Exhibit 10.2

SETTLEMENT AGREEMENT

I. PARTIES

This Settlement Agreement (“Agreement”) is entered into among the United States
of America, acting through the United States Department of Justice and on behalf
of the Office of Inspector General (“HHS-OIG”) of the Department of Health and
Human Services (“HHS”) (collectively the “United States”); and Exactech, Inc.
(“Exactech”), through their authorized representatives.

II. PREAMBLE

As a preamble to this Agreement, the Parties agree to the following:

A. Exactech is a Florida Corporation headquartered in Gainesville, Florida that
manufactures, sells and distributes orthopaedic medical devices in the United
States.

B. Exactech has executed contemporaneously with this Agreement a Deferred
Prosecution Agreement (“DPA”) with the United States Attorney’s Office for the
District of New Jersey.

C. The United States contends that Exactech caused to be submitted improper
claims for payment to the Medicare Program (“Medicare”), Title XVIII of the
Social Security Act, 42 U.S.C. §§ 1395-1395kkk-1.

D. The United States contends that it has certain civil claims against Exactech,
as specified in Section III, Paragraph 2, below, for engaging in the following
conduct during the period from January 1, 2002 to December 31, 2008 (hereinafter
the “Covered Conduct”):

Exactech used, and conspired to use, various forms of financial arrangements to
induce orthopaedic surgeons to cause providers to use Exactech’s hip and knee
joint replacement

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

   

--------------------------------------------------------------------------------

implants in order to maintain and increase Exactech’s market share. These
financial arrangements included, but were not limited to fee-for-service
contracts, fixed fee contracts, and product development contracts, among others.
The United States contends that certain of these financial arrangements were
improper, that the remuneration paid thereunder was improper and/or unlawful,
and that these arrangements caused hospitals and physicians to submit false and
fraudulent claims for replacement of hip and knee joints using Exactech implants
to Medicare.

E. The United States contends also that it has certain administrative claims, as
specified in Section III, Paragraph 3, below, against Exactech for engaging in
the Covered Conduct.

F. This Agreement is made in compromise of disputed claims. It is neither an
admission by Exactech nor a concession by the United States that its claims are
not well-founded.

G. To avoid the delay, uncertainty, inconvenience, and expense of protracted
litigation of the above claims, the Parties mutually desire to reach a full and
final settlement pursuant to the Terms and Conditions below.

III. TERMS AND CONDITIONS

NOW THEREFORE, in consideration of the mutual promises, covenants, and
obligations set forth below, and for good and valuable consideration as stated
herein, the Parties agree as follows:

1. Exactech agrees to pay to the United States $2,991,889 (two million, nine
hundred ninety-one thousand, eight hundred eighty-nine dollars) (the “Settlement
Amount”). Exactech agrees to pay the Settlement Amount by electronic funds
transfer pursuant to written instructions

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 2 of 13          

--------------------------------------------------------------------------------

to be provided by the United States Attorney’s Office for the District of New
Jersey. Exactech shall make this electronic funds transfer within ten business
days of the Effective Date of this Agreement.

2. Subject to the exceptions specified in Paragraph 4, below, and conditioned
upon Exactech’s full payment of the Settlement Amount, the United States (on
behalf of itself, its officers, agents, agencies, and departments) agrees to
release Exactech together with its current and former parent corporations;
direct and indirect subsidiaries; brother or sister corporations; divisions; and
affiliates; and the predecessors, successors and assigns of any of them from any
civil or administrative monetary claim the United States has or may have for the
Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Civil
Monetary Penalties Law, 42 U.S.C. § 1320a-7a; the Program Fraud Civil Remedies
Act, 31 U.S.C. §§ 3801-3812; and any statutory provision applicable to the
federally-funded programs listed in this Agreement for which the Civil Division,
United States Department of Justice has actual and present authority to assert
and compromise pursuant to 28 C.F.R. Part 0, Subpart I, § 0.45(d); and common
law theories of payment by mistake, unjust enrichment, disgorgement, fraud, and
recoupment.

