Exhibit 10.1

LOGO [g696411g26h55.jpg]   

P.O. Box 708

Warsaw, IN 46581-0708

574 267-6131

Confidential

January 10, 2014

Jeffery A. McCaulley

Dear Jeff:

This will confirm the termination of your employment by Zimmer, effective
January 10, 2014. This letter and the attached material summarize important
issues regarding severance and other benefits you may be eligible to receive as
a result of your separation.

SEVERANCE

Zimmer’s standard severance benefit includes an amount representing a number of
weeks of base pay based on years of service and an amount equal to the cost of
continued health insurance coverage (“COBRA coverage”) for a certain number of
weeks after your current coverage ends. Under the Zimmer Holdings, Inc. Restated
Severance Plan (“Severance Plan”), dated March 2013, you would be eligible,
subject to the terms of the Severance Plan, for a severance benefit of 7.5 weeks
of base pay, which would equal $79,326.92, plus 7.5 weeks of COBRA subsidy,
which would equal $2,217.41, for a total benefit of $81,989.66. Based upon your
separation date, you would also be eligible, again subject to the terms of the
Severance Plan, to receive the value of the bonus you would have received under
Zimmer’s Executive Performance Incentive Plan had you remained employed on the
payout date.

In the interest of a mutually respectful parting of ways, and taking into
account your senior executive status, Zimmer is willing to offer you an enhanced
severance benefit as an exception to our policy and in lieu of the standard
benefit under the Severance Plan. This enhanced severance offer totals six
months of base pay, which equals $275,000, plus six months of COBRA subsidy,
which equals $8,520.78, for a total severance offer of $283,520.78. It also
includes payment of a 2013 bonus calculated in accordance with Zimmer’s
Executive Performance Incentive Plan based upon your eligible earnings for 2013
and final bonus metric for 2013. Additionally, it includes up to $25,000 in
outplacement services reimbursement as further explained below. The $283,520.78
will be paid to you in a lump sum, less applicable tax withholdings, as soon as
administratively feasible following receipt of the executed General Release that
is attached and expiration of a seven-day rescission period, assuming you do not
rescind the General Release within that period. The 2013 bonus equivalent will
be paid to you, less applicable tax withholdings, in or around March 2014, again
subject to receipt of an executed General Release without a timely rescission.
This enhanced benefit will be provided to you in accordance with, and subject
to, terms and provisions of the Severance Plan, with the sole exceptions from
Severance Plan terms and provisions being the benefit amount, the timing of
payment of the 2013 bonus equivalent, and provisions specific to the
outplacement services benefit enhancement.

--------------------------------------------------------------------------------

Page  2

January 10, 2014

 

Although the COBRA component is intended to help you with the costs of
maintaining health insurance coverage after your separation from employment, it
is not restricted as to use and if you fulfill all conditions of receiving
severance benefits as described below, you may use that monetary sum as you see
fit. Also, you must still timely complete and return the COBRA enrollment form,
and pay premiums to maintain this coverage.

ATTACHMENT I — GENERAL RELEASE

You must sign and not rescind the General Release in order to qualify for any
severance benefit. Please read this attachment carefully, and consult with an
attorney and/or any other advisor of your choice prior to signing the General
Release. In summary, by signing the General Release, you waive all legal claims
against Zimmer and its affiliates through the date of your signing, to the
fullest extent permitted by law. Certain rights under the Zimmer Holdings, Inc.
2006 and 2009 Stock Incentive Plans, if applicable, are also contingent upon
your executing the General Release. You have 21 calendar days from the date of
this letter to review, consider, sign and return the General Release, and 7
calendar days thereafter to revoke your signature. Should you revoke the General
Release within the time allowed, you will forego any severance benefits as well
as any unvested Zimmer Holdings, Inc. 2006 and 2009 Stock Incentive Plan stock
options.

OUTPLACEMENT SERVICES

Zimmer will provide you with certain outplacement services to assist you in
transitioning to other employment, in an amount not to exceed $25,000. The
services will be provided by Right Management. You may contact Right Management
at 1-800-966-6880 or via email at rightindianapolis@right.com. If you prefer to
use a different resource, subject to your signing and not timely rescinding the
attached General Release, Zimmer will make an exception to its policy and either
pay on your behalf or reimburse you for up to $25,000 in outplacement services
expense that you incur within six months of your separation date from Zimmer.
Any such payment or reimbursement will be reported as taxable income to you and
will be subject to applicable tax withholdings.

ATTACHMENT II — VACATION PAY SUMMARY

You will receive payment for any unused and earned vacation. If applicable,
payment will be made in a lump sum as soon as administratively feasible
following your separation date in accordance with applicable state law.

