Exhibit 10.3


 


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 SSI’s 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 SSI’s 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 SSI’s 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 SSI’s EBITDA for 12
month period ending August 31, 2009 exceeds the greater of (x) $1,815,000 or
(y) SSI’s 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) UCA’s EBITDA for the 12-month period ending August 31, 2008.


 


Example #1: If UCA’s 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 UCA’s EBITDA for the
12-month period ending August 31, 2009 exceeds the greater of (x) $0 or (y) UCA’s
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 UCA’s 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 SSI’s and UCA’s 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
Purchaser’s 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 Purchaser’s 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.


 


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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 Purchaser’s 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.


 


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(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 SSI’s currently budgeted amount, costs
associated with Sarbanes-Oxley compliance, laboratory or research costs,
executive or other personnel costs (including travel and other expenses), or
any severance pay associated with any terminations (other than “for cause”). Except
as set forth in Section 4(d) below, material and substantial operational changes
that may result in adjustments to EBITDA must be pre-approved, in writing, by
both Purchaser and Seller. Examples of such operational changes may include,
but are not limited to, the following:


 


•                  Any
structural changes implemented by Purchaser at the Facilities;


 


•                  Any
purchases of capital equipment made by Purchaser for use at the Facilities;


 


•                  Any transfers of customer orders from one of
Purchaser’s other locations for production at the Facilities;


 


•                  Any transfers of products produced at one of Purchaser’s other locations for sale by SSI or UCA;


 


•                  Production or sale of existing Purchaser
products at the Facilities;


 


•                  Sales of SSI/UCA products by Purchaser’s
sales force to Purchaser Customers; and/or


 


•                  Any increase related to the Company’s expansion
into Europe or other foreign countries.


 


(d)                                 Adjustments
Based on Voluntary Termination and “for Cause” Termination.


 


(i) As
detailed in Section 5(a) below, in the event that both Wallace and Mann are no
longer employed by
Purchaser, either as a result of their voluntary termination or as a
result of termination “for Cause,” as defined in Section 6(c)(i) or
Section 6(c)(iv) of their respective Employment Agreements, EBITDA may be adjusted at Purchaser’s
reasonable discretion for changes including, but not limited to, those set
forth in Section 4(c) above. Adjustments under this Section 4(d)(i) may
be made without written approval from Seller.


 


(ii)
As detailed in Section 5(a) below, in the event that both Wallace and Mann are
no longer employed by
Purchaser as a result of termination “for Cause,” as defined in
Sections 6(c)(v), 6(c)(vi) and 6(c)(vii) of their respective 


 


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Employment Agreements, EBITDA may be adjusted at Purchaser’s
reasonable discretion for changes including, but not limited to, those set
forth in Section 4(c) above. Adjustments under this Section 4(d)(ii) in
the amount of $500,000 or less may be made without written approval from Seller.
Adjustment greater than $500,000 must
be pre-approved, in writing, by both Purchaser and Seller.


 


(e)                                  Right
of Set-Off. Seller has undertaken certain obligations of indemnification
pursuant to Article 7 of the Purchase Agreement and agrees that, in the event
that Purchaser has an indemnification claim against Seller under the terms of
the Purchase Agreement at the time payments are required pursuant to Section 2
of this Agreement, Purchaser may, at its election, offset by the amount of the
claim, any payments due and owing Seller against the outstanding claims
established pursuant to Article 7 of the Purchase Agreement.


 


5.                                       Termination.
This Agreement shall commence on the Effective Date and shall continue until
such time as both parties have satisfied their obligations hereunder. This
Agreement may terminate at an earlier date upon the occurrence of one of the
following:


 


(a)                                  Voluntary
Termination and “for Cause” Termination. Except as otherwise stated in
Section 5(b), if both Wallace or Mann are no longer employed by Purchaser, either as a result of their
voluntary termination or as a result of termination “for Cause,” as defined in
Section 6(c) of their respective Employment Agreements, this Agreement
shall continue subject to the adjustments set forth in Section 4(d).


 


(b)                                 Terminations
for Fraud or Felony. Notwithstanding Section 5(a) above, if either Wallace
or Mann are terminated “for Cause” due to fraud, embezzlement, theft or
comparable dishonest activity or if either Wallace or Mann is convicted, enters
a plea of guilty or no contest to any crime constituting a felony, the
Purchaser’s payment obligations under this Agreement shall cease, this
Agreement shall terminate and Purchaser shall have no further payment
obligations under this Agreement. 


