Document:

Untitled Document

Exhibit 10.1

  

 

 SOCKET MOBILE,
  INC.

  

  2004 EQUITY INCENTIVE PLAN

  

  (As Amended April 29, 2010) 

 

1. Purposes of the Plan. The purposes of this Plan are:

	to attract and retain the best available personnel for positions of substantial
    responsibility,

    

  
	to provide additional incentive to Employees, Directors and Consultants,
    and

    

  
	to promote the success of the Company's business.
    The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock
      Options, Restricted Stock, Stock Appreciation Rights, Performance Units
      and Performance Shares.

  

2. Definitions. As used herein, the following definitions will apply:

   (a) "Administrator" means the Board or any of its Committees
    as will be administering the Plan, in accordance with Section 4 of the Plan.
  

  (b) "Applicable Laws" means the requirements relating to
    the administration of equity-based awards under U.S. state corporate laws,
    U.S. federal and state securities laws, the Code, any stock exchange or quotation
    system on which the Common Stock is listed or quoted and the applicable laws
    of any foreign country or jurisdiction where Awards are, or will be, granted
    under the Plan.

  (c) "Award" means, individually or collectively, a grant
    under the Plan of Options, SARs, Restricted Stock, Performance Units or Performance
    Shares.

  (d) "Award Agreement" means the written or electronic agreement
    setting forth the terms and provisions applicable to each Award granted under
    the Plan. The Award Agreement is subject to the terms and conditions of the
    Plan.

  (e) "Board" means the Board of Directors of the Company.

  (f) "Cash Position" means as to any Performance Period,
    the Company' s level of cash and cash equivalents, including, without limitation,
    amounts classified for financial reporting purposes as short-term investments
    and restricted investments.

  (g) "Change in Control" means the occurrence of any of the
    following events:

    (i) Any "person" (as such term is used in Sections 13(d) and
      14(d) of the Exchange Act) becomes the "beneficial owner" (as
      defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities
      of the Company representing fifty percent (50%) or more of the total voting
      power represented by the Company's then outstanding voting securities; or

     

  

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                (ii)
  The consummation of the sale or disposition by the Company of all or substantially
  all of the Company's assets; or

              (iii)
  The consummation of a merger or consolidation of the Company with any other
  corporation, other than a merger or consolidation which would result in the
  voting securities of the Company outstanding immediately prior thereto continuing
  to represent (either by remaining outstanding or by being converted into voting
  securities of the surviving entity or its parent) at least fifty percent (50%)
  of the total voting power represented by the voting securities of the Company
  or such surviving entity or its parent outstanding immediately after such merger
  or consolidation.

  (h) "Code" means the Internal Revenue Code of 1986, as amended.
    Any reference to a section of the Code herein will be a reference to any successor
    or amended section of the Code.

  (i) "Committee" means a committee of Directors or of other
    individuals satisfying Applicable Laws appointed by the Board in accordance
    with Section 4 hereof.

  (j) "Common Stock" means the common stock of the Company.

  (k) "Company" means Socket Mobile, Inc., a Delaware corporation,
    or any successor thereto.

  (l) "Consultant" means any person, including an advisor,
    engaged by the Company or a Parent or Subsidiary to render services to such
    entity.

  (m) "Determination Date" means the latest possible date
    that will not jeopardize the qualification of an Award granted under the Plan
    as "performance-based compensation" under Section 162(m) of the
    Code.

  (n) "Director" means a member of the Board.

  (o) "Disability" means total and permanent disability as
    defined in Section 22(e)(3) of the Code, provided that in the case of Awards
    other than Incentive Stock Options, the Administrator in its discretion may
    determine whether a permanent and total disability exists in accordance with
    uniform and non-discriminatory standards adopted by the Administrator from
    time to time. 

  (p) "Earnings Per Share" means as to any Performance Period,
    the Company's or a business unit's Net Income, divided by a weighted average
    number of common shares outstanding and dilutive common equivalent shares
    deemed outstanding, determined in accordance with U.S. GAAP; provided, however,
    that if Net Income as to any such Performance Period is a negative amount,
    then Earnings Per Share means the Company's or business unit's Net Income,
    divided by a weighted average number of common shares outstanding, determined
    in accordance with U.S. GAAP.

 

 

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    (q) "Employee" means any person, including Officers and Directors,
    employed by the Company or any Parent or Subsidiary of the Company. Neither
    service as a Director nor payment of a director's fee by the Company will
    be sufficient to constitute "employment" by the Company.

  (r) "Exchange
    Act" means the Securities Exchange Act of 1934, as amended.

  (s) "Excluded
    Items" includes, without limitation, (i) incentive compensation,
    (ii) in-process research and development expenses, (iii) acquisition costs,
    (iv) compensation expense from equity compensation, (v) operating expenses
    from acquired businesses, (vi) amortization of acquired intangible assets,
    and (vii) such other unusual or one-time items as may be identified by the
    Administrator.

  (t) "Fair Market
    Value" means, as of any date, the value of Common Stock determined
    as follows:

  
    (i) If the Common Stock
      is listed on any established stock exchange or a national market system,
      including without limitation the Nasdaq National Market or The Nasdaq SmallCap
      Market of The Nasdaq Stock Market, its Fair Market Value will be the closing
      sales price for such stock (or the closing bid, if no sales were reported)
      as quoted on such exchange or system on the day of determination, as reported
      in The Wall Street Journal or such other source as the Administrator deems
      reliable;

    (ii) If the Common
      Stock is regularly quoted by a recognized securities dealer but selling
      prices are not reported, the Fair Market Value of a Share will be the mean
      between the high bid and low asked prices for the Common Stock on the day
      of determination, as reported in The Wall Street Journal or such
      other source as the Administrator deems reliable; or

    (iii) In the absence
      of an established market for the Common Stock, the Fair Market Value will
      be determined in good faith by the Administrator.

  

  (u) "Fiscal Year"
    means the fiscal year of the Company.

  (v) "Incentive
    Stock Option" means an Option that by its terms qualifies and is
    otherwise intended to qualify as an incentive stock option within the meaning
    of Section 422 of the Code and the regulations promulgated thereunder.

  (w) "Inside Director"
    means a Director who is an Employee.

  (x) "Net Income"
    means as to any Performance Period, the Company's or a business unit's income
    after taxes determined in accordance with U.S. GAAP, adjusted for any Excluded
    Items approved for exclusion by the Administrator.

  (y) "Nonstatutory
    Stock Option" means an Option that by its terms does not qualify
    or is not intended to qualify as an Incentive Stock Option.

  (z) "Officer"
    means a person who is an officer of the Company within the meaning of Section
    16 of the Exchange Act and the rules and regulations promulgated thereunder.

           

 

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    (aa) "Operating Cash Flow" means as to any Performance Period,
    the Company's or a business unit's cash flow generated from operating activities,
    as reported in the Company's cash flow statements and calculated in accordance
    with U.S. GAAP, adjusted for any Excluded Items approved for exclusion by
    the Administrator.

  (bb) "Operating
    Income" means as to any Performance Period, the Company's or a business
    unit's income from operations determined in accordance with U.S. GAAP, adjusted
    for any Excluded Items approved for exclusion by the Administrator.

  (cc) "Option"
    means a stock option granted pursuant to the Plan.

  (dd) "Parent"
    means a "parent corporation," whether now or hereafter existing,
    as defined in Section 424(e) of the Code.

