Exhibit
10.5
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July
, 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 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
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
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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.
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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:
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(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
twelve (or, if less, the number of months, 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 monthly 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) one-twelfth the amount of the Executive’s target
annual bonus 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
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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) Welfare Benefits .
Except as otherwise provided in this Section 3.02(d), for a
12-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 from
the Company immediately prior to the Notice of Termination (without
giving effect to any reduction in that coverage subsequent to a
Change in Control). Life insurance coverage otherwise receivable by
the Executive pursuant to this Section 3.02(d) will be reduced
to the extent comparable coverage is actually received by or made
available to the Executive without greater cost to him than as
provided by the Company during the 12-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).
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If, as of the Date of Termination,
the Company reasonably determines that the continued life insurance
coverage required by this Section 3.02(d) 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 12 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 12 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.
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(e) Matching and Fixed
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 and
fixed contributions (and attributable earnings) credited to the
Executive under the Savings Plan.
(f) Outplacement
Services . For a period not to exceed six (6) months
following the Date of Termination, 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. Limitation on
Severance Payments .
(a) Notwithstanding anything to
the contrary contained in this Agreement, 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 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
reduced first (if necessary, to zero), and all other, non-cash
Severance Payments will be reduced next (if necessary, to zero).
For purposes of the limitation described in the preceding sentence,
the following will not be taken into account: (1) any
portion
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of the
Total Payments the receipt or enjoyment of which the Executive
effectively waived in writing prior to the Date of Termination, and
(2) any portion of the Total Payments that, in the opinion of
the Accounting Firm, does not constitute a “parachute
payment” within the meaning of Code section 280G(b)(2).
(b) For purposes of this
Section 3.03, the determination of whether any portion of the
Total Payments would be subject to an Excise Tax will be made by an
Accounting Firm selected by the Company and reasonably acceptable
to the Executive. For purposes of that determination, the value of
any non-cash benefit or any deferred payment or benefit included in
the Total Payments will be determined by the Accounting Firm in
accordance with the principles of Section 280G(d)(3) and
(4).
SECTION 3.04. Time of
Payment . Except as otherwise expressly provided in Section
3.02, payments provided for in that Section will be made as
follows:
(a) Subject to
Section 3.04(d), no later than the fifth business day
following the Date of Termination, the Company will pay to the
Executive an estimate, as determined by the Company in good faith,
of 90% of the minimum amount of the payments under
Sections 3.02 and 3.03 to which the Executive is clearly
entitled.
(b) Subject to
Section 3.04(d), the Company will pay to the Executive the
remainder of the payments due him under Section 3.02 (together
with interest at the rate provided in Code
section 1274(b)(2)(B)) not later than the 30th business
day after the Date of Termination.
(c) At the time that payment is
made under Section 3.04(b), the Company will provide the
Executive with a written statement setting forth the manner in
which all of the payments to him under this Agreement were
calculated and the basis for the calculations
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including, without limitation, any opinions or other advice the
Company received from auditors or consultants (other than legal
counsel) with respect to the calculations (and any such opinions or
advice that are in writing will be attached to the
statement).
(d) Notwithstanding any of the
foregoing, if, as of the date of the Executive’s separation
from service, the Executive is a “specified employee”
under the Section 409A Standards, any and all payments under
this Agreement that constitute deferred compensation under the
Section 409A Standards shall be suspended until, and will be
payable on, the date that is six (6) months after the
Executive’s separation from service (or, if earlier, the date
the Executive dies after separation from service).
SECTION 3.05. Attorneys Fees
and Expenses . To the extent permissible under the
Section 409A Standards, if the Executive finally prevails with
respect to any bona fide, good faith dispute between the Executive
and the Company regarding the interpretation, terms, validity or
enforcement of this Agreement (including any dispute as to the
amount of any payment due under this Agreement), the Company will
pay or reimburse the Executive for all reasonable attorneys fees
and expenses incurred by the Executive in connection with that
dispute pursuant to the terms of this paragraph. Payment or
reimbursement of those fees and expenses will be made within
fifteen (15) business days after delivery of the Executive’s
written request for payment, accompanied by such evidence of fees
and expenses incurred as the Company reasonably may require, but
the Executive may not submit such a request until the dispute has
been finally resolved by a legally binding settlement or by an
order or judgment that is not subject to appeal or with respect to
which all appeals have been exhausted. Any payment pursuant to this
paragraph will be made no later than the end of the calendar year
following the
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calendar
year in which the dispute is finally resolved by a legally binding
settlement or nonappealable judgm
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