTRICTIONS
     ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN THE MANAGEMENT
     STOCKHOLDERS AGREEMENT BETWEEN THE ISSUER AND THE INITIAL HOLDER HEREOF
     DATED AS OF ________ __, 199_. A

                                       11



     COPY OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUE TO THE
     HOLDER HEREOF UPON WRITTEN REQUEST."

Optionee hereby agrees that Optionee will not Transfer any Restricted Shares
without complying with each of the restrictions set forth herein and agrees that
in connection with any such Transfer Optionee will, if requested by the Company,
deliver to the Company an opinion of counsel in form and substance reasonably
satisfactory to the Company and counsel for the Company, to the effect that such
Transfer is not in violation of this Agreement or the securities laws of the
United States of America or any state thereof.

          (c)  Successors, Assigns and Transferees. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives, heirs, legatees, successors and assigns and any other
transferee of the Restricted Shares and shall also apply to any Restricted
Shares acquired by Optionee after the date hereof.

          (d)  Specific Performance, Etc. The Company and Optionee, in addition
to being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, will be entitled to specific performance of its
or his or her rights under this Agreement. The Company and Optionee agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by either of the provisions of this Agreement and each hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.

          (e)  Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota.

          (f)  Interpretation. The headings of the Sections contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.

          (g)  Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given and received when delivered by overnight courier or hand delivery, when
sent by telecopy, or five days after mailing if sent by registered or certified
mail (return receipt requested) postage prepaid, to the parties at the following
addresses (or at such other address for any party as shall be specified by like
notices, provided that notices of a change of address shall be effective only
upon receipt thereof).

               (i)  If to the Company:

                    EMPI, Inc.
                    599 Cardigan Road
                    St. Paul, MN 55126-4099
                    Attn: General Counsel

                    with copies to:

                                        12



                    Latham & Watkins
                    1001 Pennsylvania Avenue, N.W.
                    Suite 1300
                    Washington, D.C. 20004-2505
                    Attention: Daniel T. Lennon, Esq.

               (ii) If to Optionee, to the address set forth on the signature
                    page hereto.

          (h)  Recapitalization, Exchange, Etc. Affecting the Company's Stock.
The provisions of this Agreement applicable to the Common Stock shall also
apply, to the full extent set forth herein, with respect to any and all shares
of capital stock of the Company or any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise) that may be
issued in respect of, in exchange for, or in substitution of such Common Stock
and shall be appropriately adjusted for any stock dividends, splits, reverse
splits, combinations, recapitalizations and the like occurring after the date
hereof.

          (i)  Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to constitute one and the same agreement.

          (j)  Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to any other available remedy.
(k) Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby.

          (l)  Amendment. This Agreement may be amended only by written
agreement signed by Optionee and the Company.

          (m)  Tax Withholding. The Company and/or its subsidiaries shall be
entitled to require payment in cash or deduction from other compensation payable
to Optionee of any sums required by federal, state or local tax law to be
withheld with respect to the issuance, vesting, exercise, repurchase or
cancellation of any Restricted Share or any option to purchase Restricted
Shares.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       13



     IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.

                                             EMPI, INC.

                                             By:________________________________
                                                Name: __________________________
                                                Title:__________________________


                                             Accepted and agreed to:

                                             Name:______________________________
                                             Address:___________________________
                                             ___________________________________
                                             ___________________________________
                                             ___________________________________

                                       14

EX-10.12

                                                                   EXHIBIT 10.12

                                   Empi Corp.

                       Officer, Manager and Director Level
                           Incentive Compensation Plan

                            Effective January 1, 2004

The following incentive compensation plan (the "Plan") is hereby adopted by the
Board of Directors of Empi Corp. (the "Board of Directors").

1.   Purpose

     The purpose of the Plan is to provide incentives to key employees of Empi
     Corp. (the "Company") and its subsidiaries and to reward them if the
     financial and operational goals of the Company are met.

2.   Effective Date

     The Plan shall be effective from January 1, 2004 through December 31, 2004
     (the "Plan Year").

3.   Eligibility

     Certain key employees of the Company and its subsidiaries, as designated by
     the Compensation Committee of the Board of Directors (the "Committee") and
     approved by the Board of Directors, or as designated directly by the Board
     of Directors of the Company will be participants eligible to receive bonus
     payments under the Plan. Bonus payments with respect to employees who
     commence employment with the Company or one of its subsidiaries after the
     beginning of the Plan Year and who are designated as participants in the
     Plan may be pro-rated according to the date of commencement of such
     employment. Except as the Board may otherwise determine, in its discretion,
     no bonus shall be payable to any individual who is not an employee of the
     Company or one of its subsidiaries on the date of bonus payment under
     Section 6.