  (ee) "Participant"
    means the holder of an outstanding Award.

  (ff) "Performance
    Goals" means the goal(s) (or combined goal(s)) determined by the
    Administrator (in its discretion) to be applicable to a Participant with respect
    to an Award granted under the Plan. As determined by the Administrator, the
    Performance Goals applicable to an Award may provide for a targeted level
    or levels of achievement using one or more of the following measures: (a)
    Cash Position, (b) Earnings Per Share, (c) Net Income, (d) Operating Cash
    Flow, (e) Operating Income, (f) Return on Assets, (g) Return on Equity, (h)
    Return on Sales, (i) Revenue and (j) Total Shareholder Return. The Performance
    Goals may differ from Participant to Participant and from Award to Award.
    Prior to the Determination Date, the Administrator will determine whether
    any significant element(s) will be included in or excluded from the calculation
    of any Performance Goal with respect to any Participant.

  (vv) "Subsidiary"
    means a "subsidiary corporation", whether now or hereafter existing,
    as defined in Section 424(f) of the Code.(gg) "Performance Period"
    means any Fiscal Year of the Company or such other period as determined by
    the Administrator in its sole discretion.

  (hh) "Performance
    Share" means an Award granted to a Participant pursuant to Section
    9.

  (ii) "Performance
    Unit" means an Award granted to a Participant pursuant to Section
    9.

  (jj) "Period
    of Restriction" means the period during which the transfer of Shares
    of Restricted Stock are subject to restrictions and therefore, the Shares
    are subject to a substantial risk of forfeiture. Such restrictions may be
    based on the passage of time, the achievement of target levels of performance,
    or the occurrence of other events as determined by the Administrator.

  (kk) "Plan"
    means this 2004 Equity Incentive Plan, as may be amended from time to time.

  (ll) "Restricted
    Stock" means Shares issued pursuant to a Restricted Stock award under
    Section 7 of the Plan, or issued pursuant to the early exercise of an Option.

    

 

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    (mm) "Return on Assets" means as to any Performance Period,
    the percentage equal to the Company's or a business unit's Operating Income
    divided by average net Company or business unit, as applicable, assets, determined
    in accordance with U.S. GAAP.

  (nn) "Return on Equity"
    means as to any Performance Period, the percentage equal to the Company's
    Net Income divided by average stockholder's equity, determined in accordance
    with U.S. GAAP.

  (oo) "Return on Sales"
    means as to any Performance Period, the percentage equal to the Company's
    or a business unit's Operating Income divided by the Company's or the business
    unit's, as applicable, Revenue.

  (pp) "Revenue"
    means as to any Performance Period, the Company's or business unit's net sales,
    determined in accordance with U.S. GAAP.

  (qq) "Rule 16b-3"
    means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in
    effect when discretion is being exercised with respect to the Plan.

  (rr) "Section 16(b)"
    means Section 16(b) of the Exchange Act.

  (ss) "Service Provider"
    means an Employee, Director or Consultant.

  (tt) "Share"
    means a share of the Common Stock, as adjusted in accordance with Section
    12 of the Plan.

  (uu) "Stock Appreciation
    Right" or "SAR" means an Award, granted alone or in connection
    with an Option, that pursuant to Section 8 is designated as a SAR.

  (vv) "Subsidiary" means a "subsidiary corporation",
    whether now or hereafter existing, as defined in Section 424(f) of the Code.

  (ww) "Total Shareholder Return" means as to any Performance
    Period, the total return (change in share price plus reinvestment of any dividends)
    of a Share. 

  (xx) "U.S. GAAP" means generally accepted accounting principles
    in the United States.

3. Stock Subject to the Plan. 

  (a) Stock Subject to the Plan.
    Subject to the provisions of Section 12 of the Plan, the maximum aggregate
    number of Shares that may be awarded and sold under the Plan is (i) the number
    of Shares which have been reserved but not issued under the Company's 1995
    Stock Plan, as amended and restated (the "1995 Plan") as of the
    date of stockholder approval of this Plan, (ii) any Shares returned to the
    1995 Plan as a result of termination of options or repurchase of Shares issued
    under such plan, and (iii) an annual increase to be added on the first day
    of the Company's fiscal year beginning in 2005, equal to the least of (A)
    2,000,000 Shares, (B) 4% of the outstanding Shares on such date or (C) an
    amount determined by the Board.. The Shares may be authorized, but unissued,
    or reacquired Common Stock. Shares will not be deemed to have been issued
    pursuant to the Plan with respect to any portion of an Award that is settled
    in cash. Upon payment in Shares pursuant to the exercise of an SAR, the number
    of Shares available for issuance under the Plan will be reduced only by the
    number of Shares actually issued in such payment. If the exercise price of
    an Option is paid by tender to the Company, or attestation to the ownership,
    of Shares owned by the Participant, the number of Shares available for issuance
    under the Plan will be reduced by the gross number of Shares for which the
    Option is exercised.

    

 

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    (b) Lapsed Awards. If an Award expires or becomes unexercisable without
    having been exercised in full, the unpurchased Shares which were subject thereto
    will become available for future grant or sale under the Plan (unless the
    Plan has terminated); provided, however, that Shares that have actually
    been issued under the Plan, whether upon exercise of an Award, will not be
    returned to the Plan and will not become available for future distribution
    under the Plan, except that if unvested Shares are forfeited or repurchased
    by the Company, such Shares will become available for future grant under the
    Plan. 

  (c) Share Reserve. The Company, during the term of this Plan, will
    at all times reserve and keep available such number of Shares as will be sufficient
    to satisfy the requirements of the Plan.

4. Administration of the Plan. 

  (a) Procedure.

  
    (i) Multiple Administrative Bodies. Different Committees with respect
      to different groups of Service Providers may administer the Plan.

    (ii) Section 162(m). To the extent that the Administrator determines
      it to be desirable to qualify Awards granted hereunder as "performance-based
      compensation" within the meaning of Section 162(m) of the Code, the
      Plan will be administered by a Committee of two or more "outside directors"
      within the meaning of Section 162(m) of the Code.

    (iii) Rule 16b-3. To the extent desirable to qualify transactions
      hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
      will be structured to satisfy the requirements for exemption under Rule
      16b-3.

    (iv) Other Administration. Other than as provided above, the Plan
      will be administered by (A) the Board or (B) a Committee, which committee
      will be constituted to satisfy Applicable Laws. 

