CHANGE IN CONTROL SEVERANCE
AGREEMENT
THIS
AGREEMENT, dated as of December 17th, 2008, is made by and
between ZIMMER HOLDINGS, INC., a Delaware corporation (the
“Company”), and Derek M. Davis (the
“Executive”). The capitalized words and terms used
throughout this Agreement are defined in
Article XIII.
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.
This Agreement, the form of which has been updated in light of the
final regulations under Code Section 409A and other changes in
tax law, replaces and supersedes the prior change in control
severance agreement between the Executive and the
Company.
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.
In
consideration of the premises and the mutual covenants and
agreements set forth below, the Company and the Executive agree as
follows:
This
Agreement will commence on the date stated above and will continue
in effect through December 31, 2009. Beginning on
January 1, 2010, 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.
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
2
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
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
3
compensation
under this Agreement and the terms of any other plan, program, or
arrangement maintained by the Company or any affiliate.
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.
4
(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 one (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) if Severance Payments are triggered under
Section 3.01(a), 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, or, if Severance Payments are triggered under
Section 3.01(b), 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. 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.
5
(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) provided that, if
Severance Payments are triggered under Section 3.01(b), the
performance conditions applicable to such incentive compensation
are met, and (2) if Severance Payments are triggered under
Section 3.01(a), 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, or, if Severance Payments
are triggered under Section 3.01(b), then with respect to each
such plan, an amount equal to the average annual award paid to the
Executive under such plan during the three years immediately prior
to the year in which the Notice of Termination was given multiplied
by a fraction, the numerator of which is the number of whole months
elapsed since the beginning of the calendar year or other measuring
period to the Date of Termination and the denominator of which is
12 (or the number of whole months in the measuring
period).
(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
6
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).
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
7
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.
(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.
8
(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
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).
9
(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
Section 3.02 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
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).
10
(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
|
