Employee Benefits Agreement

Exhibit 10.3


EXECUTION COPY


EMPLOYEE BENEFITS AGREEMENT


by and between


BRISTOL-MYERS SQUIBB COMPANY


and


ZIMMER HOLDINGS, INC.


Dated as of August 6, 2001


TABLE OF CONTENTS


PAGE ARTICLE I DEFINITIONS................................................................................1


Section 1.01 Definitions.......................................................................1


ARTICLE II GENERAL PRINCIPALS.........................................................................7


Section 2.01 Assumption of Liabilities.........................................................7


Section 2.02 Employment-Related Claims.........................................................8


Section 2.03 Amendment and Termination of Zimmer Plans.........................................8


Section 2.04 Service Credit....................................................................8


Section 2.05 Continuity of Employment..........................................................8


Section 2.06 Expatriates.......................................................................9


Section 2.07 Collective Bargaining Agreements..................................................9


Section 2.08 Union Plans.......................................................................9


Section 2.09 International Retirement and Welfare Benefit Plans...............................10


ARTICLE III U.S. PENSION AND SAVINGS PLANS............................................................11


Section 3.01 U.S. Pension Plan................................................................11


Section 3.02 U.S. Savings Plans...............................................................12


Section 3.03 Non-Qualified Plans..............................................................13


ARTICLE IV HEALTH AND WELFARE PLANS..................................................................14


Section 4.01 Health and Welfare Plans Continuance.............................................14


Section 4.02 Establishment of LTD VEBA........................................................15


Section 4.03 Establishment of Health and Welfare Plans........................................15


Section 4.04 Liabilities under Health and Welfare Plans.......................................16


Section 4.05 Post-Retirement Medical and Life Insurance Obligations...........................17


Section 4.06 HCFA.............................................................................17


Section 4.07 Health and Welfare Plan Subrogation Recovery.....................................17


Section 4.08 FMLA and Leave of Absences.......................................................17


ARTICLE V EQUITY PLANS..............................................................................18


Section 5.01 Establishment of Zimmer Stock Plans..............................................18


Section 5.02 Bristol-Myers Squibb Options.....................................................18


Section 5.03 Bristol-Myers Squibb Stock Appreciation Rights...................................19


Section 5.04 Bristol-Myers Squibb Restricted Stock............................................19


i


PAGE ARTICLE VI FRINGE AND OTHER BENEFITS.................................................................20


Section 6.01 Retention Bonus Arrangements.....................................................20


Section 6.02 Annual Bonus.....................................................................20


Section 6.03 Vacation Pay/Paid Time Off.......................................................20


Section 6.04 Severance........................................................................20


Section 6.05 Relocation Benefits..............................................................21


Section 6.06 Educational Assistance Program...................................................21


Section 6.07 Adoption Assistance Program......................................................21


Section 6.08 Workers' Compensation............................................................21


Section 6.09 Other Agreements and Benefits....................................................21


ARTICLE VII INDEMNIFICATION...........................................................................22


Section 7.01 Indemnification by Zimmer........................................................22


Section 7.02 Indemnification by Bristol-Myers Squibb..........................................22


Section 7.03 Indemnification Procedures.......................................................22


ARTICLE VIII MISCELLANEOUS.............................................................................22


Section 8.01 Effect if Distribution Does Not Occur............................................22


Section 8.02 Parties in Interest..............................................................22


Section 8.03 Consent of Third Parties.........................................................22


Section 8.04 Further Assurances and Consents..................................................23


Section 8.05 Non-Solicitation of Employees....................................................23


Section 8.06 Sharing of Participant Information...............................................23


Section 8.07 Reporting and Disclosure and Communications to Participants......................23


Section 8.08 Beneficiary Designations.........................................................24


Section 8.09 Incorporation of the Contribution and Distribution Agreement.....................24


ii


EMPLOYEE BENEFITS AGREEMENT


THIS EMPLOYEE BENEFITS AGREEMENT, dated as of August 6, 2001, is by and between BRISTOL-MYERS SQUIBB COMPANY, a Delaware corporation ("BRISTOL-MYERS SQUIBB") and ZIMMER HOLDINGS, INC., a Delaware corporation ("ZIMMER"). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof.