4.   Determination of Bonus

     A.   Each participant shall be eligible to receive a percentage of his or
          her "Base Salary" (as defined below) as a bonus payment under the Plan
          (such payment, the "Bonus Amount"). Each Participant in the Plan is
          set forth on Exhibit A.

     B.   Each Participant's "Target Bonus" is also set forth on Exhibit A
          opposite such individual's name. The "Target Bonus" represents the
          Bonus Amount payable if EBIT for 2004 equals 100% of the EBIT Target
          of $___MM, as adjusted pursuant to Section 4.E.



     C.   For officer level participants, the Bonus Amounts payable shall be
          determined as provided on Exhibit B based on actual EBIT divided by
          the EBIT Target. The Bonus Amounts payable are also subject to
          adjustment based on any other Company or individual performance
          measures which the Committee determines.

     D.   With respect to non-officer participants, the Bonus Amounts payable
          shall be determined pursuant to Exhibit B subject to adjustment based
          on any other Company or individual performance measures, which the
          officers of the Company determine, subject to final approval by the
          Committee.

     E.   The EBIT Target is based upon certain revenue and expense assumptions
          about the future business of the Company and its subsidiaries as of
          the date the Plan was adopted. Accordingly, in the event that, after
          such date, the Committee determines, in its sole discretion, that any
          acquisition or any divestiture of any business or any product by the
          Company and its subsidiaries or any dividend or other distribution
          (whether in the form of cash, common stock, other securities, or other
          property), recapitalization, reclassification, stock split, reverse
          stock split, reorganization, merger, consolidation, split-up,
          spin-off, combination, repurchase, or exchange of common stock or
          other securities of the Company and its subsidiaries, issuance of
          warrants or other rights to purchase common stock or other securities
          of the Company and its subsidiaries, any unusual or nonrecurring
          transactions or events affecting the Company and its subsidiaries, or
          the financial statements of the Company and its subsidiaries, or
          change in applicable laws, regulations, or accounting principles
          occurs such that an adjustment is determined by the Committee to be
          appropriate in order to prevent dilution or enlargement of the
          benefits or potential benefits intended to be made available under the
          Plan, then the Committee shall, in good faith and in such manner as it
          may deem equitable, adjust the EBIT Target to reflect the projected
          effect of such transaction(s) or event(s).

5.   Base Salary

     For purpose of this Plan, "Base Salary" is defined as the individual's base
     salary paid during the Plan Year, exclusive of any other compensation and
     prior to deductions with respect to income tax and employee benefit plan
     contributions.

6.   Payment

     All Bonus Amount will be paid as soon as possible after the last day of the
     Plan Year, but in any event by March 15, 2005.

7.   Administration

     Except as otherwise provided herein with respect to the selection of
     employees eligible to receive a bonus under the Plan and the determination
     of target bonus levels, the Plan will be administered by the Committee. The
     Committee shall have the authority in its discretion to amend and rescind
     the Plan and to make all determinations necessary or advisable regarding
     the administration of the Plan. However, except for adjustment made

                                       2



     pursuant to Section 4.E., no amendment shall be made which adversely
     affects the right of any participant to receive incentive compensation in
     accordance with the terms of the Plan for the portion of the year during
     which the Plan has been operative up to the date of the amendment or
     termination. Notwithstanding the foregoing or any other provision of this
     Plan to the contrary, the Board may at any time and from time to time take
     any action and perform any responsibility allocated to the Committee
     hereunder.

                                       3


                                    Exhibit A

                               2004 OFFICER LEVEL
                       PLAN PARTICIPANTS AND TARGET BONUS

                                                          Target Bonus as % of
Position                                                   2004 Base Salary
- --------------------------------------------------------------------------------
Executive Officers                                              70.0%

Officers                                                        35.0%

                                       A-1



                                    Exhibit A

             2004 Director and Key Middle Management Incentive Plan
                          Participants and Target Bonus

                                                               Target Bonus
Position                                                          as % of
                                                              2004 Base Salary
- --------------------------------------------------------------------------------
Directors                                                           20.0%

Managers                                                            12.5%

                                       A-2



                                    Exhibit B

                  2004 OFFICER, MANAGER AND DIRECTOR BONUS PLAN

      % of Target EBIT                          Bonus Amount
      ----------------                          ------------
                                                                     Executive
  Attained/1/   Target EBIT/2/     Manager    Director    Officer    Officers
- --------------------------------------------------------------------------------
      90/3/     $                    5.0%       7.5%        10%          20%
      95        $                    7.5%        10%        20%          40%
     100        $                   12.5%        20%        35%          70%
     105        $                   15.0%        25%        45%          90%
     110/4/     $                   17.5%        30%        55%         110%

* Linear interpolation between specified percentages.