ATTACHMENT III — TERMINATION OF BENEFIT COVERAGES

Group medical, dental and vision benefits, if applicable, end as of 11:59 p.m.
on the last calendar day of the month during which your employment terminates.
All other benefits terminate as of 11:59 p.m. on your last day of employment. If
you have elected a flexible spending account (FSA), expenses incurred after your
last day of active employment are not reimbursable from your FSA unless you are
eligible for and timely elect applicable COBRA coverage. Shortly following your
termination date, detailed information concerning medical care continuation
options that are available to you as a result of your termination of employment
will be mailed to your home, as provided by the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”). Attachment III sets forth a summary of
COBRA premiums, which are subject to change.

--------------------------------------------------------------------------------

Page  3

January 10, 2014

 

You must elect COBRA coverage in accordance with the instructions that will be
sent to you, and pay all applicable premiums as instructed, to continue medical
care coverage. As explained above, although the severance benefit you are being
offered includes an amount intended to subsidize your COBRA premiums for a
period of time, it is up to you to decide whether or not to use that money for
payment of COBRA premiums. Zimmer will not enroll you for COBRA coverage or make
any COBRA payments on your behalf.

Please note that, as long as you are eligible for benefits under Zimmer’s
medical plans or dental plan, you will also continue to be eligible to
participate in the Employee Assistance Program. Plan benefits are explained more
fully in the summary plan description.

Life and Accidental Death and Dismemberment (AD&D) insurance coverage will
terminate as of 11:59 p.m. on your last day of active employment. You will have
the opportunity to convert or port a portion of your life insurance benefit into
an individual policy as described in Attachment IV, which is an excerpt from the
Life Insurance and AD&D Insurance Programs Summary Plan Description. Information
regarding this opportunity will be sent to you from the Zimmer Benefit Service
Center. If you have not received that information within 15 days from the date
of this letter, please contact the Service Center at 1-877-588-0933. You must
elect to convert or port your insurance coverage in a timely manner to qualify
for individual-policy coverage.

SAVINGS AND INVESTMENT PROGRAM (401(k))

You are fully vested in both your Employee and Employer account balances. Within
four to six weeks following your termination date, you will receive important
information from Fidelity describing your options as an inactive participant in
the 401(k) Program.

BENEFIT EQUALIZATION PLAN OF THE SAVINGS AND INVESTMENT PROGRAM (BEP-SAVINGS
PLAN)

You elected to participate in the BEP-Savings Plan, which is a non-qualified
plan. As with the 401(k) Program, you are fully vested in both your Employee and
Employer account balances. Your estimated vested account balance as of
September 30, 2013 is $122,003.

Because you are an officer of Zimmer and considered a Specified Employee under
Section 409A as of your separation date, your vested account balance as of your
separation date will be paid to you in a lump sum, less applicable taxes, on the
first payroll period date after six months have elapsed from your date of
separation. We expect that the payment date will be August 1, 2014.

Your BEP-Savings Plan account balance as of September 30, 2013 shown above will
be adjusted for investment experience through June 30, 2014. You will continue
to receive quarterly Statements of Account providing you with updated account
balance information. Please note that, because this is a non-qualified plan, the
distribution may not be rolled into an IRA or other qualified plan.

--------------------------------------------------------------------------------

Page  4

January 10, 2014

 

Payment of your BEP-Savings Plan account balance will be automatic, so there is
no action you must take to initiate payment.

As noted above, the amount of your benefit payment from the BEP-Savings Plan is
considered ordinary income and subject to applicable income tax withholding.

You have been paying applicable Social Security and Medicare taxes on your
BEP-Savings Plan deferrals and Company match during each payroll
period. Therefore, we do not expect that there will be any additional Social
Security and Medicare taxes due on the amount to be distributed to you. Federal,
State and Local taxes will be withheld from the distribution.

STOCK OPTIONS

You have vested stock options that were granted under the 2006 and/or 2009 Stock
Incentive Plans and you are not eligible for retiree treatment. Consequently,
you will have three months from your separation date to exercise your vested
stock options. In addition, you have unvested stock options that were granted
under the 2006 and/or 2009 Stock Incentive Plans that you have held for at least
one year as of the date of your termination of employment. In accordance with
the applicable Award Agreements, if you sign and do not timely rescind the
General Release, Zimmer will accelerate the vesting of these options and you
will have three months from your separation date to exercise these options. Any
stock options that you do not exercise within three months of your separation
date, including stock options that are not “in-the-money,” will expire. We are
unable to extend this 90 day period of time.

Please remember, under the Zimmer Stock Trading Policy, because you are a
“Covered Person” under the policy and you are terminating service with Zimmer
during a quarterly blackout period, you may not trade in Zimmer securities until
the second business day after the quarterly earnings release. It is anticipated
that Zimmer’s Fourth Quarter 2013 earnings release will be on Thursday,
January 30, 2014, meaning the blackout period would expire at 12:01 a.m. on
Monday, February 3, 2014. As these dates are subject to change, you should
follow Zimmer press releases to confirm the earnings release date. Please note
that the fact that you are subject to the current blackout period does not serve
to extend the three-month period during which you may exercise vested stock
options. After expiration of the current blackout period, you will not be
subject to any future quarterly blackout periods.