RECITALS:


WHEREAS, the Board of Directors of Bristol-Myers Squibb has determined that it is in the best interests of Bristol-Myers Squibb and its stockholders to make a distribution to the holders of Bristol-Myers Squibb Common Stock (as defined herein) of all of the shares of Zimmer Common Stock (as defined herein) (the "Distribution"); and


WHEREAS, in furtherance of the foregoing, Bristol-Myers Squibb and Zimmer have entered into a Contribution and Distribution Agreement, dated as of June 29, 2001 (the "CONTRIBUTION AND DISTRIBUTION Agreement").


NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties, intending to be legally bound, agree as follows:


ARTICLE I


DEFINITIONS


Section 1.01 DEFINITIONS. For purposes of this Agreement, the following terms (other than the formal names of the Bristol-Myers Squibb Plans (as defined below)) and not otherwise defined shall have the following meanings:


"ACQUIRED RIGHTS DIRECTIVE" means the European Council Directive of February 14, 1977 on the Approximation of the Laws of the Member States relating to the Safeguarding of Employee's Rights in the Event of Transfers of Undertakings, Business or Parts of Businesses (77/187/EC) and its subsequent transposition into local laws.


"ACTION" has the meaning given such term in the Contribution and Distribution Agreement.


"ACTIVE ZIMMER EMPLOYEE" means any individual who is employed in the Zimmer Business as of the Distribution Date, including any individual employed within or outside the United States, any individual who is absent from work on the Distribution Date on account of sick leave, short term disability, long-term disability, leave of absence or otherwise, any individual receiving severance payments and any individual who was employed by Edward Weck & Company, Inc., Xomed-Treace, Inc., Linvatec Corporation, Medical Engineering Corporation or Aspen Labs at the time such individual began receiving long-term disability benefits and who is receiving such benefits from a Bristol-Myers Squibb Plan as of the


1


Distribution Date; PROVIDED, HOWEVER, that Active Zimmer Employee does not include any independent contractor or individual who is not a common law employee of a member of the Zimmer Group. An alternate payee under a QDRO, an alternate recipient under a QMCSO, a beneficiary or a covered dependent, in each case of an employee described in the preceding sentence shall also be an Active Zimmer Employee with respect to that employee's benefit under the applicable Plans. Such an alternate payee, alternate recipient, beneficiary or covered dependent shall not otherwise be considered an Active Zimmer Employee with respect to his or her own benefits under any applicable Plans unless he or she is an Active Zimmer Employee by virtue of the first sentence of this definition.


"AFFILIATE" of any Person means a Person that controls, is controlled by, or is under common control with such Person. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or other interests, by contract or otherwise.


"AGREEMENT" means this Employee Benefits Agreement, including all of the schedules and appendices hereto.


"ANCILLARY AGREEMENT" has the meaning given such term in the Contribution and Distribution Agreement.


"BEP-RIP" when immediately preceded by "Bristol-Myers Squibb" means the Benefits Equalization Plan of Bristol-Myers Squibb Company and its Subsidiary or Affiliated Corporations Participating in the Bristol-Myers Squibb Company Retirement Income Plan or the Bristol-Myers Squibb Company Puerto Rico, Inc. Retirement Income Plan and when immediately preceded by "Zimmer" means the non-qualified defined benefit plans to be established by Zimmer pursuant to this Agreement.


"BEP-SIP" when immediately preceded by "Bristol-Myers Squibb" means the Benefits Equalization Plan of Bristol-Myers Squibb Company and its Subsidiary or Affiliated Corporations Participating in the Bristol-Myers Squibb Company Savings and Investment Program and when immediately preceded by "Zimmer" means the non-qualified defined contribution plans to be established by Zimmer pursuant to this Agreement.


"BRISTOL-MYERS SQUIBB" has the meaning set forth in the Preamble.


"BRISTOL-MYERS SQUIBB COMMON STOCK" means the common stock of Bristol-Myers Squibb Company, par value $.10 per share.


"BRISTOL-MYERS SQUIBB GROUP" has the meaning given such term in the Contribution and Distribution Agreement.


"BRISTOL-MYERS SQUIBB INDEMNITEES" has the meaning given such term in the Contribution and Distribution Agreement.


"BRISTOL-MYERS SQUIBB KEY INTERNATIONAL PENSION PLAN" means the Bristol-Myers Squibb Company Key International Pension Plan.


2


"BRISTOL-MYERS SQUIBB STOCK FUND" means the fund under the Bristol-Myers Squibb Savings and Investment Program or the Zimmer Savings and Investment Program which is primarily invested in Bristol-Myers Squibb Common Stock.