__________________

/1/  Actual EBIT during the Plan Year over the EBIT Target.

/2/  Based on 100% EBIT target of $___MM, and subject to adjustment pursuant to
     Section 4.E.

/3/  No Bonus Amount will be payable if actual EBIT is less than 90% of Target
     EBIT.

/4/  The Bonus Amounts for Managers & Directors will not exceed 17.5% and 30% of
     Base Salary, respectively. If actual EBIT exceeds 110% of Target EBIT, the
     Bonus Amount payable to the Executive Officers and Officers may be
     increased in the Board's discretion.

                                       A-3

EX-10.13

                                                                   EXHIBIT 10.13

                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated as of August 31,
1999, is entered into by and among MPI HOLDINGS, L.L.C., a Delaware limited
liability corporation ("Carlyle"), GE CAPITAL EQUITY INVESTMENTS, INC., a
Delaware corporation ("GE Equity"), and EMPI, INC., a Minnesota corporation (the
"Company") (individually, a "Party" and collectively, the "Parties").

                                    RECITALS

         A.   Carlyle and GE Equity have each entered into a separate
Subscription Agreement with EI Merger Corp. ("Merger Sub") dated as of August
31, 1999 (the "Subscription Agreements") pursuant to which each of Carlyle and
GE Equity have subscribed for and agreed to purchase from Merger Sub, and Merger
Sub has agreed to issue and sell to each of Carlyle and GE Equity, shares of
common stock, par value $0.01 per share, of Merger Sub (the "Merger Sub Common
Stock").

         B.   As an inducement to and a condition of the purchase of shares of
Merger Sub Common Stock by Carlyle and GE Equity, the Parties are entering into
this Agreement.

         C.   Immediately after consummation of the transactions contemplated by
the Subscription Agreement, Merger Sub will be merged (the "Merger") with and
into the Company, and upon consummation of the Merger, the Company will become
the surviving corporation and the successor of Merger Sub.

         D.   Carlyle and GE Equity, who upon consummation of the transactions
contemplated by the Subscription Agreement and upon consummation of the Merger,
will be the holders of all of the outstanding shares of Common Stock, and deem
it in their best interests and in the best interests of the Company to provide
for the registration of shares of the Common Stock and desire to enter into this
Agreement in order to effectuate that purpose and to set forth their respective
rights and obligations in connection with their investment in the Company

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth in this Agreement, and subject to the terms and, conditions stated
herein, the Parties hereby agree as follows:

                                   ARTICLE 1.
                                   DEFINITIONS

         1.1  Defined Terms. As used in this Agreement, the following
capitalized terms shall have the following meanings:

         "Business Days" means all days other than Saturday or Sunday or any day
on which banking institutions in New York, New York are authorized or obligated
by law to close.

         "Carlyle" means MPI Holdings, L.L.C., a Delaware limited liability
company.

         "Common Stock" means the capital stock of the Company, however
designated, which is not limited as to the amount of dividends, and which is not
limited as to the amount of distributions upon liquidation or dissolution of the
Company, and shall include, without limitation, the Company's presently
authorized shares of Common Stock, $.01 par value per share.



         "Company" means Empi, Inc. a Minnesota corporation.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

         "GE Equity" means GE Capital Equity Investments, Inc., a Delaware
corporation.

         "NASD" means the National Association of Securities Dealers, Inc.

         "Person" means an individual, firm, partnership, limited liability
partnership, corporation, limited liability company, trust, incorporated or
unincorporated association, joint venture, joint stock company or a government
or agency or political subdivision thereof.

         "Piggy-Back Registration" means a registration pursuant to Section 3.1.

         "Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.

         "Registrable Securities" means (a) all shares of Common Stock owned by
the Shareholders, and (b) any shares of Common Stock issued or issuable with
respect to such shares of Common Stock by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or reorganization; provided, however, that any such share or other
security shall be deemed to be a Registrable Security only if and so long as it
is a Transfer Restricted Security.

         "Registrable Expenses" shall have the meaning as set forth in Article
6.

         "Registration Statement" means any registration statement of the
Company which covers Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement.

         "Securities Act" means the Securities Act of 1933, as amended from time
to time.

         "SEC" means the Securities and Exchange Commission.

         "Shareholders" means Carlyle and GE Equity and any of their permitted
successors or assigns.

         "Shareholders Agreement" means the Shareholders Agreement dated the
date hereof, by and among Company and the Shareholders.

         "Transfer Restricted Securities" means securities acquired by the
holder thereof other than pursuant to an effective registration under Section 5
of the Securities Act or pursuant to Rule 144; provided that (i) a security that
may be sold by the holder pursuant to Rule 144 without regard to volume
limitations imposed thereby shall cease to be a Transfer Restricted Security and
(ii) a security that has ceased to be a Transfer Restricted Security cannot
thereafter become a Transfer Restricted Security.



