Exhibit 10.1
SEPARATION AGREEMENT
          This Separation Agreement is made as of June 30, 2006, by and among
Richard Fritschi (“Fritschi”), Zimmer Holdings, Inc. (“Zimmer Holdings”), and
Zimmer GmbH (“Zimmer GmbH”), a subsidiary of Zimmer Holdings. Zimmer Holdings
and Zimmer GmbH, together with all of their subsidiaries and affiliates
worldwide, are sometimes collectively referred to herein as “Zimmer”.
Recitals
          A. Fritschi has been an employee of Zimmer GmbH, most recently serving
as President, Zimmer Europe and Australasia. Zimmer GmbH and Fritschi are
parties to the following agreements: (i) Employment Contract, executed on or
about September 10, 2004 (the “Employment Contract”), and (ii) Confidentiality,
Non-Competition and Non-Solicitation Employment Agreement, executed on or about
October 18, 2004 (the “Existing Non-Compete Agreement”). Additionally, Zimmer
Holdings and Fritschi are parties to three separate stock option award
agreements, one of which was executed in January 2004, and the other two of
which were executed in January 2005 (collectively, the “Stock Option
Agreements”).
          B. On December 2, 2005, Zimmer GmbH notified Fritschi that it was
exercising its right to terminate his employment following the six-month notice
period required by the Employment Contract. Zimmer GmbH placed Fritschi on
immediate garden leave (Freistellung) and notified him that the effective date
of the termination will be June 30, 2006 (the “Termination Effective Date”).
Zimmer GmbH and Fritschi executed a letter agreement on December 2, 2005 setting
forth certain mutual understandings concerning the notice of termination and
garden leave arrangement.
          C. Solely in exchange for Fritschi’s agreement to enter into a new
post-employment restrictive covenant against competition, Zimmer is prepared to
provide certain special compensation to Fritschi. The parties mutually desire to
enter into this Agreement to memorialize certain terms and conditions that will
be in effect for a period of time subsequent to the Termination Effective Date.
Agreement
          In consideration of the foregoing and the following mutual
undertakings, Fritschi and Zimmer agree as follows:
     1. Recitals. The recitals set forth above are incorporated into and are a
part of this Agreement.
     2. Payments During the Garden Leave Period.
          (a) Throughout the balance of the current garden leave period
concluding on the Termination Effective Date, Zimmer GmbH will continue to pay
to Fritschi his current monthly base salary, monthly car allowance, and pro-rata
target bonus amount for the 2006 calendar year pursuant to the Zimmer Executive
Performance Incentive Plan. In addition, during

 

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the garden leave period, Fritschi is entitled to all contractual pension,
insurance and benefits contributions, and any other employment benefits required
to be provided by Zimmer GmbH under applicable Swiss law.
          (b) Fritschi acknowledges and agrees that Zimmer has fully satisfied
(i) the incentive compensation (i.e., bonus) payment obligations owed to
Fritschi pursuant to the Zimmer Executive Performance Incentive Plan for the
2005 fiscal year, and (ii) the year two bonus payment obligations owed to
Fritschi pursuant to the Zimmer Supplemental Performance Incentive Plan relating
to the Centerpulse integration. Fritschi acknowledges and agrees that, as a
consequence of his employment termination, he shall not be entitled to be
considered for a year three (i.e., 2006) payment under the Zimmer Supplemental
Performance Incentive Plan.
     3. Vacation Pay. The parties agree that, during the six-month garden leave
period expiring on the Termination Effective Date, Fritschi has used (or shall
use) a total of 35 previously accrued vacation days. After applying the 35
vacation days used during the garden leave period, Zimmer GmbH shall make a cash
payment to Fritschi in order to account for the balance of accrued and unused
vacation days, which payment shall be made on or about the Termination Effective
Date. Zimmer GmbH and Fritschi agree that, in accordance with the preceding
sentence, Fritschi shall receive cash compensation in the amount of CHF 224,587,
which sum equals the base compensation for 127 accrued and unused vacation days.
     4. Stock Options. All Zimmer Holdings stock options held by Fritschi shall
vest and become exercisable immediately, provided that Fritschi complies fully
with the terms and conditions of the Existing Non-Compete Agreement and New
Non-Compete Agreement (as defined below). As of March 7, 2006, pursuant to the
Stock Option Agreements, Fritschi holds the following stock options concerning
Zimmer Holdings common stock:

                      Grant Date   Grant Type   Grant Price     Shares    
 
                   
1/14/2004
  2004 MSOP Grant   $70.33 /share     50,000      
1/18/2005
  2005 MSOP Grant   $79.60 /share     27,143      
1/18/2005
  2005 Performance Options   $79.60 /share     18,240      

Fritschi may exercise any or all of the above-referenced stock options at any
time between the execution date of this Agreement and September 30, 2006. After
September 30, 2006, any Zimmer Holdings stock options that have not previously
been exercised by Fritschi shall be canceled and terminated.
     5. New Non-Compete Agreement and Additional Compensation Terms
          (a) On even date herewith, Fritschi, Zimmer Holdings and Zimmer GmbH
have executed the new Post-Employment Non-Disclosure, Non-Competition and
Non-Solicitation Agreement attached hereto as Attachment A, which is
incorporated herein by reference and forms and integral part hereof (the “New
Non-Compete Agreement”). The parties acknowledge and agree that, effective as of
July 1, 2006, the New Non-Compete Agreement shall supersede and replace the
Existing Non-Compete Agreement in its entirety. Notwithstanding the foregoing,
Zimmer may continue to enforce its rights and remedies under

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and pursuant to the Existing Non-Compete Agreement for any violation which
occurred on or before June 30, 2006.
          (b) In consideration for Fritschi entering into the New Non-Compete
Agreement, provided that Fritschi complies fully with all of the covenants set
forth in the New Non-Compete Agreement, Zimmer will issue the following
installment payments to Fritschi:

              Payment Date   Payment Amount
 
       
Installment 1
  January 1, 2007   CHF 100,000.00
Installment 2
  December 31, 2007   CHF 150,000.00
Installment 3
  June 30, 2008   CHF 500,000.00

The foregoing sums shall be net payments to Fritschi and Zimmer shall be
responsible for all appropriate Swiss Social Security, pension and insurance
payments relating to the foregoing three installment payments. Except as
expressly set forth in this Agreement, subsequent to the Termination Effective
Date, Zimmer shall have no further monetary obligations to or concerning
Fritschi. Income earned by Fritschi from other non-competitive activities during
either the garden leave period or the non-competition period set forth in the
New Non-Compete Agreement will not reduce the payment sums otherwise owing by
Zimmer to Fritschi. In order for Zimmer to confirm that Fritschi’s activities
are non-competitive, Fritschi undertakes to notify Zimmer by e-mail
correspondence to Chad Phipps, Associate General Counsel & Secretary (or his
successor), of the sources of income and activities engaged in by Fritschi
during the balance of the garden leave period and the non-competition period.
The foregoing sums shall also be due and owing in the event of Fritschi’s death
during the term of the New Non-Compete Agreement, provided that Fritschi was in
compliance with the terms of the New Non-Compete Agreement at the time of his
death. In such event, any remaining payments shall be delivered by Zimmer to
Fritschi’s heirs in accordance with the installment payment schedule set forth
above.
     6. Release and Discharge and Covenant Not To Sue. By signing this
Agreement, Fritschi irrevocably and unconditionally releases and forever
discharges Zimmer Holdings and Zimmer GmbH and their respective successors,
insurers, assigns, parent companies and subsidiaries, affiliated entities,
directors, officers, agents, employees and anyone acting for or on behalf of
Zimmer (collectively, the “Releasees”) from any and all actions, claims and
liabilities, whether known or unknown, arising out of or connected with any act,
omission, or event occurring in whole or in part on or before the date of this
Agreement, including, but not limited to, any and all claims arising from
Fritschi’s employment with Zimmer or the termination of that employment, and
including any claims under Swiss employment laws. Fritschi also covenants not to
sue any of the Releasees or instigate or participate in any legal action against
them. Fritschi agrees that he is not entitled to, and waives any claim for, any
payments, benefits or compensation of any kind, including, but not limited to,
under any Zimmer severance plan, except as expressly provided in this Agreement.
The parties acknowledge that they intend this release and covenant not to sue to
be construed as broadly as possible. Notwithstanding anything to the contrary
stated herein, Fritschi does not release any claims, nor does he covenant not to

