Exhibit 10.1
CHANGE IN CONTROL SEVERANCE
AGREEMENT
THIS AGREEMENT, dated as
of ,
2007, is made by and between ZIMMER HOLDINGS, INC., a Delaware
corporation (the “Company”),
and
(the “Executive”). The capitalized words and terms used
throughout this Agreement are defined in
Article XIII.
Recitals
A. The Company
considers it essential to the best interests of its shareholders to
foster the continuous employment of key management
personnel.
B. The Board
recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control exists and
that such a possibility, and the uncertainty and questions that it
may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company
and its shareholders.
C. The Board has
determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the
Company’s management, including the Executive, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change
in Control.
D. The Company and
the Executive previously entered into a change in control severance
agreement in the form applicable to Tier III executives of the
Company (the “Prior Agreement”), but the Board has
since designated the Executive as a Tier II executive, making
this Agreement more appropriate. This Agreement replaces and
supersedes the Prior Agreement.
E. The parties
intend that no amount or benefit will be payable under this
Agreement unless a termination of the Executive’s employment
with the Company occurs following a Change in Control, or is deemed
to have occurred following a Change in Control, as provided in this
Agreement.
Agreement
In consideration of the
premises and the mutual covenants and agreements set forth below,
the Company and the Executive agree as follows:
ARTICLE I
Term of Agreement
This Agreement will
commence on the date stated above and will continue in effect
through December 31, 2008. Beginning on January 1, 2009,
and each subsequent January 1, the term of this Agreement will
automatically be extended for one additional year, unless either
party gives the other party written notice not to extend this
Agreement at least 30 days before the extension would
otherwise become effective or unless a Change in Control occurs. If
a Change in Control occurs during the term of this Agreement, this
Agreement will continue in effect for a period of 24 months
from the end of the month in which the Change in Control occurs.
Notwithstanding the foregoing provisions of this Article, this
Agreement will terminate on the Executive’s Retirement
Date.
ARTICLE II
Compensation other than Severance
Payments
Section
2.01.
Disability Benefits . Following a Change
in Control and during the term of this Agreement, during any period
that the Executive fails to perform the Executive’s full-time
duties with the Company as a result of Disability, the Executive
will receive short-term and long-term disability benefits as
provided under short-term and
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long-term disability plans having
terms no less favorable than the terms of the Company’s
short-term and long-term disability plans as in effect immediately
prior to the Change in Control, together with all other
compensation and benefits payable to the Executive pursuant to the
terms of any compensation or benefit plan, program, or arrangement
maintained by the Company during the period of
Disability.
Section
2.02.
Compensation Previously Earned . If the
Executive’s employment is terminated for any reason following
a Change in Control and during the term of this Agreement, the
Company will pay the Executive’s salary accrued through the
Date of Termination, at the rate in effect at the time the Notice
of Termination is given, together with all other compensation and
benefits payable to the Executive through the Date of Termination
(including, without limitation, any incentive compensation amounts
owed the Executive for a completed calendar year to the extent not
yet paid) under the terms of any compensation or benefit plan,
program, or arrangement maintained by the Company during that
period.
Section
2.03.
Normal Post-Termination Compensation and Benefits .
Except as provided in Section 3.01, if the
Executive’s employment is terminated for any reason following
a Change in Control and during the term of this Agreement, the
Company will pay the Executive the normal post-termination
compensation and benefits payable to the Executive under the terms
of the Company’s retirement, insurance, and other
compensation or benefit plans, programs, and arrangements, as in
effect immediately prior to the Change in Control. This provision
does not restrict the Company’s right to amend, modify, or
terminate any plan, program, or arrangement prior to a Change in
Control.
Section
2.04.
No Duplication . Notwithstanding any
other provision of this Agreement to the contrary, the Executive
will not be entitled to duplicate benefits or compensation under
this Agreement and the terms of any other plan, program, or
arrangement maintained by the Company or any affiliate.
ARTICLE III
Severance Payments
Section
3.01.
Payment Triggers .