         "Underwritten Registration" or "Underwritten Offering" means a
registration in which securities of the Company are sold (whether by the Company
or by selling stockholders) to an underwriter for reoffering to the public.

                                   ARTICLE 2.
                      SECURITIES SUBJECT TO THIS AGREEMENT

         2.1  Registrable Securities. The securities entitled to the benefits of
this Agreement are the Registrable Securities.

         2.2  Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.

                                   ARTICLE 3.
                       DEMAND AND PIGGY-BACK REGISTRATION

         3.1  Demand Registration.

             (a)  Request for Registration by Holders of Registrable Securities.
At any time after 180 days following the closing of the Company's initial
Underwritten Offering of Common Stock of the Company pursuant to which shares of
Common Stock are sold for the benefit of the Company, if the Company receives
from the holders of at least 400,000 shares of the Registrable Securities a
written request that the Company effect any registration or qualification with
respect to the Registrable Securities, the Company will:

                  (1)  within ten (10) days of receipt of such a request, give
written notice of the proposed registration or qualification to all other
holders of Registrable Securities; and

                  (2)  as soon as practicable, use its best efforts to effect
such registration or qualification (including, without limitation, the execution
in the applicable Registration Statement of an undertaking to file require
post-effective amendments, appropriate qualification under the applicable blue
sky or other state securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as are reasonably
necessary to permit or facilitate the sale and distribution of all or such
portion of such holder's or holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other holder or holders joining in such request or the Company in the case
of primary Registrable Securities requested by the Company to be registered as
are specified in a written notice given to the Company within 20 days after the
date of such written notice from the Company pursuant to Section 3.1(a)(1);
provided, however that the Company will not be obligated to effect more than
five (5) such registrations.

         Notwithstanding anything to the contrary set forth in this Agreement,
the Company shall not be required to effect a Demand Registration within six
months after the effective date of any other Registration Statement filed by the
Company. In addition, notwithstanding anything to the contrary, if at the time
of any request to register Registrable Securities pursuant to this Section
3.1(a), the Company is actively engaging, with the prior approval of the
Company's Board of Directors, in an Underwritten Offering as to which holders of
Registrable Securities are eligible to include Registrable Securities pursuant
to Section 3.2 (subject to the limitations and restrictions set forth in such
Section 3.2) or is engaged in any other activity which, in the good faith
determination of the Board of Directors of the



Company, would be adversely affected by the requested registration to the
substantial detriment of the Company, then the Company may at its option direct
(a "Directive") in writing within ten (10) days of receipt of such request that
such request be delayed (and, if a majority of the holders of Registrable
Securities initiating such request so elect, withdrawn) for a period not in
excess of six months from the date of such Directive, which right to delay a
request may be exercised by the Company not more than once in any twelve month
period.

        Subject to the foregoing provisions, the Company will file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the initiating holders, and shall use its best efforts to cause such
registration statement and prospectus through which such Demand Registration is
effected to remain effective, (i) in the case of a firm commitment underwritten
public offering, until each underwriter has completed the distribution of all
securities purchased by it and (ii) in the case of any other offering, until the
earlier of the sale of all Registrable Securities covered thereby or 120 days
after the effective date thereof, it being understood and agreed that any Demand
Registration that does not remain effective for such applicable time periods
will not be counted as a "registration" for purposes of Section 3.1(a)(2).

             (b)  Effective Registration. A registration of Registrable
Securities will not count as a Demand Registration until it has become effective
and has remained effective for the applicable period specified in Section
3.1(a).

             (c)  Underwriter's Cutback. If the holder or holders of a majority
in number of the Registrable Securities to be registered in a Demand
Registration under this Section 3 (or the holder or holders who initiated the
Demand Registration) so elect, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an Underwritten
Offering. In such event, if the managing underwriter or underwriters of such
offering advise the Company and the holders in writing that in their opinion the
Registrable Securities requested to be included in such offering is sufficiently
large so as to materially and adversely affect the success of the offering, the
Company will include in such registration (i) first, the Registrable Securities
requested to be included therein pursuant to Section 3.1(a), pro rata among the
holders of the Registrable Securities on the basis of the number of Registrable
Securities owned by such holders requested to be included in such registration
and (ii) second, the securities the Company proposes to sell, which in the
opinion of such underwriters (after taking into account the securities to be
sold pursuant to clause (i)) can be sold without having a material adverse
effect on the offering.

