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
(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 having terms no
less favorable than the terms of the Company’s short-term and
long-term
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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 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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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 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) 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.
(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
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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 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
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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
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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 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(e) will be reduced to the extent comparable
coverage is actually received by or made available to the Executive
without greater cost to the Executive 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 the Executive’s 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.
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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 . For a period not to exceed six
(6) months following the Date of Termination, the Company will
provide the Executive with reasonable outplacement and services
consistent with past practices of the Company prior to the Change
in Control or, if
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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 determined by the Accounting Firm in accordance with the
preceding provisions of this Section,
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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) 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
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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 the event the value of the Total Payments does
not exceed the 110% Amount, 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 Pay
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