Change in Control Agreement



 



Exhibit 10.4



Tier 3



CHANGE IN CONTROL SEVERANCE AGREEMENT



         THIS AGREEMENT, dated as of March 1, 2002, is made by and between ZIMMER
HOLDINGS, INC., a Delaware corporation (the “Company”), and James T. Crines
(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:







 



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ARTICLE I



Term of Agreement



         This Agreement will commence on the date stated above and will continue in
effect through December 31, 2003. Beginning on January 1, 2004, 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







 



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 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







 



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 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







 



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 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.







 



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         (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);







 



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 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







 



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 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.







 



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         (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







 



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 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
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).


         SECTION 3.05. Attorneys Fees and Expenses. If the Executive finally
prevails with respect to any 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







 



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 with that dispute. In addition, the Company will pay the reasonable legal
fees and expenses incurred by the Executive in connection with any tax audit or
proceeding to the extent attributable to the application of Code section 4999
to any payment or benefit provided under this Agreement and including, but not
limited to, auditors’ fees incurred in connection with the audit or proceeding.
Payment of fees and expenses due under this Section will be made to the
Executive within 15 business days after delivery of the Executive’s written
request for payment, accompanied by such evidence of fees and expenses incurred
as the Company reasonably may require. With respect to fees and expenses
incurred in connection with a good faith dispute, the Executive may not submit
a request for payment or reimbursement until the dispute has been finally
resolved (either by agreement or by an order or judgment that is not subject to
appeal or with respect to which all appeals have been exhausted or waived).


ARTICLE IV



Termination of Employment



         SECTION 4.01. Notice of Termination. After a Change in Control and
during the term of this Agreement, any purported termination of the Executive’s
employment (other than by reason of death) will be communicated by a written
Notice of Termination from one party to the other party in accordance with
Article VIII. The Notice of Termination will indicate the specific termination
provision in this Agreement relied upon and will set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive’s employment under the cited provision.


         SECTION 4.02. Date of Termination. Except as otherwise provided in
Section 4.01, with respect to any purported termination of the Executive’s
employment after a Change in Control and during the term of this Agreement, the
term “Date of Termination” will







 



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 have the meaning set forth in this Section. If the Executive’s employment
is terminated for Disability, Date of Termination means thirty (30) days after
Notice of Termination is given, provided that the Executive does not return to
the full-time performance of the Executive’s duties during that 30 day period.
If the Executive’s employment is terminated for any other reason, Date of
Termination means the date specified in the Notice of Termination, which, in
the case of a termination by the Company, cannot be less than 30 days (except
in the case of a termination for Cause) and, in the case of a termination by
the Executive, cannot be less than 15 days nor more than 60 days from the date
on which the Notice of Termination is given.


ARTICLE V



No Mitigation



         The Company agrees that, if the Executive’s employment by the Company is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company pursuant to Article III. Further, the amount of
any payment or benefit provided for in Article III (other than Section 3.02(e))
will not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the Company, or otherwise.


ARTICLE VI



The Executive’s Covenants



         SECTION 6.01. Noncompetition Agreement. In consideration for this
Agreement, the Executive will execute, concurrent with the execution of this
Agreement, a noncompetition agreement in the form attached to this Agreement as
Exhibit A.


         SECTION 6.02. Potential Change in Control. The Executive agrees that,
subject







 



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 to the terms and conditions of this Agreement, in the event of a Potential
Change in Control during the term of this Agreement, the Executive will remain
employed by the Company until the earliest of (a) a date that is six months
from the date of the Potential Change of Control, (b) the date of a Change in
Control, (c) the date on which the Executive terminates employment for Good
Reason (determined by treating the Potential Change in Control as a Change in
Control in applying the definition of Good Reason) or by reason of death, or
(d) the date the Company terminates the Executive’s employment for any reason.


         SECTION 6.03. General Release. The Executive agrees that,
notwithstanding any other provision of this Agreement, the Executive will not
be eligible for any Severance Payments under this Agreement unless the
Executive timely signs, and does not timely revoke, a General Release in
substantially the form attached to this Agreement as Exhibit B. The Executive
will be given 21 days to consider the terms of the General Release. The
General Release will not become effective until seven days following the date
the General Release is executed. If the Executive does not return the executed
General Release to the Company by the end of the 21 day period, that failure
will be deemed a refusal to sign, and the Executive will not be entitled to
receive any Severance Payments under this Agreement. In certain circumstances,
the 21 day period to consider the General Release may be extended to a 45 day
period. The Executive will be advised in writing if the 45 day period is
applicable. In the absence of such notice, the 21 day period applies.