             (d)  Selection of Underwriters. If any Demand Registration pursuant
to this Section 3 is to be in the form of an Underwritten Offering, the
investment banker or bankers and manager or managers that will administer the
offering will be selected by holders of a majority in number of Registrable
Securities to be included in such offering; provided that such investment
bankers and managers must be reasonably satisfactory to the Company.

        3.2  Piggy-Back Registration. At any time after the initial Underwritten
Offering of the Common Stock of the Company, if the Company determines to file a
registration statement under the Securities Act relating to a proposed sale to
the public of shares of its shares of Common Stock (but excluding registrations
relating solely to employees' stock option or purchase plans or relating solely
to a transaction employing SEC Form S-4 or Form S-8 or successor Forms thereto),
either for its own account or the account of a security holder or holders, the
Company shall:



             (a)  promptly give to each holder of Registrable Securities written
notice thereof (which will include, to the extent known at the time, a list of
the jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities laws, the
proposed offering price or price range, and the plan of distribution);

             (b)  include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 25 days after such written notice from the Company, by any
holder or holder of Registrable Securities; and

             (c)  use its best efforts to cause the managing underwriter or
underwriters of such proposed Underwritten Offering to permit the Registrable
Securities requested to be included in the registration statement for such
offering to be included on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing, if in
the reasonable opinion of the managing underwriter or underwriters of such
offering, the marketing considerations require a limitation on the number of
shares of Common Stock offered pursuant to any Registration Statement filed
under this Section, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included therein, which in the opinion of such underwriters
(after taking into account the securities to be sold pursuant to clause (i)) can
be sold without having a material adverse effect on the offering, pro rata among
the holders of the Registrable Securities on the basis of the number of
Registrable Securities owned by such holders requested to be included in such
registration. The Company will bear all Registration Expenses in connection with
such a Piggy-Back Registration. Notwithstanding anything to the contrary herein,
if in the reasonable opinion of the managing underwriter or underwriters of such
offering, the marketing considerations require that no shares of Registrable
Securities be included in such offering, then the Company may, after notice
thereof to the holders of Registrable Securities requested to be included in
such registration, proceed with such offering without including therein such
Registrable Securities.

                                   ARTICLE 4.
                              HOLD-BACK AGREEMENTS

        4.1  Restrictions on Public Sale by the Holders of Registrable
Securities. Each holder of Registrable Securities agrees, if requested in
writing by the managing underwriters in an Underwritten Offering, not to effect
any public sale or distribution of securities of the Company of the same class
as the securities included in such Registration Statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
Underwritten Registration), during the 180-day period following the effective
date of the Registration Statement.

                                   ARTICLE 5.
                             REGISTRATION PROCEDURES

        In connection with the Company's registration obligations pursuant to
Section 3.1 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible:



                  (a)  before filing a Registration Statement or Prospectus or
any amendments or supplements thereto, furnish to the holders of the Registrable
Securities covered by such Registration Statement and the managing underwriters,
if any, copies of all such documents proposed to be filed, which documents will
be made available for review by such holders and managing underwriters, and the
Company will not file any Registration Statement or amendment thereto or any
Prospectus or any supplement thereto to which the holders of a majority in
number of the Registrable Securities covered by such Registration Statement or
the underwriters, if any, shall reasonably object;

                  (b)  prepare and file with the SEC such amendments and
post-effective amendments to any Registration Statement, and such supplements to
the Prospectus, as may be reasonably requested by the holders of a majority of
the Registrable Securities covered by the Registration Statement or any managing
underwriter of Registrable Securities or as may be required by the rules,
regulations or instructions applicable to the registration form utilized by the
Company or by the Securities Act or otherwise necessary to keep such
Registration Statement effective for the applicable period and cause the
Prospectus as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act;

                  (c)  notify the selling holders of Registrable Securities and
the managing underwriters, if any, promptly, and (if requested by any such
Person) confirm such advice in writing,

                       (i)   when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,

                       (ii)  of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information,

                       (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose,

                       (iv)  of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, and

                       (v)   of the existence of any fact which results in the
Registration Statement, the Prospectus or any document incorporated therein by
reference containing an untrue statement of material fact or omitting to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading;

                  (d)  use best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;



                  (e)  if reasonably requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in connection with
an Underwritten Offering, as promptly as practicable incorporate in a Prospectus
supplement or post-effective amendment such necessary information as the
managing underwriters and the holders of a majority in number of the Registrable
Securities being sold reasonably request to have included therein relating to
the plan of distribution with respect to such Registrable Securities, including,
without limitation, information with respect to the amount of Registrable
Securities being sold to such underwriters, the purchase price being paid
therefor by such underwriters and with respect to any other terms of the
underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as promptly as practicable
after being notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;