(a) In lieu of any
other severance compensation or benefits to which the Executive may
otherwise be entitled under any plan, program, policy, or
arrangement of the Company (and which the Executive hereby
expressly waives), the Company will pay the Executive the Severance
Payments described in Section 3.02 upon termination of the
Executive’s employment following a Change in Control and
during the term of this Agreement, in addition to the payments and
benefits described in Article II, unless the termination is
(1) by the Company for Cause, (2) by reason of the
Executive’s death, or (3) by the Executive without Good
Reason.
(b) For purposes of
this Section 3.01, the Executive’s employment will be
deemed to have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good Reason if
(1) the Executive’s employment is terminated without
Cause prior to a Change in Control at the direction of a Person who
has entered into an agreement with the Company, the consummation of
which will constitute a Change in Control; or (2) the
Executive terminates his employment with Good Reason prior to a
Change in Control (determined by treating a Potential Change in
Control as a Change in Control in applying the definition of Good
Reason), if the circumstance or event that constitutes Good Reason
occurs at the direction of such a Person.
(c) The Severance
Payments described in this Article III are subject to the
conditions stated in Article VI.
Section
3.02.
Severance Payments . The following are
the Severance Payments referenced in Section 3.01:
(a) Lump Sum
Severance Payment . In lieu of any further
salary payments to the Executive for periods after the Date of
Termination, and in lieu of any severance benefits otherwise
payable to the Executive, the Company will pay to the Executive, in
accordance with Section 3.04, a lump sum severance payment, in
cash, equal to two (or, if less, the number of years, including
fractions, from the Date of Termination until the Executive reaches
his Retirement Date), times the sum of (1) the higher of the
Executive’s annual base salary in effect immediately prior to
the event or circumstance upon which the Notice of Termination is
based or in effect immediately prior to the Change in Control, and
(2) the amount of the Executive’s target annual
bonus
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entitlement under the Incentive
Plan (or any other bonus plan of the Company then in effect) as in
effect immediately prior to the event or circumstance giving rise
to the Notice of Termination. If the Board determines that it is
not workable to determine the amount that the Executive’s
target bonus would have been for the year in which the Notice of
Termination was given, then, for purposes of this
paragraph (a), the Executive’s target annual bonus
entitlement will be the amount of the largest aggregate annual
bonus paid to the Executive with respect to the three years
immediately prior to the year in which the Notice of Termination
was given.
(b)
Incentive Compensation . Notwithstanding
any provision of the Incentive Plan or any other compensation or
incentive plans of the Company, the Company will pay to the
Executive, in accordance with Section 3.04, a lump sum amount,
in cash, equal to the sum of (1) any incentive compensation
that has been allocated or awarded to the Executive for a completed
calendar year or other measuring period preceding the Date of
Termination ( to the extent not payable pursuant to
Section 2.02), and (2) a pro rata portion (based on
elapsed time) to the Date of Termination of the aggregate value of
all contingent incentive compensation awards to the Executive for
the current calendar year or other measuring period under the
Incentive Plan, the Award Plan, or any other compensation or
incentive plans of the Company, calculated as to each such plan
using the Executive’s annual target percentage under that
plan for that year or other measuring period and as if all
conditions for receiving that target award had been met.
(c) Options
and Restricted Shares . All outstanding Options
will become immediately vested and exercisable (to the extent not
yet vested and exercisable as of the Date of Termination). To the
extent not otherwise provided under the written agreement
evidencing the grant of any restricted Shares to the Executive, all
outstanding Shares that have been granted to the Executive subject
to restrictions that, as of the Date of Termination, have not yet
lapsed will lapse automatically upon the Date of Termination, and
the Executive will own those Shares free and clear of all such
restrictions. Notwithstanding the foregoing, options and restricted
Shares remain subject to any forfeiture or clawback claims under
the applicable option plan or award agreement.