ARTICLE VII



Successors; Binding Agreement



         SECTION 7.01. Obligation of Successors. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor







 



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 (whether direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no succession had occurred. Failure of the Company to obtain such an
assumption and agreement prior to the effectiveness of any such succession will
be a breach of this Agreement and will entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive
would be entitled to under this Agreement if the Executive were to terminate
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which the succession becomes
effective will be deemed the Date of Termination.


         SECTION 7.02. Enforcement Rights of Others. This Agreement will inure to
the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive dies while any amount is still
payable to the Executive under this Agreement, (other than amounts that, by
their terms, terminate upon the Executive’s death), then, unless otherwise
provided in this Agreement, all such amounts will be paid in accordance with
the terms of this Agreement to the executors, personal representatives, or
administrators of the Executive’s estate.


ARTICLE VIII



Notices



         For the purpose of this Agreement, notices and all other communications
provided for in the Agreement will be in writing and will be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the respective
addresses set forth below, or to such other address as either party may







 



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 furnish to the other in writing in accordance with this Article VIII,
except that notice of change of address will be effective only upon actual
receipt:


         To the Company:



	 	Zimmer Holdings, Inc.



	 	345 East Main Street


	 	Post Office Box 708


	 	Warsaw, Indiana 46581-0708




	 	To the Executive:




	 	James T. Crines


	 	1785 S. Woodfield Trail


	 	Warsaw, IN 46580



ARTICLE IX



Miscellaneous



         This Agreement will not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive will not have any right to be retained
in the employ of the Company. No provision of this Agreement may be modified,
waived, or discharged unless the waiver, modification, or discharge is agreed
to in writing and signed by the Executive and an officer of the Company
specifically designated by the Board. No waiver by either party at any time of
any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by the other party will be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
other time. Neither party has made any agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter of this
Agreement that are not expressly set forth in this Agreement. The validity,
interpretation, construction, and performance of this Agreement will be
governed by the laws of the State of Indiana. All references to sections of
the Exchange Act or the Code will be deemed also to refer







 



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 to any successor provisions to those sections. Any payments provided for
under this Agreement will be paid net of any applicable withholding required
under federal, state, or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
Articles III, IV, and VI will survive the expiration of the term of this
Agreement.


ARTICLE X



Validity



         The invalidity or unenforceability of any provision or this Agreement will
not affect the validity or enforceability of any other provision of this
Agreement, which will remain in full force and effect.


ARTICLE XI



Counterparts



         This Agreement may be executed in several counterparts, each of which will
be deemed to be an original but all of which together will constitute one and
the same instrument.


ARTICLE XII



Settlement of Disputes; Arbitration



         All claims by the Executive for benefits under this Agreement must be in
writing and will be directed to and determined by the Board. Any denial by the
Board of a claim for benefits under this Agreement will be delivered to the
Executive in writing and will set forth the specific reasons for the denial and
the specific provisions of this Agreement relied upon. The Board will afford a
reasonable opportunity to the Executive for a review of the decision denying a
claim and will further allow the Executive to appeal to the Board a decision of
the Board within 60 days after notification by the Board that the Executive’s
claim has been denied. Any further







 



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 dispute or controversy arising under or in connection with this Agreement
will be settled exclusively by arbitration in Warsaw, Indiana in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator’s award in any court having
jurisdiction. Each party will bear its own expenses in the arbitration for
attorneys’ fees, for its witnesses, and for other expenses of presenting its
case. Other arbitration costs, including arbitrators’ fees, administrative
fees, and fees for records or transcripts, will be borne equally by the
parties. Notwithstanding anything in this Article to the contrary, if the
Executive prevails with respect to any dispute submitted to arbitration under
this Article, the Company will reimburse or pay all reasonable legal fees and
expenses that the Executive incurred in connection with that dispute as
required by Section 3.05.


ARTICLE XIII



Definitions



         For purposes of this Agreement, the following terms will have the meanings
indicated below:


         (a)  “Accounting Firm” means an accounting firm that is designated as one
of the five largest accounting firms in the United States (which may include
the Company’s independent auditors).


         (b)  “Award Plan” means the Zimmer Holdings, Inc. Stock Incentive Plan.


         (c)  “Base Amount” has the meaning stated in Code section 280G(b)(3).


         (d) “Beneficial Owner” has the meaning stated in Rule 13d-3 under the
Exchange Act.







 



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         (e)  “BEP” means the Benefit Equalization Plan of Zimmer Holdings, Inc.
and Its Subsidiary or Affiliated Corporations Participating in the Zimmer
Holdings, Inc. Retirement Income Plan or the Zimmer Puerto Rico Retirement
Income Plan.


         (f)  “Board” means the Board of Directors of the Company.


