Earn-out Agreement

EARN-OUT AGREEMENT





THIS EARN-OUT AGREEMENT (the "Agreement"), dated August 29, 2007 and effective upon Closing of the Purchase Agreement ("Effective Date"), is made and entered into by and among Symmetry Medical USA, Inc., a Delaware corporation ("Purchaser"), and Louis C. Wallace, individually ("Wallace") and Charles O. Mann, Jr., individually ("Mann" ) (collectively, "Seller").



WHEREAS, Purchaser and Seller are parties to a certain Purchase Agreement dated of even date herewith (the "Purchase Agreement") pursuant to which Purchaser is acquiring: (i) 100% of the outstanding stock of Specialty Surgical Instrumentation, Inc. a Tennessee corporation ("SSI") which owns the Specialty Surgical Instrumentation distribution and SSI Ultra instrument businesses; and (ii) 100% of the outstanding Membership Interests of UCA, LLC ("UCA"), a Tennessee limited liability company.



WHEREAS, in conjunction with the Purchase Agreement and a related Real Estate Purchase Agreement, Purchaser will be acquiring certain real estate necessary to conduct the business of SSI and UCA (such owned properties are collectively referred to in this Agreement as the "Facilities").



WHEREAS, Purchaser and Seller have agreed that an additional amount of consideration is payable under the Purchase Agreement if and only to the extent that certain EBITDA levels are exceded post Closing.



NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the parties agree as follows:





1. Definitions.





Capitalized terms used but not defined herein shall have the same meanings given them in the Purchase Agreement, as applicable.





2. Earn-Out Payments . Earn-Out Payment shall be calculated for the 12-month period ending August 31, 2008 and the 12-month period ending August 31, 2009 (collectively, the " Earn-Out Periods") in the following manner:





(a) SSI:





(i) Subject to the credits and adjustments set forth in Section 4, in the event that the SSI92s EBITDA for the 12 months ending August 31, 2008 exceeds $1,815,000, Purchaser shall pay to Seller an amount equal to six (6) times the excess;





Example #1: If SSI92s EBITDA is $2,000,000 for the 12-month period ending August 31, 2008, Purchaser would owe Seller $1,110,000 (6 x $185,000).








Example #2: If SSI92s EBITDA is $1,750,000 for the 12-month period ending August 31, 2008, Purchaser would owe Seller $0.



(ii) Subject to the credits and adjustments set forth in Section 4, in the event that the SSI92s EBITDA for 12 month period ending August 31, 2009 exceeds the greater of (x) $1,815,000 or (y) SSI92s EBITDA for the 12-month period ending August 31, 2008; Purchaser shall pay to Seller an amount equal to six (6) times the excess.



(b) UCA:



(i) Subject to the credits and adjustments set forth in Section 4, Purchaser shall pay to Seller an amount equal to four (4) UCA92s EBITDA for the 12-month period ending August 31, 2008.



Example #1: If UCA92s EBITDA was $800 for the 12-month period ending August 31, 2008 Purchaser would owe Seller $3200 (4 x $800).



(ii) Subject to the credits and adjustments set forth in Section 4, in the event that the UCA92s EBITDA for the 12-month period ending August 31, 2009 exceeds the greater of (x) $0 or (y) UCA92s EBITDA for the 12-month period ending August 31, 2008; Purchaser shall pay to Seller an amount equal to four (4) times the difference.



Example #1: If UCA92s EBITDA was $800 for the 12-month period ending August 31, 2008 and was $800 (or less) for the 12-month period ending August 31, 2009, Purchaser would owe Seller $0.



3. Certain Procedures and Requirements.





(a) Within ninety (90) days after the end of the respective Earn-Out Periods set forth in Section 2, Purchaser shall report SSI92s and UCA92s EBITDA (pursuant to generally accepted accounting principles as adjusted below) along with the corresponding projected Earn-Out Payment to Seller. The Seller shall have thirty (30) days from receipt of Purchaser92s payment calculations to dispute the calculations and such dispute must be in writing. Seller will be given reasonable access to books and records during the term of this Agreement. Parties shall attempt to resolve any disputes among themselves, but if unable to resolve, the parties will submit the calculations to a mutually agreed upon independent accounting firm of regional or national reputation whose determination shall be definitive. If the Purchaser does not receive written notice from the Seller within the thirty (30) day period, the Purchaser92s calculation of EBITDA and related Earn-Out Payments shall be deemed conclusive for all purposes.



(b) Payments (if any) required by Section 2 of this Agreement shall be made within one hundred and twenty (120) days after the end of each respective Earn-Out Period. Such payments shall be made without interest.



2




4. Credits and Adjustments .



(a) Credit Adjustment to Earn-Out Payment .



(i) Credit . Purchaser shall receive a credit in the aggregate amount of $400,000 toward Earn-Out Payments due and owing Seller under Section 2 (the "Earn-Out Credit").



Example #1: If, in the first year (for the period ending August 31, 2008), Purchaser owes Seller $200,000 under Section 2(a)(i) and $200,000 under Section 2(b)(i), after credit adjustment, Purchaser would owe Seller $0. The second year there would be no credit adjustment.



Example #2: If, over a period of two years (for the periods ending August 31, 2008 and August 31, 2009), Purchaser owes Seller $100,000 under Section 2(a)(i) and $100,000 under Section 2(b)(i), $100,000 under Section 2(a)(ii) and $200,000 under Section 2(b)(ii), after credit adjustment, Purchaser would owe Seller $0 in the first year and $100,000 in the second year.



(ii) Payment for Unapplied Earn-Out Credit . In the event that any or all of the Earn-Out Credit remains unapplied at the termination of this Agreement, Seller shall pay Purchaser an amount equal to the amount of any unapplied Earn-Out Credit. At the sole discretion of Purchaser, such payment may be made as a deduction from the Escrowed Funds or Purchaser may require that Sellers pay the amount directly to Purchaser.



(b) Adjustments to EBITDA . EBITDA will be adjusted by Purchaser for the following items:



(i) Sales of SSI/UCA products by Purchaser92s sales force to Purchaser customers would result in a 10% sales commission paid to Purchaser or will be sold to Purchaser at 90% of the external sales price;



(ii) General insurance coverage; leases, audit fees will be paid to headquarters at historic rates and Corporate will absorb any favorable or unfavorable



(iii) Changes in accounting methods; and GAAP purchase accounting adjustments;



(iv) All extraordinary items outside of the ordinary course of business such as lawsuits, settlement of lawsuits and similar events; or



(v) Fluctuations resulting from timing of sales cutoff.



3






(vi) All intercompany or related party transactions between SSI and UCA. All transactions between SSI or UCA and other entities owned by Seller shall be pre-approved.



(c) Adjustments Based on Operational Changes . SSI or UCA will not be allocated any share of Purchaser overhead, advertising costs, taxes, securities regulatory costs, audit/accounting fees in excess of SSI92s currently budgeted amount, costs associated ...