 


(c)                                  Death.
If either Wallace or Mann remains living throughout the duration of this
Agreement, the Agreement shall continue until such time as both Purchaser and
Seller have satisfied their obligations hereunder unless earlier terminated
pursuant to Section 5(b) of this Agreement.


 


(d)                                 Permanent
Disability. If either Wallace or Mann remains without permanent disability
throughout the term of this Agreement, the Agreement shall continue until such
time as both Purchaser and Seller have satisfied their obligations hereunder
unless earlier terminated pursuant to Section 5(b) of this Agreement.


 


6.                                       Dispute
Resolution.


 


(a)                                  Negotiation. 
Except with regard to disputes arising out of or relating to calculations of
EBITDA and projected Earn-Out Payments, the procedures of which are set forth
in Section 3 above, the parties shall attempt to resolve any dispute arising
out of or relating to this Agreement (each a “Dispute”), promptly by good faith
negotiation among representatives who have authority to resolve the
controversy.  Any party shall 


 


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give the other party written
notice of any Dispute not resolved in the normal course of business. 
Within fifteen (15) business days after delivery of such notice, the receiving
party shall submit to the other party a written response.  The notice and
the response shall include (i) a statement of the party’s concerns and
perspectives on the Dispute, (ii) a summary of supporting facts and
circumstances, and (iii) the identity of the representative who will
represent such party.  Within thirty (30) calendar days after delivery of
the original notice, the representatives of the parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to attempt to resolve the Dispute.  All negotiations
pursuant to this subsection (a) and subsection (b) below are confidential
and shall be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.


 


(b)                                 Mediation.  If a Dispute is not resolved by discussion between the parties,
either party may by notice to the other party require mediation of such
Dispute, which notice shall identify the names of no fewer than three (3)
potential mediators.  Each party agrees to participate in mediation of the
Dispute and will in good faith attempt to agree upon a mediator.  If the
parties are unable to agree upon a mediator within fifteen (15) business days
after such notice, or if such Dispute shall not have been resolved by mediation
within sixty (60) days after such notice, then either party may file for
arbitration pursuant to subsection (c) below.  All expenses of the
mediator shall be equally shared by the parties.


 


(c)                                  Binding Arbitration.


 


(i)                                     The place of arbitration shall be Fort Wayne,
Indiana.


 


(ii)                                  The award rendered by the
arbitrators shall be in writing and shall include a statement of the factual
bases and the legal conclusions relied upon by the arbitrators in making such
award.  The arbitrators shall decide the Dispute in compliance with the
applicable substantive law and consistent with the provisions of this
Agreement, including limits on damages.  The award rendered by the
arbitrators shall be final and binding, and judgment upon the award may be
entered by any court having jurisdiction.


 


(iii)                               All matters relating to the
enforceability of the arbitration provisions of this Agreement and any
arbitration award rendered pursuant to this Agreement shall be governed by the
Federal Arbitration Act, 9 U.S.C. § 1-16.


 


(iv)                              Nothing in this Section 6
shall limit the rights of the parties to obtain provisional, ancillary or
equitable relief from a court of competent jurisdiction.


 


(v)                                 Each party shall pay its own expenses of
arbitration and the expenses of the arbitrators shall be equally shared;
provided, however, if in the opinion of the arbitrators any claim by either
party hereunder or any defense or objection thereto by the other party was
unreasonable and not made in good faith, the arbitrators may assess as part of
the award, all or any part of the arbitration 


 


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expense (including, without
limitation, reasonable attorneys’ fees) of the non-offending party and of the
arbitrators against the party raising such unreasonable claim, defense or
objection.  Nothing herein shall prevent the parties from settling the
Dispute by mutual agreement at any time.


 


7.                                       Miscellaneous.


 


(a)                                  No Third-Party Beneficiaries. Nothing implied in this Agreement is
intended or shall be construed to confer any rights or remedies under or by
reason of this Agreement upon any Person other than Purchaser and Seller and
their respective representatives, successors and permitted assigns.


 


(b)                                 Entire Agreement. This Agreement contains
the entire understanding of the parties hereto as it pertains to the Earn-Out
Payments and with regard to the subject matter contained herein, and supersedes
all prior agreements, understandings or letters of intent between or among any
of the parties hereto, including that certain letter of intent and proposed
nonbinding term sheet dated May 22, 2007, and amended on July 24, 2007, between
Purchaser and Seller.


