CHANGE IN CONTROL SEVERANCE AGREEMENT

Exhibit 10.1

CHANGE IN CONTROL SEVERANCE AGREEMENT

     THIS AGREEMENT, dated as of January 5, 2004, is made by and between ZIMMER HOLDINGS, INC., a Delaware corporation (the “Company”), and Cheryl R. Blanchard (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, 2004. Beginning on January 1, 2005, 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 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 no less favorable than those provided under 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 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 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.

     (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) 12 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 the relevant benefits are payable to the Executive under the BEP or any successor plan; provided , however , that if the transaction constituting the Change in Control has not been approved by the Board prior to its consummation, the actuarial equivalent of the additional benefits under this Section 3.02(d) will be paid in a cash lump sum. 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 12-month period after the Date of Termination, the Company will arrange to provide the Executive with life insurance benefits substantially similar to those that the Executive is receiving from the Company immediately prior to the Notice of Termination (without giving effect to any reduction in those benefits subsequent to a Change in Control). Life insurance benefits otherwise receivable by the Executive pursuant to the preceding sentence will be reduced to the extent comparable benefits are 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 benefits 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 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 the continuation coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). The Executive will be responsible for paying the required monthly premium for that coverage, but the Company will pay the Executive a lump sum cash stipend equal to 12 times the monthly premium then charged to qualified beneficiaries for full family COBRA continuation coverage under the Company’s medical and dental plans, which the Executive may choose to use for the payment of COBRA premiums. The Company will pay the stipend to the Executive whether or not the Executive or anyone in his family elects COBRA continuation coverage, whether or not the Executive continues COBRA coverage for a full 12 months, and whether or not the Executive receives health coverage form another employer while the Executive is receiving COBRA continuation coverage.

     (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 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 . 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 contained in this Agreement to the contrary, 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 an 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).

     (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 Code sections 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) 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) 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 wi