                  (f)  at the request of any selling holder of Registrable
Securities, furnish to such selling holder of Registrable Securities and each
managing underwriter, without charge, such number of conformed copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference) as such
holder may reasonably request;

                  (g)  deliver to each selling holder of Registrable Securities
and the underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request and the written consent of the Company to
the use of the Prospectus or any amendment or supplement thereto by each of the
selling holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
the Prospectus or any amendment or supplement thereto;

                  (h)  in connection with any public offering of Registrable
Securities, register or qualify or cooperate with the selling holders of
Registrable Securities, the managing underwriters, if any, and their respective
counsel in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any seller or underwriter reasonably requests in writing and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;

                  (i)  cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and, if not required by applicable law, not bearing any restrictive
legends; and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters may request at least two
business days prior to any sale of Registrable Securities to the underwriters;

                  (j)  use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;



                  (k)  if any fact contemplated by paragraph (c)(vi) above shall
exist, use its best efforts to prepare a supplement or post-effective amendment
to the Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities, the
Prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;

                  (l)  use its best efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities exchange
on which similar securities issued by the Company are then listed if requested
by the holders of a majority in number of such Registrable Securities or by the
managing underwriters, if any;

                  (m)  not later than the effective date of the applicable
Registration Statement, provide a CUSIP number for all Registrable Securities
and provide the applicable trustees or transfer agents with printed certificates
for the Registrable Securities which are in a form eligible for deposit with
Depositary Trust Company;

                  (n)  with respect to an Underwritten Offering or other
transaction in which an investment banking firm significantly participates,
enter into customary agreements with investment bankers and underwriters
(including underwriting agreements in customary form) and take all other
appropriate actions that the underwriter or investment banker may reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities;

                  (o)  make available to a representative of the holders of a
majority in number of the Registrable Securities, any managing underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney or accountant retained by the sellers or managing underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested (taking into account the number of Registrable
Securities held by the requesting holder of Registrable Securities) by any such
representative, underwriter, attorney or accountant in connection with the
registration, with respect to each at such time or times as the Company shall
reasonably determine; provided that any records, information or documents that
are designated by the Company in writing as confidential shall be kept
confidential by such Persons unless disclosure of such records, information or
documents is required by court or administrative order;

                  (p)  otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to its
security holders, earnings statements satisfying the provisions of Section 11
(a) of the Securities Act and Rule 158 promulgated thereunder;

                  (q)  cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and

                  (r)  promptly prior to the filing of any document which is to
be incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement) provide copies of such
document to counsel to the holders of Registrable Securities and to the managing
underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.



             The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such Seller and the distribution of such securities as the
Company may from time to time reasonably request in writing.

             Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (k) above, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by paragraph (k) above, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the Prospectus, and, if so directed by the Company, such holder will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time periods mentioned in
Section 4.1 hereof shall be extended by the number of days during the period
from and including the date of the giving of such notice to and including the
date when each seller of Registrable Securities covered by such Registration
Statement either receives the copies of the supplemented or amended prospectus
contemplated by paragraph (k) above or is advised in writing by the Company that
the use of the Prospectus may be resumed.

                                   ARTICLE 6.
                              REGISTRATION EXPENSES

             6.1  Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement will be paid by the Company,
regardless whether the Registration Statement becomes effective. The expenses to
be paid by the Company shall include, without limitation:

                  (a)  all registration and filing fees (including, without
limitation, with respect to filings required to be made with the NASD);

                  (b)  fees and expenses of compliance with securities or blue
sky laws (including, without limitation, fees and disbursements of counsel for
the underwriters in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of a majority of
the Registrable Securities being sold may designate);

                  (c)  printing (including, without limitation, expenses of
printing or engraving certificates for the Registrable Securities in a form
eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses;

                  (d)  fees and disbursements of counsel for the Company;

                  (e)  fees and disbursements of all independent certified
public accountants of the Company (including, without limitation, the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance);

                  (f)  fees and expenses of other Persons retained by the
Company; and

                  (g)  fees and expenses associated with any NASD filing
required to be made in connection with the Registration Statement, (all such
expenses being herein called "Registration Expenses").



             Registration Expenses shall not include fees, discounts,
commissions or disbursements of underwriters, selling brokers, dealer managers
or similar securities professionals relating to the distribution of the
Registrable Securities or legal expenses of any Person other than the Company.

             6.2  Company Expenses. The Company will, in any event, pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange on which
similar securities issued by the Company are then listed, rating agency fees and
the fees and expenses of any Person, including special experts, retained by the
Company.