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sue, on account of any violations by Zimmer of its obligations to Fritschi set
forth in this Agreement.
     7. Nondisparagement. Fritschi agrees that he will not make negative
comments about or otherwise disparage or try to injure the reputation of the
Releasees. This obligation will include refraining from negative statements
about the Releasees, including their employees, directors, officers, methods of
doing business, management practices, the effectiveness of their policies, and
the quality of any of their services or products.
     8. Enforcement Remedies. In the event that a competent court of law has
decided that Fritschi has breached any provision of this Agreement or the terms
of the Existing Non-Compete Agreement on or before June 30, 2006 or the New
Non-Compete Agreement from July 1, 2006 through June 30, 2008, in addition to
any other remedies set forth in the Existing Non-Compete Agreement and the New
Non-Compete Agreement and all other relief to which Zimmer may be entitled under
law or in equity, Fritschi and Zimmer agree that Fritschi shall forfeit the
right to receive the payments described under Section 5(b) above and Fritschi
shall refund to Zimmer any sums previously paid by Zimmer to Fritschi under said
Section 5(b). In addition, Zimmer shall be entitled to recover from Fritschi all
litigation costs and attorneys’ fees incurred by Zimmer in any action or
proceeding relating to this Agreement, the Existing Non-Compete Agreement and/or
the New Non-Compete Agreement, in which Zimmer prevails.
     9. Knowledge and Voluntariness. Fritschi acknowledges that Zimmer provided
him ample time to review this Agreement and consult with an attorney of his
choosing if he deems it advisable to do so before signing this Agreement. He
further agrees that he understands the meaning of this Agreement, including the
fact that he is releasing the Releasees from any and all claims that exist as of
the date of this Agreement, and that he voluntarily is entering into this
Agreement.
     10. Non-Admission. Neither this Agreement nor any action pursuant to it
constitutes an admission by any of the Releasees of any liability to Fritschi
arising under any employment or other laws, and the Releasees specifically deny
any such liability.
     11. Binding Agreement. This Agreement shall be binding upon Fritschi and
Zimmer, and upon Zimmer’s successors, and shall inure to the benefit of Fritschi
and Zimmer, and to Zimmer’s successors. For purposes of Section 5(b), this
Agreement shall inure to the benefit of Fritschi’s heirs.
     12. Language Construed as a Whole. The language of this Agreement shall in
all cases be construed as a whole, according to its fair meaning, and not
strictly for or against either of the parties.
     13. Governing Law and Jurisdiction. This Agreement, including the
jurisdiction clause, shall be governed by, interpreted and construed in
accordance with the substantive laws of Switzerland. Exclusive jurisdiction for
all disputes arising out of or in connection with this Agreement shall be with
the ordinary courts of Zurich 1.

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     14. Entire Agreement. This Agreement, including the New Non-Compete
Agreement attached as Attachment A, sets forth the entire agreement between the
parties with regard to the subject matter hereof.
     15. Modification. This Agreement may not be amended, supplemented or
modified except by written instrument signed by Fritschi and a duly-authorized
officer of Zimmer Holdings and Zimmer GmbH. No waiver of any violation or
non-performance of this Agreement in one instance shall be deemed to be a waiver
of any violation or non-performance in any other instance. All waivers must be
in writing.
     16. Severability. Should any clause, portion or paragraph of this Agreement
be declared by any court of competent jurisdiction to be unenforceable, invalid
or illegal for any reason, it shall not affect the enforceability, validity or
legality of the remainder of this Agreement so long as the economic or legal
substance contemplated by this Agreement is not affected in any manner
materially adverse to any party.
     17. Publicity. The parties acknowledge and understand that Zimmer Holdings
is obligated to furnish this Agreement as an exhibit to a Form 8-K current
report submitted to the United States Securities and Exchange Commission.
     IN WITNESS WHEREOF, Fritschi, Zimmer Holdings and Zimmer GmbH each have
executed this Separation Agreement as of the date set forth below.

                  /s/ RICHARD FRITSCHI       RICHARD FRITSCHI             
ZIMMER HOLDINGS, INC.
      By:   /s/ J. RAYMOND ELLIOTT         Name:   J. Raymond Elliott       
Title:   Chairman, President & CEO        ZIMMER GmbH
      By:   /s/ ROLAND DIGGELMANN         Name:   Roland Diggelmann       
Title:   Sr. VP, Sales & Distribution, Europe & MEA     

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