  

  (b) Powers of the Administrator. Subject to the provisions of the
    Plan, and in the case of a Committee, subject to the specific duties delegated
    by the Board to such Committee, the Administrator will have the authority,
    in its discretion:

  
    (i) to determine the Fair Market Value;

    (ii) to select the Service Providers to whom Awards may be granted hereunder;

  

 

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      (iii) to determine the number of Shares to be covered by each Award granted
      hereunder; 

    (iv) to approve forms of agreement for use under the Plan;

    (v) to determine the terms and conditions, not inconsistent with the terms
      of the Plan, of any Award granted hereunder. Such terms and conditions include,
      but are not limited to, the exercise price, the time or times when Awards
      may be exercised (which may be based on performance criteria), any vesting
      acceleration or waiver of forfeiture restrictions, and any restriction or
      limitation regarding any Award or the Shares relating thereto, based in
      each case on such factors as the Administrator will determine;

    (vi) to construe and interpret the terms of the Plan and Awards granted
      pursuant to the Plan; 

    (vii) to prescribe, amend and rescind rules and regulations relating to
      the Plan, including rules and regulations relating to sub-plans established
      for the purpose of satisfying applicable foreign laws;

    (viii) to modify or amend each Award (subject to Section 17(c) of the Plan),
      including the discretionary authority to extend the post-termination exercisability
      period of Awards longer than is otherwise provided for in the Plan. Notwithstanding
      the foregoing, the Administrator may not modify or amend an Option or SAR
      to reduce the exercise price of such Option or SAR after it has been granted
      (except for adjustments made pursuant to Section 12), unless approved by
      the Company's stockholders and neither may the Committee, without the approval
      of the Company's stockholders, cancel any outstanding Option or SAR and
      immediately replace it with a new Option or SAR with a lower exercise price;

    (ix) to allow Participants to satisfy withholding tax obligations in such
      manner as prescribed in Section 13;

    (x) to authorize any person to execute on behalf of the Company any instrument
      required to effect the grant of an Award previously granted by the Administrator;

    (xi) to allow a Participant to defer the receipt of the payment of cash
      or the delivery of Shares that would otherwise be due to such Participant
      under an Award

    (xii) to make all other determinations deemed necessary or advisable for
      administering the Plan.

  

  (c) Effect of Administrator's Decision. The Administrator's decisions,
    determinations and interpretations will be final and binding on all Participants
    and any other holders of Awards.

5. Eligibility. Nonstatutory Stock Options, Restricted Stock, Stock
  Appreciation Rights, Performance Units and Performance Shares may be granted
  to Service Providers. Incentive Stock Options may be granted only to Employees.

 

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  6. Stock Options.

  (a) Limitations.

  
    (i) Each Option will be designated
      in the Award Agreement as either an Incentive Stock Option or a Nonstatutory
      Stock Option. However, notwithstanding such designation, to the extent that
      the aggregate Fair Market Value of the Shares with respect to which Incentive
      Stock Options are exercisable for the first time by the Participant during
      any calendar year (under all plans of the Company and any Parent or Subsidiary)
      exceeds $100,000, such Options will be treated as Nonstatutory Stock Options.
      For purposes of this Section 6(a), Incentive Stock Options will be taken
      into account in the order in which they were granted. The Fair Market Value
      of the Shares will be determined as of the time the Option with respect
      to such Shares is granted.

    (ii) The following limitations
      will apply to grants of Options:

    
      (1) No Service Provider will
        be granted, in any Fiscal Year, Options and/or Stock Appreciation Rights
        to purchase more than 750,000 Shares.

      (2) In connection with his
        or her initial service, a Service Provider may be granted Options and/or
        Stock Appreciation Rights to purchase up to an additional 1,250,000 Shares,
        which will not count against the limit set forth in Section 6(a)(2)(ii)(1)
        above.

      (3) The foregoing limitations
        will be adjusted proportionately in connection with any change in the
        Company's capitalization as described in Section 12.

      (4) If an Option and/or Stock
        Appreciation Right is cancelled in the same Fiscal Year in which it was
        granted (other than in connection with a transaction described in Section
        12), the cancelled Option and/or Stock Appreciation Right, as applicable,
        will be counted against the limits set forth in subsections (1) and (2)
        above. For this purpose, if the exercise price of an Option and/or Stock
        Appreciation Right is reduced, the transaction will be treated as a cancellation
        of the Option and/or Stock Appreciation Right and the grant of a new Option
        and/or Stock Appreciation Right, as applicable.

    

  

  (b) Term of Option. The
    Administrator will determine the term of each Option in its sole discretion.
    In the case of an Incentive Stock Option, the term will be ten (10) years
    from the date of grant or such shorter term as may be provided in the Award
    Agreement. Moreover, in the case of an Incentive Stock Option granted to a
    Participant who, at the time the Incentive Stock Option is granted, owns stock
    representing more than ten percent (10%) of the total combined voting power
    of all classes of stock of the Company or any Parent or Subsidiary, the term
    of the Incentive Stock Option will be five (5) years from the date of grant
    or such shorter term as may be provided in the Award Agreement.

  (c) Option Exercise Price and Consideration.

  
    (i) Exercise Price. The
      per share exercise price for the Shares to be issued pursuant to exercise
      of an Option will be determined by the Administrator, subject to the following:

    
      (1) In the case of an Incentive
        Stock Option

        

    

  

 

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          a) granted to an Employee who, at the time the Incentive Stock Option
          is granted, owns stock representing more than ten percent (10%) of the
          voting power of all classes of stock of the Company or any Parent or
          Subsidiary, the per Share exercise price will be no less than 110% of
          the Fair Market Value per Share on the date of grant. 

        b) granted to any Employee other than an Employee described in paragraph
          (A) immediately above, the per Share exercise price will be no less
          than 100% of the Fair Market Value per Share on the date of grant.

      

      (2) In the case of a Nonstatutory Stock Option, the per Share exercise
        price shall be determined by the Administrator, but shall be no less than
        100% of the Fair Market Value per Share on the date of grant. 

      (3) Notwithstanding the foregoing, Options may be granted with a per
        Share exercise price of less than 100% of the Fair Market Value per Share
        on the date of grant pursuant to a transaction described in, and in a
        manner consistent with, Section 424(a) of the Code.

    

    (ii) Waiting Period and Exercise Dates. At the time an Option is
      granted, the Administrator will fix the period within which the Option may
      be exercised and will determine any conditions that must be satisfied before
      the Option may be exercised.

    (iii) Form of Consideration. The Administrator will determine the
      acceptable form of consideration for exercising an Option, including the
      method of payment. In the case of an Incentive Stock Option, the Administrator
      will determine the acceptable form of consideration at the time of grant.
      Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory
      note; (4) other Shares, provided Shares acquired directly or indirectly
      from the Company, (A) have been owned by the Participant and not subject
      to substantial risk of forfeiture for more than six months on the date of
      surrender, and (B) have a Fair Market Value on the date of surrender equal
      to the aggregate exercise price of the Shares as to which said Option will
      be exercised; (5) consideration received by the Company under a cashless
      exercise program implemented by the Company in connection with the Plan;
      (6) a reduction in the amount of any Company liability to the Participant,
      including any liability attributable to the Participant's participation
      in any Company-sponsored deferred compensation program or arrangement; (7)
      any combination of the foregoing methods of payment; or (8) such other consideration
      and method of payment for the issuance of Shares to the extent permitted
      by Applicable Laws.

  

  (d) Exercise of Option.

  
    (i) Procedure for Exercise; Rights as a Stockholder. Any Option
      granted hereunder will be exercisable according to the terms of the Plan
      and at such times and under such conditions as determined by the Administrator
      and set forth in the Award Agreement. An Option may not be exercised for
      a fraction of a Share.