Further, you currently have in place a Rule 10b5-1 Plan. Section 4(d) of that
plan prohibits you from selling shares (including cashless exercises of stock
options) outside the plan prior to termination of the plan. However, you may opt
to terminate the plan at any time upon written notice to Computershare. Jan
Zolman can assist in providing any such notice to Computershare.

--------------------------------------------------------------------------------

Page  5

January 10, 2014

 

RESTRICTED STOCK UNIT AWARDS (RSUs)

With respect to RSUs granted to you prior to 2012, you will receive a pro-rata
number (as applicable) of RSUs that you have held for at least one year in
accordance with the applicable Award Agreement(s).

Your 2012 and 2013 performance-based RSUs tied to three-year iTSR performance
will be cancelled.

Please contact Jan Zolman, Stock Option Administrator, at (574) 372-4185 if you
have any questions regarding your stock options or RSUs.

CONFIDENTIALITY

Please remember your continuing obligation to maintain confidentiality and not
use or disclose any information concerning Zimmer’s business or affairs that is
not public knowledge. This obligation, which you acknowledged and agreed to in
the non-disclosure, non-competition and non-solicitation agreement that you
signed, continues after the termination of your employment. This means, among
other things, that in addition to any restrictions already existing by law, you
are contractually prohibited from disclosing or using Zimmer’s confidential,
proprietary, and trade secret information.

Because you are a Named Executive Officer (i.e., an officer named in the Summary
Compensation Table of Zimmer’s most recent proxy statement), the material terms
of your enhanced severance benefit will be described in a Form 8-K filed with
the Securities and Exchange Commission within four business days of your
execution of the General Release.

NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION AGREEMENT

Given that your employment with Zimmer is terminating, we remind you of your
continuing obligations under your non-disclosure, non-competition and
non-solicitation agreement (“Agreement”) with Zimmer. In the Agreement, you
promised not to engage in certain competitive activities for the period set
forth in the Agreement and not to disparage Zimmer. We request that you be
mindful of your continuing obligations under the Agreement and that you strictly
comply with them. Please understand that if you do not comply fully with your
legal obligations under the Agreement, Zimmer will take all necessary actions to
enforce its legal rights, including the forfeiture or clawback of any option and
severance benefits. We trust, however, that you will honor your obligations
under the Agreement and that no further action or communication on this subject
will be necessary.

Should you receive an offer of employment that would or might violate the
restrictions in your Agreement, or be advised that you would receive an offer
but for the restrictions in your Agreement, please let us know promptly. We will
then determine whether Zimmer is willing to release you from restrictions under
your Agreement to the extent necessary to allow you to accept the opportunity.
We may require information sufficient to verify the opportunity. If Zimmer does
not provide such a waiver of restrictions, you may qualify for non-competition

--------------------------------------------------------------------------------

Page  6

January 10, 2014

 

period payments under the Agreement. Such payments would commence after your
six-month severance benefit period ends, and continue through the end of your
restricted period under the Agreement subject to your fulfilling requirements
for continued payments set forth in the Agreement.

COMPANY PROPERTY

To the extent you still have in your possession or control any Zimmer property
or any materials (including, without limitation, documents, electronic data,
computers, PDA’s, cell phones or files in your possession, or any copies
thereof) containing any of Zimmer’s confidential, proprietary, or trade secret
information, please immediately deliver all such property to me or coordinate
with me regarding the return of such materials.

You must also delete any electronic confidential Zimmer information stored on
your personal computer or other electronic device.

SUMMARY

This letter is intended to summarize the benefits to which you may be entitled
as a result of your separation from Zimmer. Your benefits are governed by the
terms of each applicable plan document and/or award agreement, and if there is a
conflict, the terms of the plan document will control (with the exceptions
related to your enhanced severance offer as described above). For your
reference, we have included a list of service providers and contact information
for Zimmer benefit programs (Attachment V).

Please note that although the severance benefit you are being offered should not
be subject to Section 409A of the Internal Revenue Code of 1986, as amended,
Zimmer does not guarantee any tax consequences related to any benefit under
severance or non-qualified plans.

Please notify me promptly of any address changes, so that we can ensure that all
communication and tax information is directed to the correct address. If you
have any questions concerning this letter or any of the arrangements surrounding
your separation from the Company, please feel free to contact me.

Sincerely,

/s/ Bill B. Fisher

Bill P. Fisher

Senior Vice President, Global Human Resources

Attachments:

Attachment I - General Release /Attachment II - Vacation Pay Worksheet

Attachment III - COBRA Rates

Attachment IV - Excerpt from Life Insurance and AD&D Insurance Programs Summary
Plan Description, Regarding Portability and Conversion

Attachment V - Vendor Contact Information