3. In consideration of the obligations of Exactech set forth in this Agreement,
in the DPA, and in the Corporate Integrity Agreement (“CIA”) entered into
between HHS-OIG and Exactech, and conditioned upon Exactech’s full payment of
the Settlement Amount and compliance with its obligations under the DPA, the
HHS-OIG agrees to release and refrain from instituting, directing, or
maintaining any administrative claim or action seeking exclusion from Medicare,
Medicaid, and other Federal health care programs (as defined in 42 U.S.C. §
1320a-7b(f))

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 3 of 13          

--------------------------------------------------------------------------------

against Exactech, together with its current and former parent corporations;
direct and indirect subsidiaries; brother or sister corporations; divisions; and
affiliates; and the predecessors, successors and assigns of any of them, under
42 U.S.C. § 1320a-7a (Civil Monetary Penalties Law) or 42 U.S.C. § 1320a-7(b)(7)
(permissive exclusion for fraud, kickbacks, and other prohibited activities) for
the Covered Conduct, except as reserved in Paragraph 4, below, and as reserved
in this Paragraph. The HHS-OIG expressly reserves all rights to comply with any
statutory obligations to exclude Exactech, together with its current and former
parent corporations; each of its direct and indirect subsidiaries; brother or
sister corporations; divisions; current or former owners, officers, directors,
and affiliates; and the predecessors, successors and assigns of any of them,
from Medicare, Medicaid, or other Federal health care programs under 42 U.S.C. §
1320a-7(a) (mandatory exclusion) based upon the Covered Conduct. The HHS-OIG
also expressly reserves all rights to exclude Exactech pursuant to the terms and
conditions of Paragraphs 49 through 53 of the DPA. Nothing in this Paragraph
precludes the HHS-OIG from taking action against entities or persons, or for
conduct and practices, for which claims have been reserved in Paragraph 4,
below.

4. Notwithstanding any term of this Agreement, specifically reserved and
excluded from the scope and terms of this Agreement as to any entity or person
(including Exactech) are the following:

a. Any civil, criminal, or administrative liability arising under Title 26, U.S.
Code (Internal Revenue Code);

b. Any criminal liability;

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 4 of 13          

--------------------------------------------------------------------------------

c. Except as explicitly stated in this Agreement, any administrative liability,
including mandatory exclusion from Federal health care programs;

d. Any liability to the United States (or its agencies) for any conduct other
than the Covered Conduct;

e. Any liability based upon such obligations as are created by this Agreement;

f. Any liability for personal injury or property damage or for other
consequential damages arising from the Covered Conduct;

g. Any liability for failure to deliver goods or services due;

h. Any liability of individuals, including officers and employees; and

i. Any liability for express or implied warranty claims or other claims for
defective or deficient products or services.

5. Exactech waives and shall not assert any defenses Exactech may have to any
criminal prosecution or administrative action relating to the Covered Conduct,
which defenses may be based in whole or in part on a contention that, under the
Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the
Excessive Fines Clause in the Eighth Amendment of the Constitution, this
Agreement bars a remedy sought in such criminal prosecution or administrative
action. Nothing in this Paragraph or any other provision of this Agreement
constitutes an agreement by the United States concerning the characterization of
the Settlement Amount for purposes of the Internal Revenue laws, Title 26 of the
United States Code.

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 5 of 13          

--------------------------------------------------------------------------------

6. Exactech, together with its current and former parent corporations; each of
its direct and indirect subsidiaries; brother or sister corporations; divisions;
current or former owners, officers, directors, and affiliates; and the
predecessors, successors and assigns of any of them, fully and finally releases
the United States, its agencies, employees, servants, and agents from any claims
(including attorney’s fees, costs, and expenses of every kind and however
denominated) that Exactech, together with its current and former parent
corporations; each of its direct and indirect subsidiaries; brother or sister
corporations; divisions; current or former owners, officers, directors, and
affiliates; and the successors and assigns of any of them, has asserted, could
have asserted, or may assert in the future against the United States, its
agencies, employees, servants, and agents, related to the Covered Conduct and
the United States’ investigation and prosecution thereof.

7. The Settlement Amount shall not be decreased as a result of the denial of
claims for payment now being withheld from payment by any Medicare carrier or
intermediary or any state payer, related to the Covered Conduct; and, if
applicable, Exactech agrees not to resubmit to any Medicare carrier or
intermediary or any state payer any previously denied claims related to the
Covered Conduct, and agrees not to appeal any such denials of claims.