    

 

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      An Option will be deemed exercised when the Company receives: (i) notice
      of exercise (in such form as the Administrator specify from time to time)
      from the person entitled to exercise the Option, and (ii) full payment for
      the Shares with respect to which the Option is exercised (together with
      an applicable withholding taxes). Full payment may consist of any consideration
      and method of payment authorized by the Administrator and permitted by the
      Award Agreement and the Plan. Shares issued upon exercise of an Option will
      be issued in the name of the Participant or, if requested by the Participant,
      in the name of the Participant and his or her spouse. Until the Shares are
      issued (as evidenced by the appropriate entry on the books of the Company
      or of a duly authorized transfer agent of the Company), no right to vote
      or receive dividends or any other rights as a stockholder will exist with
      respect to the Shares subject to an Award, notwithstanding the exercise
      of the Option. The Company will issue (or cause to be issued) such Shares
      promptly after the Option is exercised. No adjustment will be made for a
      dividend or other right for which the record date is prior to the date the
      Shares are issued, except as provided in Section 12 of the Plan.

    Exercising an Option in any manner will decrease the number of Shares thereafter
      available, both for purposes of the Plan and for sale under the Option,
      by the number of Shares as to which the Option is exercised.

    (ii) Termination of Relationship as a Service Provider. If a Participant
      ceases to be a Service Provider, other than upon the Participant's death
      or Disability, the Participant may exercise his or her Option within such
      period of time as is specified in the Award Agreement to the extent that
      the Option is vested on the date of termination (but in no event later than
      the expiration of the term of such Option as set forth in the Award Agreement).
      In the absence of a specified time in the Award Agreement, the Option will
      remain exercisable for three (3) months following the Participant's termination.
      Unless otherwise provided by the Administrator, if on the date of termination
      the Participant is not vested as to his or her entire Option, the Shares
      covered by the unvested portion of the Option will revert to the Plan. If
      after termination the Participant does not exercise his or her Option within
      the time specified by the Administrator, the Option will terminate, and
      the Shares covered by such Option will revert to the Plan.

    (iii) Disability of Participant. If a Participant ceases to be a
      Service Provider as a result of the Participant's Disability, the Participant
      may exercise his or her Option within such period of time as is specified
      in the Award Agreement to the extent the Option is vested on the date of
      termination (but in no event later than the expiration of the term of such
      Option as set forth in the Award Agreement). In the absence of a specified
      time in the Award Agreement, the Option will remain exercisable for twelve
      (12) months following the Participant's termination. Unless otherwise provided
      by the Administrator, if on the date of termination the Participant is not
      vested as to his or her entire Option, the Shares covered by the unvested
      portion of the Option will revert to the Plan. If after termination the
      Participant does not exercise his or her Option within the time specified
      herein, the Option will terminate, and the Shares covered by such Option
      will revert to the Plan.

    (iv) Death of Participant. If a Participant dies while a Service
      Provider, the Option may be exercised following the Participant's death
      within such period of time as is specified in the Award Agreement to the
      extent that the Option is vested on the date of death (but in no event may
      the option be exercised later than the expiration of the term of such Option
      as set forth in the Award Agreement), by the Participant's designated beneficiary,
      provided such beneficiary has been designated prior to Participant's death
      in a form acceptable to the Administrator. If no such beneficiary has been
      designated by the Participant, then such Option may be exercised by the
      personal representative of the Participant's estate or by the person(s)
      to whom the Option is transferred pursuant to the Participant's will or
      in accordance with the laws of descent and distribution. In the absence
      of a specified time in the Award Agreement, the Option will remain exercisable
      for twelve (12) months following Participant's death. Unless otherwise provided
      by the Administrator, if at the time of death Participant is not vested
      as to his or her entire Option, the Shares covered by the unvested portion
      of the Option will immediately revert to the Plan. If the Option is not
      so exercised within the time specified herein, the Option will terminate,
      and the Shares covered by such Option will revert to the Plan. 

  

 

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  7. Restricted Stock.

  (a) Grant of Restricted Stock.
    Subject to the terms and provisions of the Plan, the Administrator, at any
    time and from time to time, may grant Shares of Restricted Stock to Service
    Providers in such amounts as the Administrator, in its sole discretion, will
    determine.

  (b) Restricted Stock Agreement.
    Each Award of Restricted Stock will be evidenced by an Award Agreement that
    will specify the Period of Restriction, the number of Shares granted, and
    such other terms and conditions as the Administrator, in its sole discretion,
    will determine. Notwithstanding the foregoing, during any Fiscal Year no Participant
    will receive more than an aggregate of 250,000 Shares of Restricted Stock;
    provided, however, that in connection with a Participant's initial service
    as an Employee, an Employee may be granted an aggregate of up to an additional
    500,000 Shares of Restricted Stock. Unless the Administrator determines otherwise,
    Shares of Restricted Stock will be held by the Company as escrow agent until
    the restrictions on such Shares have lapsed.

  (c) Transferability. Except
    as provided in this Section 7, Shares of Restricted Stock may not be sold,
    transferred, pledged, assigned, or otherwise alienated or hypothecated until
    the end of the applicable Period of Restriction.

  (d) Other Restrictions.
    The Administrator, in its sole discretion, may impose such other restrictions
    on Shares of Restricted Stock as it may deem advisable or appropriate.

  (e) Removal of Restrictions.
    Except as otherwise provided in this Section 7, Shares of Restricted Stock
    covered by each Restricted Stock grant made under the Plan will be released
    from escrow as soon as practicable after the last day of the Period of Restriction.
    The Administrator, in its discretion, may accelerate the time at which any
    restrictions will lapse or be removed. 

  (f) Voting Rights. During
    the Period of Restriction, Service Providers holding Shares of Restricted
    Stock granted hereunder may exercise full voting rights with respect to those
    Shares, unless the Administrator determines otherwise.

  (g) Dividends and Other Distributions.
    During the Period of Restriction, Service Providers holding Shares of Restricted
    Stock will be entitled to receive all dividends and other distributions paid
    with respect to such Shares unless otherwise provided in the Award Agreement.
    If any such dividends or distributions are paid in Shares, the Shares will
    be subject to the same restrictions on transferability and forfeitability
    as the Shares of Restricted Stock with respect to which they were paid.

    

 

11

  

    (h) Return of Restricted Stock to Company. On the date set forth in
    the Award Agreement, the Restricted Stock for which restrictions have not
    lapsed will revert to the Company and again will become available for grant
    under the Plan.

  (i) Section 162(m) Performance Restrictions. For purposes of qualifying
    a Restricted Stock as "performance-based compensation" under Section
    162(m) of the Code, the Administrator, in its discretion, may set restrictions
    based upon the achievement of Performance Goals, which will be set by the
    Administrator on or before the Determination Date. In this connection, the
    Administrator will follow any procedures determined by it from time to time
    to be necessary or appropriate to ensure qualification of the Restricted Stock
    under Section 162(m) of the Code (e.g., in determining the Performance Goals).

8. Stock Appreciation Rights. 

  (a) Grant of SARs. Subject to the terms and conditions of the Plan,
    a SAR may be granted to Service Providers at any time and from time to time
    as will be determined by the Administrator, in its sole discretion. 

  (b) Number of Shares. The Administrator will have complete discretion
    to determine the number of SARs granted to any Participant, provided that
    during any Fiscal Year, no Participant will be granted Options and/or SARs
    covering more than 750,000 Shares. Notwithstanding the foregoing limitation,
    in connection with a Participant's initial service as an Employee, an Employee
    may be granted Options and/or SARs covering up to an additional 1,250,000
    Shares.