 


(c)                                  Succession and Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns, nothing in this Agreement is
to be construed as an authorization or right of any party to assign its rights
or delegate its duties under this Agreement without the prior written consent
of the other parties hereto. Notwithstanding the foregoing, Purchaser, in its
sole discretion, may assign its rights in and/or delegate its duties under this
Agreement to an Affiliate of Purchaser. In the event of such an assignment of
rights and/or delegation of duties, all references to Purchaser, as applicable
to the assignment in this Agreement, shall also be deemed to be references to
the Person to which this Agreement is assigned; provided that no such
assignment and/or delegation shall relieve the assignor of any of its duties or
obligations hereunder.


 


(d)                                 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which together will constitute one and the same instrument.


 


(e)                                  Headings. The headings of the articles, sections and subsections
of this Agreement are intended for the convenience of the parties only and
shall in no way be held to explain, modify, construe, limit, amplify or aid in
the interpretation of the provisions hereof. The terms “this Agreement,” “hereof,”
“herein,” “hereunder,” “hereto” and similar expressions refer to this Agreement
as a whole and not to any particular article, section, subsection or other
portion hereof.


 


(f)                                    Notices. All notices, demands and other communications
provided for hereunder shall be in writing and shall be given (i) by
personal delivery, (ii) via e-mail or facsimile transmission (receipt
confirmed, with follow up transmittal within 48 hours by (iii) or (iv) which
follows), (iii) by nationally recognized overnight courier (prepaid), or
(iv) by certified or registered first class mail, postage prepaid, return
receipt requested,


 


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sent to each party, at
its and its representative’s address as set forth below or at such other
address or in such other manner as may be designated by such party or the
respective representative in a written notice to each of the other parties:


 


If to Seller:                                                                                     Louis C. Wallace


c/o Specialty Surgical Instrumentation, Inc.


200 River Hills Drive


Nashville, TN 
37210


E-Mail: 
LouWallace@specialty-surgical.com


 


and


 


Charles O. Mann, Jr.


c/o Specialty Surgical Instrumentation, Inc.


200 River Hills Drive


Nashville, TN 
37210


E-Mail: charlesmann.ssi@starband.net


 


With
a copy to:                                     John L. Van Cleave


Watkins & McNeilly, PLLC


Suite 300, 314 Second Avenue North


Nashville, TN


E-Mail: 
john@watkinsmcneilly.com


Phone: 
615-255-2191


Fax No.: 
615-242-0238


 


To Purchaser:                                              Symmetry Medical USA Inc.


220 West Market Street


Warsaw,
IN 46580


E-Mail: 
fred.hite@symmetrymedical.com


Fax No.: 
574-267-4551


Attention: 
Fred Hite, Chief Financial Officer


 


With a copy to:                                     Barrett & McNagny LLP


215 East Berry Street


Fort Wayne, IN 46802


E-Mail: 
sjt@barrettlaw.com


Phone: 
260-423-8812


Fax No.: 
260-423-8920


Attention: Samuel J. Talarico,
Jr.


 


(g)                                 Amendments and
Waivers. No purported
amendment, modification or waiver of any provision of this Agreement or any of
the documents, instruments or agreements to be executed by the parties pursuant
hereto shall be effective unless in writing specifically referring to this
Agreement and signed by all of the parties hereto.


 


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(h)                                 Severability. In the event that any provision of this
Agreement is declared or held by any court of competent jurisdiction to be
invalid or unenforceable, such provision shall be severable from, and such
invalidity or unenforceability shall not be construed to have any effect on,
the remaining provisions of this Agreement, unless such invalid or
unenforceable provision goes to the essence of this Agreement, in which case
the entire Agreement may be declared invalid and not binding upon any of the
parties.


 


(i)                                     Expenses. Each party hereto shall pay their own fees
and expenses incurred in connection with negotiating and preparing this
Agreement and consummating the transaction contemplated hereby, including but
not limited to fees and disbursements of their respective attorneys,
accountants and investment bankers.


 


(j)                                     Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement. The words “including,” “include” or “includes”
shall mean including without limitation. The parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter (regardless
of the relative levels of specificity) which the party has not breached shall
not detract from or mitigate the fact that the party is in breach of the first
representation, warranty or covenant.


 


[SIGNATURE PAGE TO FOLLOW]


 


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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.


 


 


	
  Seller:

  	
   

  	
  Purchaser:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Symmetry
  Medical USA Inc.

  
	
  /s/ Louis C. Wallace

  	
   

  	
  By
  its duly authorized officer

  
	
  Louis C. Wallace

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sign:
  

  	
  /s/
  Fred L. Hite

  	
   

  
	
  /s/ Charles O. Mann, Jr.

  	
   

  	
  Name:

  	
  Fred
  L. Hite

  
	
  Charles
  O. Mann, Jr.

  	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
						



 


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