EX-10.14

                                                                   EXHIBIT 10.14

                        EXCLUSIVE DISTRIBUTION AGREEMENT

                                     between

                                  MEDIREHA GmbH
                         Medical Rehabilitation Products
                       Am Laidholzle 1 - 2, 79244 Umkirch
                represented by its sole authorized representative
                          Managing Director Gerd Knoll

                       - hereinafter the "Manufacturer" -

                                       and

                                   Ormed GmbH
                       Herzhauser Str. 112, 79100 Freiburg
                      represented by the Managing Directors
                      Rudiger Hausherr and Michael Gensitz

                        - hereinafter the "Distributor" -

                                                                           - 1 -



- - 2 -

1.    Exclusive Distribution, Supply

1.1.  Effective 1 July 1998, the Manufacturer grants exclusive distribution of
      the products designated in Annex 1 of this agreement (agreement products)
      to the Distributor. Agreement products include products that the
      Manufacturer places into production or distribution as subsequent or
      supplemental products to the products designated herein.

1.2.  The Distributor buys and sells in its own name and for its own account.
      The Distributor is not entitled to act as a legal representative for the
      Manufacturer.

1.3.  The Manufacturer will only use additional distributors or supply the
      business operations of third parties with the agreement products or
      similar products with the approval of the Distributor.

1.4.  The Distributor may only manufacture and/or distribute products that are
      identical or similar to the objects of the agreement designated in Annex 1
      of this agreement and/or are in competition with the objects of this
      agreement with the approval of the Manufacturer.

1.5.  The Manufacturer shall supply the Distributor with the agreement products
      as part of its ordinary course of business.

                                                                           - 2 -



- - 3 -

2.    Prices and Delivery Conditions

2.1.  The product prices the Distributor is to pay to the Manufacturer can be
      found in Annex 2 of this agreement. The product prices shall be
      redetermined at the beginning of each calendar year, no later than 31
      January. Terms of invoice payment are 60 days after delivery. If the
      parties to the agreement cannot agree on the redetermination of product
      prices, then they are to use the producer price index for commercial
      products for domestic sale as a guideline. The standard to be used is
      the increase in this index against the date of the last price
      redetermination.

2.2.  Product orders by the Distributor are binding on the Manufacturer and are
      to be delivered within a reasonable period in the ordinary course of
      business of the Manufacturer. Individual transactions between the
      Manufacturer and the Distributor, except as otherwise provided for in this
      agreement, are governed by the applicable legal regulations.

2.3.  The objects of the agreement remain the property of the Manufacturer until
      complete payment of all obligations arising from the contractual
      relationship. The Distributor is not authorized to pledge or otherwise
      assign the objects of the agreement. The Distributor shall immediately
      notify the Manufacturer in writing of all changes in location and
      interventions by third parties, especially attachments and pledges. The
      Distributor is, however, authorized to resell the products in the regular
      and normal course of its business, but assigns any purchase price claims
      arising herefrom up to the amount of the total claim of the Manufacturer
      to the Manufacturer in advance for purposes of security. The Distributor
      is entitled to collect claims arising from the resale of reserved goods
      until such time as the Manufacturer has announced the assignment of claims
      to the assigned debtor. The Manufacturer is, however, only entitled to
      such announcement
                                                                           - 3 -



- - 4 -

      in case of default in payment, protest of a bill or check or insolvency on
      the part of the Distributor. The Manufacturer may then collect the claims
      itself after the announcement. The Distributor is obligated to make the
      information and documentation necessary for collection available to the
      Manufacturer and, upon instruction by the Manufacturer, to notify the
      assigned debtor of the assignment.

      The Distributor is not allowed to assign these claims to third parties.

      If the Distributor is overdue by more than 3 weeks in payment of the
      purchase price, the Manufacturer is entitled, at the expense of the
      Distributor, to demand return of the reserved goods and to hold them until
      such time as complete payment is made. The demand for the return of the
      goods serves only to ensure the purchase price claim of the Manufacturer;
      all other obligations in relation to the sales contract - with the
      exception of the Distributor's temporary possessory right - are maintained
      in their entirety.

      At the request of the Distributor, the Manufacturer will release, in its
      discretion, the collateral to which it is entitled under the above
      conditions to the extent that its realizable value exceeds the claims
      being secured by 20%.