  (c) Exercise Price and Other Terms. The Administrator, subject to
    the provisions of the Plan, will have complete discretion to determine the
    terms and conditions of SARs granted under the Plan. In the case of a freestanding
    SAR, the exercise price will be not less than one hundred percent (100%) of
    the Fair Market Value of a Share on the date of grant. The exercise price
    of a tandem or affiliated SARs will equal the exercise price of the related
    Option.

  (d) SAR Agreement. Each SAR grant will be evidenced by an Award Agreement
    that will specify the exercise price, the term of the SAR, the conditions
    of exercise, and such other terms and conditions as the Administrator, in
    its sole discretion, will determine.

  (e) Expiration of SARs. An SAR granted under the Plan will expire
    upon the date determined by the Administrator, in its sole discretion, and
    set forth in the Award Agreement. Notwithstanding the foregoing, the rules
    of Section 6(d) also will apply to SARs.

  (f) Payment of SAR Amount. Upon exercise of an SAR, a Participant
    will be entitled to receive payment from the Company in an amount determined
    by multiplying:

  
    (i) The difference between the Fair Market Value of a Share on the date
      of exercise over the exercise price; times

    (ii) The number of Shares with respect to which the SAR is exercised.

  

 

12

  At the discretion of the Administrator, the payment upon SAR exercise may be
  in cash, in Shares of equivalent value, or in some combination thereof.

9. Performance Units and Performance Shares.

  (a) Grant of Performance Units/Shares. Performance Units and Performance
    Shares may be granted to Service Providers at any time and from time to time,
    as will be determined by the Administrator, in its sole discretion. The Administrator
    will have complete discretion in determining the number of Performance Units
    and Performance Shares granted to each Participant provided that during any
    Fiscal Year, (a) no Participant will receive Performance Units having an initial
    value greater than $1,000,000, and (b) no Participant will receive more than
    250,000 Performance Shares. Notwithstanding the foregoing limitation, in connection
    with a Participant's initial service as an Employee, an Employee may be granted
    up to an additional 500,000 Performance Shares.

  (b) Value of Performance Units/Shares. Each Performance Unit will
    have an initial value that is established by the Administrator on or before
    the date of grant. Each Performance Share will have an initial value equal
    to the Fair Market Value of a Share on the date of grant.

  (c) Performance Objectives and Other Terms. The Administrator will
    set performance objectives or other vesting provisions (including, without
    limitation, continued status as a Service Provider) in its discretion which,
    depending on the extent to which they are met, will determine the number or
    value of Performance Units/Shares that will be paid out to the Service Provider.
    The time period during which the performance objectives or other vesting provisions
    must be met will be called the "Performance Period." Each Award
    of Performance Units/Shares will be evidenced by an Award Agreement that will
    specify the Performance Period, and such other terms and conditions as the
    Administrator, in its sole discretion, will determine. 

  
    (i) General Performance Objectives. The Administrator may set performance
      objectives based upon the achievement of Company-wide, divisional, or individual
      goals, or any other basis determined by the Administrator in its discretion.
    

    (ii) Section 162(m) Performance Objectives. For purposes of qualifying
      grants of Performance Units/Shares as "performance-based compensation"
      under Section 162(m) of the Code, the Administrator, in its discretion,
      may determine that the performance objectives applicable to Performance
      Units/Shares will be based on the achievement of Performance Goals. The
      Administrator will set the Performance Goals on or before the Determination
      Date. In granting Performance Units/Shares which are intended to qualify
      under Section 162(m) of the Code, the Administrator will follow any procedures
      determined by it from time to time to be necessary or appropriate to ensure
      qualification of the Performance Units/Shares under Section 162(m) of the
      Code (e.g., in determining the Performance Goals).

  

  (d) Earning of Performance Units/Shares. After the applicable Performance
    Period has ended, the holder of Performance Units/Shares will be entitled
    to receive a payout of the number of Performance Units/Shares earned by the
    Participant over the Performance Period, to be determined as a function of
    the extent to which the corresponding performance objectives or other vesting
    provisions have been achieved. After the grant of a Performance Unit/Share,
    the Administrator, in its sole discretion, may reduce or waive any performance
    objectives or other vesting provisions for such Performance Unit/Share. 

 

13

  

    (e) Form and Timing of Payment of Performance Units/Shares. Payment
    of earned Performance Units/Shares will be made as soon as practicable after
    the expiration of the applicable Performance Period. The Administrator, in
    its sole discretion, may pay earned Performance Units/Shares in the form of
    cash, in Shares (which have an aggregate Fair Market Value equal to the value
    of the earned Performance Units/Shares at the close of the applicable Performance
    Period) or in a combination thereof.

  (f) Cancellation of Performance Units/Shares. On the date set forth
    in the Award Agreement, all unearned or unvested Performance Units/Shares
    will be forfeited to the Company, and again will be available for grant under
    the Plan.

10. Leaves of Absence. Unless the Administrator provides otherwise,
  vesting of Awards granted hereunder will be suspended during any unpaid leave
  of absence. A Service Provider will not cease to be an Employee in the case
  of (i) any leave of absence approved by the Company or (ii) transfers between
  locations of the Company or between the Company, its Parent, or any Subsidiary.
  For purposes of Incentive Stock Options, no such leave may exceed ninety (90)
  days, unless reemployment upon expiration of such leave is guaranteed by statute
  or contract. If reemployment upon expiration of a leave of absence approved
  by the Company is not so guaranteed, then three (3) months following the 91st
  day of such leave any Incentive Stock Option held by the Participant will cease
  to be treated as an Incentive Stock Option and will be treated for tax purposes
  as a Nonstatutory Stock Option.

11. Transferability of Awards. Unless determined otherwise by the Administrator,
  an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed
  of in any manner other than by will or by the laws of descent or distribution
  and may be exercised, during the lifetime of the Participant, only by the Participant.
  If the Administrator makes an Award transferable, such Award will contain such
  additional terms and conditions as the Administrator deems appropriate.

12. Adjustments; Dissolution or Liquidation; Merger or Change in Control.

  (a) Adjustments. In the event that any dividend or other distribution
    (whether in the form of cash, Shares, other securities, or other property),
    recapitalization, stock split, reverse stock split, reorganization, merger,
    consolidation, split-up, spin-off, combination, repurchase, or exchange of
    Shares or other securities of the Company, or other change in the corporate
    structure of the Company affecting the Shares occurs, the Administrator, in
    order to prevent diminution or enlargement of the benefits or potential benefits
    intended to be made available under the Plan, may (in its sole discretion)
    adjust the number and class of Shares that may be delivered under the Plan
    and/or the number, class, and price of Shares covered by each outstanding
    Award, and the numerical Share limits set forth in Sections 3, 6, 7, 8 and
    9.

  

  14

  

    (b) Dissolution or Liquidation. In the event of the proposed dissolution
    or liquidation of the Company, the Administrator will notify each Participant
    as soon as practicable prior to the effective date of such proposed transaction.
    To the extent it has not been previously exercised, an Award will terminate
    immediately prior to the consummation of such proposed action. 