(d)
Additional Pension Benefit . In addition
to the retirement benefits to which the Executive is entitled under
the Retirement Plan and BEP, or any successors to those plans, the
Company will pay the Executive an additional amount under the BEP
(or a successor plan) equal to the excess of (1) over (2),
where (1) is the retirement pension (determined as a straight
life annuity commencing on the Executive’s Retirement Date)
that the Executive would have accrued under the terms of the
Retirement Plan and BEP (without regard to any amendment to the
Retirement Plan or BEP that is made subsequent to a Change in
Control and on or prior to the Date of Termination and that
adversely affects in any manner the computation of the
Executive’s retirement benefits), determined as if the
Executive (a) were fully vested under the Retirement Plan and
the BEP, and (b) had accumulated (after the Date of
Termination) 24 additional months of age and service credit under
the Retirement Plan and the BEP at the higher of (i) the
Executive’s highest annual rate of compensation (as
compensation is defined for purposes of the BEP) in effect during
the three years immediately preceding the Date of Termination, or
(ii) the sum of the Executive’s annual salary and target
annual bonus in effect immediately prior to the Change in Control
(but in no event will the Executive be deemed to have accumulated
additional service credit in excess of the maximum permitted
pursuant to the Retirement Plan and BEP); and (2) is the
retirement pension (determined as a straight life annuity
commencing on the Executive’s Retirement Date) that the
Executive had then accrued pursuant to the respective provisions of
the Retirement Plan and BEP. This additional amount will be paid in
the form and at the time or times that retirement benefits are
payable to the Executive under the terms of the BEP or any
successor plan. The Executive understands and acknowledges that the
additional retirement benefit described in this
Section 3.02(d) is payable entirely under the BEP, a
nonqualified plan, and will not be subject to any special tax
treatment applicable to benefits under the Retirement Plan and
other tax-qualified plans.
(e) Welfare
Benefits . Except as otherwise provided in this
Section 3.02(e), for a 24-month period after the Date of
Termination, the Company will arrange to provide the Executive with
life insurance coverage substantially similar to that which the
Executive is receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in that
coverage subsequent to a Change in Control). Coverage otherwise
receivable by the Executive pursuant to this Section 3.02(e)
will be reduced to the extent comparable
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coverage is actually received by or
made available to the Executive without greater cost to him than as
provided by the Company during the 24-month period following the
Executive’s termination of employment (and the Executive will
report to the Company any such coverage actually received by or
made available to the Executive).
If, as of the Date of
Termination, the Company reasonably determines that the continued
life insurance coverage required by this Section 3.02(e) is
not available from the Company’s group insurance carrier,
cannot be procured from another carrier, and cannot be provided on
a self-insured basis without adverse tax consequences to the
Executive or his death beneficiary, then, in lieu of continued life
insurance coverage, the Company will pay the Executive, in
accordance with Section 3.04, a lump sum payment, in cash,
equal to 24 times the full monthly premium payable to the
Company’s group insurance carrier for comparable coverage for
an executive employee under the Company’s group life
insurance plan then in effect.
The Company will offer
the Executive and any eligible family members the opportunity to
elect to continue medical and dental coverage pursuant to COBRA.
The Executive will be responsible for paying the required monthly
premium for that coverage, but the Company will pay the Executive,
in accordance with Section 3.04, a lump sum cash stipend equal
to 24 times the monthly COBRA premium then charged to qualified
beneficiaries for the same level of health and dental coverage the
Executive had in effect immediately prior to his termination, and
the Executive may, but is not required to, choose to use the
stipend for the payment of COBRA premiums for any COBRA coverage
that the Executive or eligible family members may elect. The
Company will pay the stipend to the Executive whether or not the
Executive or any eligible family member elects COBRA coverage,
whether or not the Executive continues COBRA coverage for the
maximum period permitted by law, and whether or not the Executive
receives medical or dental coverage from another employer while the
Executive is receiving COBRA continuation coverage. Payment of the
stipend will not in any way extend or modify the Executive’s
continuation coverage rights under COBRA or any similar
continuation coverage law.
(f) Matching
Contributions . In addition to the vested
amounts, if any, to which the Executive is entitled under the
Savings Plan as of the Date of Termination, the Company will pay
the Executive, in accordance with Section 3.04, a lump sum
amount equal to the value of the unvested portion, if any, of the
employer matching contributions (and attributable earnings)
credited to the Executive under the Savings Plan.