         (g)  “Cause” for termination by the Company of the Executive’s employment,
after any Change in Control, means (1) the willful and continued failure by the
Executive to substantially perform the Executive’s duties with the Company
(other than any such failure resulting from the Executive’s incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination for Good Reason by the Executive pursuant
to Section 4.01) for a period of at least 30 consecutive days after a written
demand for substantial performance is delivered to the Executive by the Board,
which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive’s duties; (2)
the Executive willfully engages in conduct that is demonstrably and materially
injurious to the Company or its subsidiaries, monetarily or otherwise; or (3)
the Executive is convicted of, or has entered a plea of no contest to, a
felony. For purposes of clauses (1) and (2) of this definition, no act, or
failure to act, on the Executive’s part will be deemed “willful” unless it is
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive’s act, or failure to act, was in the best
interest of the Company.


         (h)  A “Change in Control” will be deemed to have occurred if any of the
following events occur:



		
	 	         (1) any Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities beneficially
owned by that Person any








 



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	 	securities acquired directly from the Company or its affiliates)
representing 20% or more of the combined voting power of the Company’s then
outstanding securities; or




		
	 	         (2) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of the period constitute the Board and any new director (other
than a director designated by a Person who has entered into an agreement
with the Company to effect a transaction described in clause (1), (3) or
(4) of this paragraph whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously approved), cease for any reason to constitute
a majority of the Board; or




		
	 	         (3) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior to the merger or consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, at least 75% of the
combined voting power of the voting securities of the Company or the
surviving entity outstanding immediately after the merger or
consolidation; or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
Person acquires more than 50% of the combined voting power of the
Company’s then outstanding securities; or




		
	 	         (4) the shareholders of the Company approve a plan of complete
liquidation of the








 



20




		
	 	Company or an agreement for the sale or disposition by the Company
of all or substantially all the Company’s assets.



Notwithstanding the foregoing, a Change in Control will not include any event,
circumstance, or transaction occurring during the six-month period following a
Potential Change in Control that results from the action of any entity or group
that includes, is affiliated with, or is wholly or partly controlled by the
Executive; provided, further, that such an action will not be taken into
account for this purpose if it occurs within a six-month period following a
Potential Change in Control resulting from the action of any entity or group
that does not include the Executive.


         (i)  “COBRA” means the continuation coverage provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.


         (j)  “Code” means the Internal Revenue Code of 1986, as amended from time
to time, and interpretative rules and regulations.


         (k)  “Company” means Zimmer Holdings, Inc., a Delaware corporation, and
any successor to its business and/or assets that assumes and agrees to perform
this Agreement by operation of law, or otherwise (except in determining, under
Section XIII(h), whether or not any Change in Control of the Company has
occurred in connection with the succession).


         (l)  “Company Shares” means shares of common stock of the Company or any
equity securities into which those shares have been converted.


         (m)  “Date of Termination” has the meaning stated in Section 4.02.


         (n)  “Disability” has the meaning stated in the Company’s short-term or
long-term disability plan, as applicable, as in effect immediately prior to a
Change in Control.


         (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended
from time to time, and interpretive rules and regulations.







 



21

         (p)  “Excise Tax” means any excise tax imposed under Code Section 4999.


         (q)  “Executive” means the individual named in the first paragraph of this
Agreement.


         (r)  “General Release” has the meaning stated in Section 6.03.


         (s)  “Good Reason” for termination by the Executive of the Executive’s
employment means the occurrence (without the Executive’s express written
consent) of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (1), (4), (5), (6), or (7) below, the act or failure to act is
corrected prior to the Date of Termination specified in the Executive’s Notice
of Termination:



		
	 	         (1) the assignment to the Executive of any duties inconsistent with
the Executive’s status as an executive officer of the Company or a
substantial adverse alteration in the nature or status of the Executive’s
responsibilities from those in effect immediately prior to a Change in
Control;




		
	 	         (2) a reduction by the Company in the Executive’s annual base salary
as in effect on the date of this Agreement or as the same may be
increased from time to time, or the level of the Executive’s entitlement
under the Incentive Plan as in effect on the date of this Agreement or as
the same may be increased from time to time;




		
	 	         (3) the Company’s requiring the Executive to be based more than 50
miles from the Company’s offices at which the Executive is based
immediately prior to a Change in Control (except for required travel on
the Company’s business to an extent substantially consistent with the
Executive’s business travel obligations immediately prior to the Change
in Control), or, in the event the Executive consents to any such
relocation of his








 



22




		
	 	offices, the Company’s failure to provide the Executive with all of
the benefits of the Company’s relocation policy as in operation
immediately prior to the Change in Control;