  (c) Change in Control. In the event of a Change in Control, each outstanding
    Award will be assumed or an equivalent option or right substituted by the
    successor corporation or a Parent or Subsidiary of the successor corporation.
    In the event that the successor corporation refuses to assume or substitute
    for the Award, the Participant will fully vest in and have the right to exercise
    all of his or her outstanding Options and Stock Appreciation Rights, including
    Shares as to which such Awards would not otherwise be vested or exercisable,
    all restrictions on Restricted Stock will lapse, and, with respect to Performance
    Shares and Performance Units, all performance goals or other vesting criteria
    will be deemed achieved at target levels and all other terms and conditions
    met. In addition, if an Option or Stock Appreciation Right becomes fully vested
    and exercisable in lieu of assumption or substitution in the event of a Change
    in Control, the Administrator will notify the Participant in writing or electronically
    that the Option or Stock Appreciation Right will be fully vested and exercisable
    for a period of time determined by the Administrator in its sole discretion,
    and the Option or Stock Appreciation Right will terminate upon the expiration
    of such period.

  With respect to Awards granted to a non-employee Directors that are assumed
    or substituted for, if on the date of or following such assumption or substitution
    the Participant's status as a Director or a director of the successor corporation,
    as applicable, is terminated other than upon a voluntary resignation by the
    Participant, then the Participant will fully vest in and have the right to
    exercise Options and/or Stock Appreciation Rights as to all of the Shares
    subject thereto, including Shares as to which such Awards would not otherwise
    be vested or exercisable, all restrictions on Restricted Stock will lapse,
    and, with respect to Performance Shares and Performance Units, all performance
    goals or other vesting criteria will be deemed achieved at target levels and
    all other terms and conditions met.

  For the purposes of this subsection (c), an Award will be considered assumed
    if, following the Change in Control, the Award confers the right to purchase
    or receive, for each Share subject to the Award immediately prior to the Change
    in Control, the consideration (whether stock, cash, or other securities or
    property) or, in the case of a Stock Appreciation Right upon the exercise
    of which the Administrator determines to pay cash or a Performance Share or
    Performance Unit which the Administrator can determine to pay in cash, the
    fair market value of the consideration received in the merger or Change in
    Control by holders of Common Stock for each Share held on the effective date
    of the transaction (and if holders were offered a choice of consideration,
    the type of consideration chosen by the holders of a majority of the outstanding
    Shares); provided, however, that if such consideration received in the Change
    in Control is not solely common stock of the successor corporation or its
    Parent, the Administrator may, with the consent of the successor corporation,
    provide for the consideration to be received upon the exercise of an Option
    or Stock Appreciation Right or upon the payout of a Performance Share or Performance
    Unit, for each Share subject to such Award (or in the case of Performance
    Units, the number of implied shares determined by dividing the value of the
    Performance Units by the per share consideration received by holders of Common
    Stock in the Change in Control), to be solely common stock of the successor
    corporation or its Parent equal in fair market value to the per share consideration
    received by holders of Common Stock in the Change in Control.

 

  15

  Notwithstanding anything in this Section 12(c) to the contrary, an Award that
  vests, is earned or paid-out upon the satisfaction of one or more performance
  goals will not be considered assumed if the Company or its successor modifies
  any of such performance goals without the Participant's consent; provided, however,
  a modification to such performance goals only to reflect the successor corporation's
  post-Change in Control corporate structure will not be deemed to invalidate
  an otherwise valid Award assumption.

13. Tax Withholding

  (a) Withholding Requirements. Prior to the delivery of any Shares
    or cash pursuant to an Award (or exercise thereof), the Company will have
    the power and the right to deduct or withhold, or require a Participant to
    remit to the Company, an amount sufficient to satisfy federal, state, local,
    foreign or other taxes (including the Participant's FICA obligation) required
    to be withheld with respect to such Award (or exercise thereof). 

  (b) Withholding Arrangements. The Administrator, in its sole discretion
    and pursuant to such procedures as it may specify from time to time, may permit
    a Participant to satisfy such tax withholding obligation, in whole or in part
    by (a) paying cash, (b) electing to have the Company withhold otherwise deliverable
    cash or Shares having a Fair Market Value equal to the amount required to
    be withheld, or (c) delivering to the Company already-owned Shares having
    a Fair Market Value equal to the amount required to be withheld. The amount
    of the withholding requirement will be deemed to include any amount which
    the Administrator agrees may be withheld at the time the election is made,
    not to exceed the amount determined by using the maximum federal, state or
    local marginal income tax rates applicable to the Participant with respect
    to the Award on the date that the amount of tax to be withheld is to be determined.
    The Fair Market Value of the Shares to be withheld or delivered will be determined
    as of the date that the taxes are required to be withheld.

14. No Effect on Employment or Service. Neither the Plan nor any Award
  will confer upon a Participant any right with respect to continuing the Participant's
  relationship as a Service Provider with the Company, nor will they interfere
  in any way with the Participant's right or the Company's right to terminate
  such relationship at any time, with or without cause, to the extent permitted
  by Applicable Laws.

15. Date of Grant. The date of grant of an Award will be, for all purposes,
  the date on which the Administrator makes the determination granting such Award,
  or such other later date as is determined by the Administrator. Notice of the
  determination will be provided to each Participant within a reasonable time
  after the date of such grant.

16. Term of Plan. Subject to Section 20 of the Plan, the Plan will become
  effective upon its adoption by the Board. It will continue in effect for a term
  of ten (10) years unless terminated earlier under Section 17 of the Plan.

17. Amendment and Termination of the Plan.

  (a) Amendment and Termination. The Board may at any time amend, alter,
    suspend or terminate the Plan. 

 

  16

  

    (b) Stockholder Approval. The Company will obtain stockholder approval
    of any Plan amendment to the extent necessary and desirable to comply with
    Applicable Laws. 

  (c) Effect of Amendment or Termination. No amendment, alteration,
    suspension or termination of the Plan will impair the rights of any Participant,
    unless mutually agreed otherwise between the Participant and the Administrator,
    which agreement must be in writing and signed by the Participant and the Company.
    Termination of the Plan will not affect the Administrator's ability to exercise
    the powers granted to it hereunder with respect to Awards granted under the
    Plan prior to the date of such termination.

18. Conditions Upon Issuance of Shares.

  (a) Legal Compliance. Shares will not be issued pursuant to the exercise
    of an Award unless the exercise of such Award and the issuance and delivery
    of such Shares will comply with Applicable Laws and will be further subject
    to the approval of counsel for the Company with respect to such compliance.

  (b) Investment Representations. As a condition to the exercise of
    an Award, the Company may require the person exercising such Award to represent
    and warrant at the time of any such exercise that the Shares are being purchased
    only for investment and without any present intention to sell or distribute
    such Shares if, in the opinion of counsel for the Company, such a representation
    is required.

19. Inability to Obtain Authority. The inability of the Company to obtain
  authority from any regulatory body having jurisdiction, which authority is deemed
  by the Company's counsel to be necessary to the lawful issuance and sale of
  any Shares hereunder, will relieve the Company of any liability in respect of
  the failure to issue or sell such Shares as to which such requisite authority
  will not have been obtained.

20. Stockholder Approval. The Plan will be subject to approval by the
  stockholders of the Company within twelve (12) months after the date the Plan
  is adopted. Such stockholder approval will be obtained in the manner and to
  the degree required under Applicable Laws.

21. Underwater Stock Option Exchange Program. Notwithstanding any contrary
  provision of the Plan, the Company's stockholders on April 29, 2010 approved
  a one-time-only option exchange program described in the proxy statement with
  respect to the Company's 2010 Annual Meeting of Stockholders under which certain
  outstanding Options may be surrendered or cancelled at the election of the person
  holding such Option (and therefore made available for future grant under Section
  3(c) to the extent such Option was granted under the Plan or the 1995 Plan)
  in exchange for new Options with a lower exercise price (the "Exchange
  Program"). The Administrator may provide for, and the Company may implement,
  the Exchange Program within one hundred and twenty (120) days after the date
  of such Annual Meeting.