(g)
Outplacement Services . To the extent
permissible under the Section 409A Standards, the Company will
provide the Executive with reasonable outplacement services
consistent with past practices of the Company prior to the Change
in Control or, if no past practice has been established prior to
the Change in Control, consistent with the prevailing practice in
the medical device manufacturing industry.
Section
3.03.
Gross-Up Payment .
(a) In the event
that any Severance Payments paid or payable to the Executive or for
his benefit pursuant to the terms of this Agreement or otherwise in
connection with a Change in Control (“ Total Payments”)
would be subject to any Excise Tax, then the Executive will be
entitled to receive an additional payment (a “Gross-Up
Payment”) in an amount such that after the Executive’s
payment of all taxes (including any interest, penalties, additional
tax, or similar items imposed with respect to the Gross-Up Payment
and the Excise Tax), including any Excise Tax upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Total Payments.
(b) An initial
determination as to whether a Gross-Up Payment is required pursuant
to this Agreement and the amount of that Gross-Up Payment will be
made at the Company’s expense by an Accounting Firm selected
by the Executive and reasonably acceptable to the Company. The
Accounting Firm will provide its determination, together with
detailed supporting calculations and documentation, to the Company
and the Executive within 10 business days after the Date of
Termination, or such other time as requested by the Company and the
Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive with respect to the Payments, it will
furnish the Executive with an opinion reasonably acceptable to the
Executive that no Excise Tax will be imposed with respect to the
Payments. Within 10 business days after the Accounting Firm
delivers its determination to the Executive, the Executive will
have the right to dispute the determination. The Gross-Up Payment,
if any, as
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determined by the Accounting Firm
in accordance with the preceding provisions of this Section, will
be paid by the Company to the Executive within 5 business days of
the receipt of the Accounting Firm’s determination. The
existence of a dispute will not in any way affect the
Executive’s right to receive the Gross-Up Payment in
accordance with the determination. If there is no dispute, the
determination will be final, binding, and conclusive upon the
Company and the Executive. If there is a dispute, then the Company
and the Executive will together select a second Accounting Firm,
which will review the determination and the Executive’s basis
for the dispute and then render its own determination, which will
be final, binding, and conclusive on the Company and the Executive.
The Company will bear all costs associated with that determination,
unless the determination is not greater than the initial
determination, in which case all such costs will be borne by the
Executive.
(c) The value of
any non-cash benefits or any deferred payment or benefit paid or
payable to the Executive will be determined in accordance with the
principles of Code section 280G(d)(3) and (4). For purposes of
determining the amount of the Gross-Up Payment, the Executive will
be deemed to pay federal income taxes at the highest marginal rate
of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and applicable state and local
income taxes at the highest marginal rate of taxation in the state
and locality of the Executive’s residence on the Date of
Termination, net of the maximum reduction in federal income taxes
that would be obtained from deduction of those state and local
taxes.
(d) Notwithstanding
anything contained in this Agreement to the contrary, in the event
that, according to the Accounting Firm’s determination, an
Excise Tax will be imposed on the Total Payments, the Company will
pay to the applicable government taxing authorities as Excise Tax
withholding the amount of the Excise Tax that the Company has
actually withheld from the Total Payments in accordance with
applicable law.
(e) Notwithstanding
the preceding provisions of this Section 3.03, the Company
will not have any obligation to make the Gross-Up Payment unless
the value of the Total Payments exceeds 110% of the maximum amount
of parachute payments that could be paid to the Executive without
any imposition of golden parachute excise taxes under Code
sections 280G and 4999 (the “110% Amount”). In
that case, the value of the Total Payments will be reduced to the
extent necessary so that, within the meaning of Code
section 280G(b)(2)(A)(ii), the aggregate present value of the
payments in the nature of compensation to (or for the benefit of)
the Executive that are contingent on a Change in Control (with a
Change in Control for this purpose being defined in terms of a
“change” described in Code
section 280G(b)(2)(A)(i) or (ii)), do not exceed 2.999
multiplied by the Base Amount. For this purpose, cash Severance
Payments will be
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