		
	 	         (4) the Company’s failure, without the Executive’s consent, to pay
to the Executive any portion of the Executive’s current compensation
(which means, for purposes of this paragraph (4), the Executive’s annual
base salary as in effect on the date of this Agreement, or as it may be
increased from time to time, and the awards earned pursuant to the
Incentive Plan) or to pay to the Executive any portion of an installment
of deferred compensation under any deferred compensation program of the
Company, within seven days of the date the compensation is due;




		
	 	         (5) the Company’s failure to continue in effect any compensation
plan in which the Executive participates immediately prior to a Change in
Control, which plan is material to the Executive’s total compensation,
including, but not limited to, the Incentive Plan and the Award Plan or
any substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to that plan, or the Company’s failure
to continue the Executive’s participation in such a plan (or in a
substitute or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of the
Executive’s participation relative to other participants, as existed at
the time of the Change in Control;




		
	 	         (6) the Company’s failure to continue to provide the Executive with
benefits substantially similar to those enjoyed by the Executive under
any of the Company’s pension (including, without limitation, the
Company’s Retirement Plan, the BEP, and the Company’s Savings and
Investment Program, including the Company’s Benefit








 



23




		
	 	Equalization Plan for the Savings and Investment Program), life
insurance, medical, health and accident, or disability plans in which the
Executive was participating at the time of the Change in Control; the
taking of any action by the Company that would directly or indirectly
materially reduce any of those benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time of a Change
in Control; or the Company’s failure to provide the Executive with the
number of paid vacation days to which the Executive is entitled on the
basis of years of service with the Company in accordance with the
Company’s normal vacation policy in effect at the time of the Change in
Control; or




		
	 	         (7) any purported termination of the Executive’s employment that is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 4.01; for purposes of this Agreement, no such
purported termination will be effective.



         The Executive’s right to terminate the Executive’s employment for Good
Reason will not be affected by the Executive’s incapacity due to physical or
mental illness. The Executive’s continued employment will not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
that constitutes Good Reason.


         Notwithstanding the foregoing, the occurrence of an event that would
otherwise constitute Good Reason will cease to be an event constituting Good
Reason if the Executive does not timely provide a Notice of Termination to the
Company within 120 days of the date on which the Executive first becomes aware
(or reasonably should have become aware) of the occurrence of that event.


         (t)  “Incentive Plan” means the Company’s Executive Performance Incentive
Plan.


         (u) “Notice of Termination” has the meaning stated in Section 4.01.







 



24

         (v)  “Options” means options for Shares granted to the Executive under the
Award Plan.


         (w)  “Person” has the meaning stated in section 3(a)(9) of the Exchange
Act, as modified and used in sections 13(d) and 14(d) of the Exchange Act;
however, a Person will not include (1) the Company or any of its subsidiaries,
(2) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (3) an underwriter temporarily
holding securities pursuant to an offering of those securities, or (4) a
corporation owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company.


         (x)  “Potential Change in Control” will be deemed to have occurred if any
one of the following events occurs:



		
	 	         (1) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;




		
	 	         (2) the Company or any Person publicly announces an intention
to take or to consider taking actions that, if consummated, would
constitute a Change in Control;




		
	 	         (3) any Person who is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
10% or more of the combined voting power of the Company’s then
outstanding securities, increases that Person’s beneficial
ownership of those securities by 5% or more over the percentage so
owned by that Person on the date of this Agreement; or




		
	 	         (4) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.








 



25





         (y)  “Retirement Date” means the later of (1) the Executive’s normal
retirement date under the Retirement Plan and (2) another date for retirement
by the Executive that has been approved by the Board at any time prior to a
Change in Control.


         (z)  “Retirement Plan” means the Zimmer Holdings, Inc. Retirement Income
Plan.


         (aa)  “Savings Plan” means the Zimmer Holdings, Inc. Savings and
Investment Program, which, for purposes of this Agreement, will be deemed to
include the Benefit Equalization Plan of Zimmer Holdings, Inc. and Its
Subsidiary or Affiliated Corporations Participating in the Zimmer Holdings,
Inc. Savings and Investment Program.


         (bb)  “Severance Payments” means the payments described in Section 3.02.


         (cc)  “Shares” means shares of the common stock, $0.10 par value, of the
Company.


         (dd)  “Total Payments” has the meaning stated in Section 3.03(a)



	 	 	 	 	 	 	 
	 	EXECUTIVE	 	 	ZIMMER HOLDINGS, INC.
	
	
	
	

	 	 	 	 	 	 	 
	
	
	
	

	/s/ James T. Crines	 	By:	 	/s/ David Dvorak
	
	 	 	 	

	James T. Crines	 	 	 	David Dvorak
	
	
	
	

	 	 	 	 	 	 	 
	 	 	 	 	 	 	

	 	 	 	 	 	 	General Counsel