 

17exv10w1

Exhibit 10.1

CHANGE IN CONTROL SEVERANCE AGREEMENT

          THIS
AGREEMENT, dated as of
                    , 20___, is made by and between ZIMMER HOLDINGS, INC.,
a Delaware corporation (the “Company”), and                     (the “Executive”). The capitalized
words and terms used throughout this Agreement are defined in Article XIII.

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, 20___. Beginning on January 1, 20___, and each subsequent January 1, the term of this
Agreement will automatically be extended for one additional year, unless either party gives the
other party written notice not to extend this Agreement at least 30 days before the extension would
otherwise become effective or unless a Change in Control occurs. If a Change in Control occurs
during the term of this Agreement, this Agreement will continue in effect for a period of 24 months
from the end of the month in which the Change in Control occurs. Notwithstanding the foregoing
provisions of this Article, this Agreement will terminate on the Executive’s Retirement Date.

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 as provided under short-term and long-term disability plans having
terms no less favorable than the terms of the Company’s short-term and long-term 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

2

 

or benefit plan, program, or arrangement maintained by the Company during the period of
Disability.

          SECTION 2.02. Compensation Previously Earned. If the Executive’s employment is
terminated for any reason following a Change in Control and during the term of this Agreement, the
Company will pay the Executive’s salary accrued through the Date of Termination, at the rate in
effect at the time the Notice of Termination is given, together with all other compensation and
benefits payable to the Executive through the Date of Termination under the terms of any
compensation or benefit plan, program, or arrangement maintained by the Company during that period.

          SECTION 2.03. Normal Post-Termination Compensation and Benefits. Except as provided
in Section 3.01, if the Executive’s employment is terminated for any reason following a Change in
Control and during the term of this Agreement, the Company will pay the Executive the normal
post-termination compensation and benefits payable to the Executive under the terms of the
Company’s retirement, insurance, and other compensation or benefit plans, programs, and
arrangements, as in effect immediately prior to the Change in Control. This provision does not
restrict the Company’s right to amend, modify, or terminate any plan, program, or arrangement prior
to a Change in Control.

          SECTION 2.04. No Duplication. Notwithstanding any other provision of this Agreement
to the contrary, the Executive will not be entitled to duplicate benefits or compensation under
this Agreement and the terms of any other plan, program, or arrangement maintained by the Company
or any affiliate.

3

 

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:

4

 

          (a) Lump Sum Severance Payment. In lieu of any further salary payments to the
Executive for periods after the Date of Termination, and in lieu of any severance benefits
otherwise payable to the Executive, the Company will pay to the Executive, in accordance with
Section 3.04, a lump sum severance payment, in cash, equal to two (or, if less, the number of
years, including fractions, from the Date of Termination until the Executive reaches his Retirement
Date), times the sum of (1) the higher of the Executive’s annual base salary in effect immediately
prior to the event or circumstance upon which the Notice of Termination is based or in effect
immediately prior to the Change in Control, and (2) if Severance Payments are triggered under
Section 3.01(a), the amount of the Executive’s target annual bonus entitlement under the Incentive
Plan (or any other bonus plan of the Company then in effect) as in effect immediately prior to the
event or circumstance giving rise to the Notice of Termination, or, if Severance Payments are
triggered under Section 3.01(b), the amount of the largest aggregate annual bonus paid to the
Executive with respect to the three years immediately prior to the year in which the Notice of
Termination was given. If the Board determines that it is not workable to determine the amount
that the Executive’s target bonus would have been for the year in which the Notice of Termination
was given, then, for purposes of this paragraph (a), the Executive’s target annual bonus
entitlement will be the amount of the largest aggregate annual bonus paid to the Executive with
respect to the three years immediately prior to the year in which the Notice of Termination was
given.

          (b) Incentive Compensation. Notwithstanding any provision of the Incentive Plan or
any other compensation or incentive plans of the Company, the Company will pay to the Executive, in
accordance with Section 3.04, a lump sum amount, in cash, equal to the sum of (1) any incentive
compensation that has been allocated or awarded to the Executive for a

5

 

completed calendar year or other measuring period preceding the Date of Termination (to the
extent not payable pursuant to Section 2.02) provided that, if Severance Payments are triggered
under Section 3.01(b), the performance conditions applicable to such incentive compensation are
met, and (2) if Severance Payments are triggered under Section 3.01(a), a pro rata portion (based
on elapsed time) to the Date of Termination of the aggregate value of all contingent incentive
compensation awards to the Executive for the current calendar year or other measuring period under
the Incentive Plan, the Award Plan, or any other compensation or incentive plans of the Company,
calculated as to each such plan using the Executive’s annual target percentage under that plan for
that year or other measuring period and as if all conditions for receiving that target award had
been met, or, if Severance Payments are triggered under Section 3.01(b), then with respect to each
such plan, an amount equal to the average annual award paid to the Executive under such plan during
the three years immediately prior to the year in which the Notice of Termination was given
multiplied by a fraction, the numerator of which is the number of whole months elapsed since the
beginning of the calendar year or other measuring period to the Date of Termination and the
denominator of which is 12 (or the number of whole months in the measuring period).

          (c) Options and Restricted Shares. All outstanding Options will become immediately
vested and exercisable (to the extent not yet vested and exercisable as of the Date of
Termination). To the extent not otherwise provided under the written agreement evidencing the
grant of any restricted Shares to the Executive, all outstanding Shares that have been granted to
the Executive subject to restrictions that, as of the Date of Termination, have not yet lapsed will
lapse automatically upon the Date of Termination, and the Executive will own those Shares free and
clear of all such restrictions. Notwithstanding the foregoing, options and restricted Shares

6

 

remain subject to any forfeiture or clawback claims under the applicable option plan or award
agreement.

          (d) Welfare Benefits. Except as otherwise provided in this Section 3.02(d), for a
24-month period after the Date of Termination, the Company will arrange to provide the Executive
with life insurance coverage substantially similar to that which the Executive is receiving from
the Company immediately prior to the Notice of Termination (without giving effect to any reduction
in that coverage subsequent to a Change in Control). Life insurance coverage otherwise receivable
by the Executive pursuant to this Section 3.02(d) will be reduced to the extent comparable coverage
is actually received by or made available to the Executive without greater cost to him than as
provided by the Company during the 24-month period following the Executive’s termination of
employment (and the Executive will report to the Company any such coverage actually received by or
made available to the Executive).

          If, as of the Date of Termination, the Company reasonably determines that the continued life
insurance coverage required by this Section 3.02(d) 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, in
accordance with Section 3.04, a lump sum payment, in cash, equal to 24 times the full monthly
premium payable to the Company’s group insurance carrier for comparable coverage for an executive
employee under the Company’s group life insurance plan then in effect.