8. Exactech agrees to the following:

a. Unallowable Costs Defined: That all costs (as defined in the Federal
Acquisition Regulation, 48 C.F.R. § 31.205-47; and in Titles XVIII and XIX of
the Social Security Act, 42 U.S.C. §§ 1395-1395kkk-l and 1396-1396w-5; and the
regulations and official program directives promulgated thereunder) incurred by
or on behalf of Exactech, together with its current and former parent
corporations; each of its direct and indirect subsidiaries; brother or

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 6 of 13          

--------------------------------------------------------------------------------

sister corporations; divisions; current or former owners, officers, directors,
employees, shareholders, agents, and affiliates; and the predecessors,
successors and assigns of any of them in connection with the following shall be
“unallowable costs” on government contracts and under the Medicare Program,
Medicaid Program, TRICARE Program, and Federal Employees Health Benefits Program
(FEHBP):

(1) the matters covered by this Agreement and any related plea or deferred
prosecution agreement;

(2) the United States’ audit(s) and civil and any criminal investigation(s) of
the matters covered by this Agreement;

(3) Exactech’s investigation, defense, and corrective actions undertaken in
response to the United States’ audit(s) and civil and any criminal
investigation(s) in connection with the matters covered by this Agreement
(including attorney’s fees);

(4) the negotiation and performance of this Agreement and any plea or deferred
prosecution agreement;

(5) the payment Exactech makes to the United States pursuant to this Agreement,
including any costs and attorneys fees; and

(6) the negotiation of, and obligations undertaken pursuant to the CIA to:
(i) retain an independent review organization to perform annual reviews as
described in Section III of the CIA; and (ii) prepare and submit reports to the
HHS-OIG. However, nothing in this Paragraph 8.a.(6) that may apply to the
obligations undertaken pursuant to the CIA affects the status of costs that are
not allowable based on any other authority applicable to Exactech. (All costs
described or set forth in this Paragraph 8.a. are hereafter “unallowable
costs.”)

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 7 of 13          

--------------------------------------------------------------------------------

b. Future Treatment of Unallowable Costs: If applicable, these unallowable costs
shall be separately determined and accounted for by Exactech, and Exactech shall
not charge such unallowable costs directly or indirectly to any contracts with
the United States or any State Medicaid program, or seek payment for such
unallowable costs through any cost report, cost statement, information
statement, or payment request submitted by Exactech or any of its subsidiaries
or affiliates to the Medicare, Medicaid, TRICARE, or FEHBP Programs.

c. Treatment of Unallowable Costs Previously Submitted for Payment: If
applicable, Exactech further agrees that within 90 days of the Effective Date of
this Agreement it shall identify to applicable Medicare and TRICARE fiscal
intermediaries, carriers, and/or contractors, and Medicaid and FEHBP fiscal
agents, any unallowable costs (as defined in this Paragraph) included in
payments previously sought from the United States, or any State Medicaid
program, including, but not limited to, payments sought in any cost reports,
cost statements, information reports, or payment requests already submitted by
Exactech or any of its subsidiaries or affiliates, and shall request, and agree,
that such cost reports, cost statements, information reports, or payment
requests, even if already settled, be adjusted to account for the effect of the
inclusion of the unallowable costs. Exactech agrees that the United States, at a
minimum, shall be entitled to recoup from Exactech any overpayment plus
applicable interest and penalties as a result of the inclusion of such
unallowable costs on previously-submitted cost reports, information reports,
cost statements, or requests for payment.

Any payments due after the adjustments have been made shall be paid to the
United States pursuant to the direction of the Department of Justice and/or the
affected agencies. The United States reserves its rights to disagree with any
calculations submitted by Exactech or any

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 8 of 13          

--------------------------------------------------------------------------------

of its subsidiaries or affiliates on the effect of inclusion of unallowable
costs (as defined in this Paragraph) on Exactech or any of its subsidiaries or
affiliates’ cost reports, cost statements, or information reports.

d. Nothing in this Agreement shall constitute a waiver of the rights of the
United States to examine or reexamine Exactech’s books and records to determine
that no unallowable costs have been claimed in accordance with the provisions of
this Paragraph.

9. This Agreement is intended to be for the benefit of the Parties only. The
Parties do not release any claims against any other person or entity, except to
the extent provided for in Paragraphs 2, 3, 6 and 10.