2.4.  The Distributor is obligated to purchase from the Manufacturer the minimum
      delivery amounts set forth in Annex 3. The minimum delivery amount shall
      be determined annually between the parties to the agreement together with
      the delivery prices. In this process, the minimum delivery amount must
      amount to at least 85% of the delivery amount of the respective prior
      year, and at least 85% of the delivery amount of the year 1997. On the
      basis of the business appraisal of the Manufacturer, a review will be
      carried out every six months in such a way that the delivery amount is
      compared to the corresponding six months of the previous year. If the
      delivery amount in a half year in comparison with the corresponding six
      months of the previous half year - taking into consideration

                                                                           - 4 -



- - 5 -

      the redetermination of delivery amounts - is considerably lower, i.e., by
      more than 15%, then the Manufacturer is released from the exclusive
      relationship under 1.3. if the Distributor, after the corresponding notice
      from the Manufacturer, does not correspondingly increase its orders in
      such a way that the total delivery amount for the year is less than 15%
      under the comparable delivery amount for the previous year (whereby it
      should be noted that the minimum delivery amount is based on 85% of the
      delivery amount in 1997). The Manufacturer's commitment under 1.3. is
      again in effect as soon as the Distributor has ordered sufficient
      quantities to make up for the deficit within one of the next six-month
      periods. The Distributor's commitment under 1.4. remains in effect in all
      cases.

2.5.  The Manufacturer releases the Distributor from third-party legal claims on
      or arising from changes, reductions or damages in connection with defects
      in the agreement products. This does not apply if the defects were not
      present upon transfer of risk to the Distributor or if the agreement
      products are considered to be approved by the Distributor (ss. 377 HGB -
      German Commercial Code). Furthermore, this release does not apply to
      claims based on a warranty made by the Distributor if the warranty goes
      beyond a warranty made by the Manufacturer. The Distributor bears the
      burden of proof for the existence of the conditions for such releases.

3.    Distribution Conditions

      The Distributor may freely establish prices and conditions with respect to
      third parties.

                                                                           - 5 -



- - 6 -

4.    Duration of the Agreement, Termination

4.1.  The initial duration of the agreement is 5 years. It is automatically
      extended for 2 years at a time if notice of termination is not given at
      least 12 months prior to expiration. The first possible termination
      date is thus 30 June 2003.

4.2.  The right to terminate this agreement for cause remains unaffected.

4.3.  Notice of termination must be given in writing. If such notice is sent by
      registered mail, it is considered to be sent if there has been an
      unsuccessful attempt to deliver and a notice of delivery has been left for
      the recipient.

4.4.  Notice of termination and ending of this agreement as such do not affect
      the individual transactions entered into between the Manufacturer and the
      Distributor in the course of its execution. The Manufacturer shall
      continue to supply the Distributor under the conditions valid at that date
      in such a way that the Distributor can fulfill transactions entered into
      with third parties up to the end of the contractual relationship.

                                                                           - 6 -





5.    Written Form, Severability

5.1.  No supplementary agreements to this agreement have been made.
      Modifications or additions must be made in written form to be legally
      valid. This also applies for any waiver of the requirement of written
      form.

5.2.  Should any of the provisions of this agreement be or become invalid or if
      the agreement contains gaps or omissions, this shall not affect the
      validity of the remaining provisions of the agreement. The parties hereto
      are obligated to replace the invalid provision or the gaps or omissions
      with a provision which most closely reflects the economic purpose and the
      intentions of the parties on which this agreement is based.

                                         
Umkirch, 8/10/98 [handwritten date]         Freiburg, 8/14/98 [handwritten date]

  [illegible signature]                     [illegible signature]  [illegible signature]
- -------------------------                   ---------------------- ---------------------
      (Gerd Knoll)                            (Rudiger Hausherr)    (Michael Gensitz)
  Managing Director of                                 Managing Directors of
    Medireha GmbH                                           Ormed GmbH



                                                                           - 7 -



                               Agreement Products
                                     Annex 1

1. Passive movement devices
    - for knees, shoulder, elbows, ankles and hips

2. Active movement devices
    - for knees, shoulder, elbows, ankles and hips

3. Splints - arm abduction splints

4. Heat and cold therapy devices

5. Repairs, replacement parts and accessories for the above products

                                         
Umkirch, 8/10/98 [handwritten date]         Freiburg, 11/17/98 [handwritten date]

  [illegible signature]                     [illegible signature]   [illegible signature]
- -------------------------                   ---------------------   ---------------------
Gerd Knoll                                  Michael Gensitz         Rudiger Hausherr
Medireha GmbH                               Ormed GmbH              Ormed GmbH

EX-23.1

Exhibit 23.1

Independent Registered Public Accounting Firm Consent

We consent to the reference to our firm under the captions “Summary Consolidated Financial Data,” “Selected Consolidated Financial and Operating Data,” and “Experts” and to the use of our reports dated February 27, 2004 (except Note     , as to which the date is July     , 2004), in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-113915) and related Prospectus of Empi, Inc. for the registration of its common stock.

Our audits also included the financial statement schedule of Empi, Inc. listed in Item 16(b). This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

The foregoing consent is in the form that will be signed upon completion of the restatement of the capital accounts described in Note 13 to the financial statements.

/s/  Ernst & Young LLP

Minneapolis, Minnesota

July 6, 2004