          The Company will offer the Executive and any eligible family members the opportunity to elect
to continue medical and dental coverage pursuant to COBRA. The Executive will be responsible for
paying the required monthly premium for that coverage, but the

7

 

Company will pay the Executive, in accordance with Section 3.04, a lump sum cash stipend
equal to 24 times the monthly COBRA premium then charged to qualified beneficiaries for the same
level of health and dental coverage the Executive had in effect immediately prior to his
termination, and the Executive may, but is not required to, choose to use the stipend for the
payment of COBRA premiums for any COBRA coverage that the Executive or eligible family members may
elect. The Company will pay the stipend to the Executive whether or not the Executive or any
eligible family member elects COBRA coverage, whether or not the Executive continues COBRA coverage
for the maximum period permitted by law, and whether or not the Executive receives medical or
dental coverage from another employer while the Executive is receiving COBRA continuation coverage.
Payment of the stipend will not in any way extend or modify the Executive’s continuation coverage
rights under COBRA or any similar continuation coverage law.

          (e) Matching and Fixed Contributions. In addition to the vested amounts, if any, to
which the Executive is entitled under the Savings Plan as of the Date of Termination, the Company
will pay the Executive, in accordance with Section 3.04, a lump sum amount equal to the value of
the unvested portion, if any, of the employer matching and fixed contributions (and attributable
earnings) credited to the Executive under the Savings Plan.

          (f) Outplacement Services. For a period not to exceed six (6) months following the
Date of Termination, the Company will provide the Executive with reasonable outplacement 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.

8

 

          SECTION 3.03. Limitation on Severance Payments.

          (a) Notwithstanding anything to the contrary contained in this Agreement, in the event that
any Severance Payments paid or payable to the Executive or for his benefit pursuant to the terms of
this Agreement or otherwise in connection with a Change in Control (“Total Payments”) would be
subject to any Excise Tax, then the 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 Section 280G(d)(3) and (4).

9

 

          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) Subject to Section 3.04(d), 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) Subject to Section 3.04(d), 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).

          (d) Notwithstanding any of the foregoing, if, as of the date of the Executive’s separation
from service, the Executive is a “specified employee” under the Section 409A Standards, any and all
payments under this Agreement that constitute deferred compensation under the Section 409A
Standards shall be suspended until, and will be payable on, the date that is six (6) months after
the Executive’s separation from service (or, if earlier, the date the Executive dies after
separation from service).

10

 

          SECTION 3.05. Attorneys Fees and Expenses. To the extent permissible under the
Section 409A Standards, if the Executive finally prevails with respect to any bona fide, 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 with that dispute pursuant to the terms of this
paragraph. Payment or reimbursement of those fees and expenses will be made within fifteen (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, but the Executive may
not submit such a request until the dispute has been finally resolved by a legally binding
settlement or by an order or judgment that is not subject to appeal or with respect to which all
appeals have been exhausted. Any payment pursuant to this paragraph will be made no later than the
end of the calendar year following the calendar year in which the dispute is finally resolved by a
legally binding settlement or nonappealable judgment or order.

          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 pursuant to the preceding sentence shall be made within fifteen (15) business days after
the delivery of the Executive’s written request for payment, accompanied by such evidence of fees
and expenses incurred as the Company reasonably may require, but in no case later than the

11

 

end of the calendar year following the calendar year in which the audit is completed or there
is a final and nonappealable settlement or other resolution of the matter.

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 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.

12

 

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(d)) 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
with the Company; provided, however, that if the Executive has an existing noncompetition agreement
with the Company, the Company, rather than entering into a new noncompetition agreement with the
Executive, may instead, as a condition to entering into this agreement, require that the Executive
acknowledge and affirm his continuing obligations under such existing noncompetition agreement and
re-affirm his agreement to honor the obligations as set forth in that document.

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

13

 

(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 A. 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.

          (a) In addition to any obligations imposed by law upon any successor to the Company, the
Company will require any successor (whether direct or indirect, by purchase, merger, consolidation,
or otherwise) to all or substantially all of the business and/or assets of the

14

 

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.

          (b) Subject to Section 7.01(c), failure of the Company to obtain such an assumption and
agreement under Section 7.01(a) 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 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.

          (c) Payment of benefits under Section 7.01(b) shall be made on the deemed Date of Termination
if, and only if, the succession resulted from a transaction that satisfies the definition of change
in control under Section 409A of the Code. If the transaction does not satisfy the definition of
change in control under Section 409A, payment of benefits due under Section 7.01(b) shall be made
within 30 days of the Executive’s actual date of termination of employment, subject to the
provisions of Section 3.04(d). No interest or earnings shall be paid due to any delay in payment
under this Section 7.01(c).

          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.

15

 

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 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.	 	 
	 

	 	Attention: General Counsel	 	 
	 

	 	345 East Main Street	 	 
	 

	 	Post Office Box 708	 	 
	 

	 	Warsaw, Indiana 46581-0708	 	 
	 
	 	 	 	 
	 

	 	To the Executive:	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 

	 	 

	 	 
	 

	 	 

	 	 

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

16

 

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. Except as provided in the following
two sentences, the validity, interpretation, construction, and performance of this Agreement will
be governed by the laws of the State of Indiana, to the extent not preempted by federal law. This
Agreement will at all times be effected, construed, interpreted, and applied in a manner consistent
with the Section 409A Standards, and in resolving any uncertainty as to the meaning or intention of
any provision of this Agreement, the interpretation that will prevail is the interpretation that
causes the Agreement to comply with the Section 409A Standards. In addition, to the extent that
any terms of this Agreement would subject the Executive to gross income inclusion, interest, or
additional tax pursuant to Code Section 409A, those terms are to that extent superseded by the
applicable Section 409A Standards. All references to sections of the Exchange Act or the Code will
be deemed also to refer 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.

17

 

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 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,

18

 

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, other than the Company’s independent
auditors, that is designated as one of the four largest accounting firms in the United States.

          (b) “Award Plan” means any of the Zimmer Holdings, Inc. 2009 Stock Incentive Plan,
Zimmer Holdings, Inc. 2006 Stock Incentive Plan, the Zimmer Holdings, Inc. 2001 Stock Incentive
Plan or the Zimmer Holdings, Inc. TeamShare Stock Option 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.

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

          (f) “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

19

 

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.

          (g) 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 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

20

 

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
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

21

 

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.

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

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

          (j) “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(g), whether or not any Change in
Control of the Company has occurred in connection with the succession).

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

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

          (m) “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.

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

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

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

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

          (r) “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

22

 

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 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

23

 

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, to the extent applicable to the Executive, the Company’s
Savings and Investment Program, including the Company’s Benefit 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

24

 

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.

          (s) “Incentive Plan” means the Company’s Executive Performance Incentive Plan.

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

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

          (v) “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

25

 

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.

          (w) “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.

          (x) “Retirement Date” means the later of (1) age 65, or (2) another date for
retirement by the Executive that has been approved by the Board at any time prior to a Change in
Control.

          (y) “Savings Plan” means the Zimmer Holdings, Inc. Savings and Investment Program,
which, for purposes of this Agreement, will be deemed to include the Benefit

26

 

Equalization Plan of Zimmer Holdings, Inc. and Its Subsidiary or Affiliated Corporations
Participating in the Zimmer Holdings, Inc. Savings and Investment Program.

     (z) “Section 409A Standards” means the standards for nonqualified deferred
compensation plans established by Code Section 409A.

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

     (bb) “Shares” means shares of the common stock, $0.01 par value, of the Company.

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

	 	 	 	 	 	 	 

	EXECUTIVE	 	ZIMMER HOLDINGS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 

27

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