10. Exactech waives and shall not seek payment for any of the health care
billings covered by this Agreement from any health care beneficiaries or their
parents, sponsors, legally responsible-individuals, or third party payors based
upon the claims defined as Covered Conduct.

11. Exactech warrants that it has reviewed its financial situation and that it
currently is solvent within the meaning of 11 U.S.C. §§ 547(b)(3) and
548(a)(l)(B)(ii)(l), and shall remain solvent following its payment to the
United States of the Settlement Amount. Further, the Parties warrant that, in
evaluating whether to execute this Agreement, they (a) have intended that the
mutual promises, covenants, and obligations set forth constitute a
contemporaneous exchange for new value given to Exactech, within the meaning of
11 U.S.C. § 547(c)(l); and (b) conclude that these mutual promises, covenants,
and obligations do, in fact, constitute such a contemporaneous exchange.
Further, the Parties warrant that the mutual promises, covenants, and
obligations set forth herein are intended to and do, in fact, represent a
reasonably equivalent exchange of value that is not intended to hinder, delay,
or defraud any entity to which Exactech was or became indebted, on or after the
date of this transfer, all within the meaning of 11 U.S.C. § 548(a)(l).

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 9 of 13          

--------------------------------------------------------------------------------

12. Each Party to this Agreement shall bear its own legal and other costs
incurred in connection with this matter, including the preparation and
performance of this Agreement.

13. Exactech represents that this Agreement is freely and voluntarily entered
into without any degree of duress or compulsion whatsoever.

14. This Agreement is governed by the laws of the United States. The Parties
agree that the exclusive jurisdiction and venue for any dispute arising between
and among the Parties under this Agreement is the United States District Court
for the District of New Jersey, except that disputes arising under the DPA
and/or CIA shall be resolved exclusively under the dispute resolution provisions
in those agreements.

15. For purposes of construing this Agreement, this Agreement shall be deemed to
have been drafted by all Parties to this Agreement and shall not, therefore, be
construed against any Party for that reason in any subsequent dispute.

16. This Agreement, together with the CIA and the DPA, constitute the complete
agreement between the Parties.

17. This Agreement may not be amended except by written consent of the Parties.

18. The individuals signing this Agreement on behalf of Exactech represent and
warrant that they are authorized by Exactech to execute this Agreement. The
United States signatories represent that they are signing this Agreement in
their official capacities and that they are authorized to execute this
Agreement.

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 10 of 13          

--------------------------------------------------------------------------------

19. This Agreement may be executed in counterparts, each of which constitutes an
original and all of which constitute one and the same Agreement.

20. This Agreement is binding on Exactech’s successors, transferees, heirs, and
assigns.

21. All parties consent to the United States’ disclosure of this Agreement and
information about this Agreement to the public.

22. This Agreement is effective on the later of (1) the date of signature of the
last signatory to the Agreement; or (2) the date the Court approves of the DPA
(“Effective Date” of the Agreement). Facsimiles of signatures shall constitute
acceptable, binding signatures for purposes of this Agreement.

[SIGNATURE BLOCKS ON FOLLOWING PAGE].

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 11 of 13          

--------------------------------------------------------------------------------

THE UNITED STATES OF AMERICA

 

     

J. GILMORE CHILDERS

Attorney for the United States, Acting Under Authority Conferred by 28 U.S.C. §
515 District of New Jersey

DATED: 12/7/10     BY:  

/s/ Alex Kriegsman

     

ALEX KRIEGSMAN

Assistant United States Attorney

DATED: 12/7/10     BY:  

/s/ Gregory E. Demske

     

GREGORY E. DEMSKE

Assistant Inspector General for

  Legal Affairs

Office of Counsel to the

  Inspector General

Office of Inspector General

United States Department of

  Health and Human Services

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 12 of 13          

--------------------------------------------------------------------------------

EXACTECH, INC. - DEFENDANT

 

DATED: 12/2/10     BY:  

/s/ William Petty

     

WILLIAM PETTY, M.D.

Chairman Of The Board Of Directors and

            Chief Executive Officer

DATED: 12/7/10     BY:  

/s/ Mark P. Schnapp

     

MARK P. SCHNAPP, ESQ.

Counsel for Exactech, Inc.

 

Settlement Agreement Between the United States

of America and Exactech, Inc.

  Page 13 of 13