"CLAIM LIABILITIES" means the present value of the Liabilities associated with claims by Active Zimmer Employees who are receiving benefits under the Bristol-Myers Squibb Company Long-Term Disability Income Plan and Active Zimmer Employees who are receiving benefits under the Bristol-Myers Squibb Company Short-Term Disability Plan on or prior to the Transition Termination Date.


"COBRA" means the continuation coverage requirements for "group health plans" under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and codified in Code Section 4980B and ERISA Sections 601 through 608.


"CODE" means the Internal Revenue Code of 1986, as amended from time to time. Reference to a specific Code section also includes any proposed, temporary or final regulation in force under that section.


"COLLECTIVE BARGAINING AGREEMENTS" means collectively, the agreement dated May 16, 2000, between Snyder Laboratories, Inc. and the United Steelworkers of America, AFL-CIO-CLC on behalf of Local 2737-15 and the agreement dated March 1, 1978, between Deloro Stellite (UK) Limited and the Association of Scientific, Technical and Managerial Staff.


"COMBINED INTERNATIONAL ENTITIES" has the meaning given such term in the Contribution and Distribution Agreement.


"CONTRIBUTION AND DISTRIBUTION AGREEMENT" has the meaning given such term in the Recitals.


"DISTRIBUTION" has the meaning given such term in the Recitals.


"DISTRIBUTION DATE" has the meaning given such term in the Contribution and Distribution Agreement.


"EMPLOYMENT-RELATED CLAIM" means any pending or potential claim, action, suit, arbitration, proceeding or other Liability that may directly or indirectly arise out of, or result from, any employment, labor, employee benefit, labor action or related dispute of any kind including, without limitation, any complaint or proceeding before any federal, state or local court, agency or tribunal.


"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. References to a specific section of ERISA also include any proposed, temporary or final regulations in force under that section.


"EXPATRIATE" means each Active Zimmer Employee who is temporarily assigned to work at a location outside such Active Zimmer Employee's home country.


3


"FMLA" means the Family Medical Leave Act of 1993, as amended from time to time.


"FORMER ZIMMER EMPLOYEE" means any former employee of the Zimmer Business as of the Distribution Date (including, without limitation, an employee of the Zimmer Business who retired or otherwise terminated employment before the Distribution Date) whose last day of active employment was with a member of the Bristol-Myers Squibb Group or the Zimmer Group; PROVIDED, HOWEVER, a Former Zimmer Employee shall not include any employee who is receiving payments under a Bristol-Myers Squibb Severance Plan or Zimmer Severance Plan as of the Distribution Date.


"HCFA" means the United States Health Care Financing Administration.


"HEALTH AND WELFARE PLANS" means all Plans that provide medical, dental, life insurance, accident, survivor, short term disability, long term disability, long term care, flexible benefit, adoption assistance or other welfare benefits; PROVIDED, HOWEVER, Health and Welfare Plans does not include any Plans that provide post-retirement benefits. When immediately preceded by "Bristol-Myers Squibb", Health and Welfare Plans means the Health and Welfare Plans maintained by Bristol-Myers Squibb prior to the Distribution Date and when immediately preceded by "Zimmer", Health and Welfare Plans means the Health and Welfare Plans to be established by a member of the Zimmer Group pursuant to this Agreement.


"HIPAA" means the Health Insurance Portability and Accountability Act of 1996, as amended from time to time.


"LEAVE OF ABSENCE PROGRAMS" when immediately preceded by "Bristol-Myers Squibb" means the personal, medical, military and FMLA leave offered from time to time under the personnel policies and practices of Bristol-Myers Squibb and when immediately preceded by "Zimmer" means the leave of absence programs to be established by Zimmer pursuant to this Agreement.


"LIABILITIES" has the meaning given such term in the Contribution and Distribution Agreement.


"LTD VEBA" when immediately preceded by "Bristol-Myers Squibb" means the welfare benefit fund established by Bristol-Myers Squibb to fund certain long-term disability benefits and when immediately preceded by "Zimmer" means the welfare benefit fund to be established by Zimmer pursuant to this Agreement.


"OPTION" when immediately preceded by "Bristol-Myers Squibb" means an option to purchase Bristol-Myers Squibb Common Stock pursuant to a Bristol-Myers Squibb Stock Plan and when immediately preceded by "Zimmer" means an option to purchase Zimmer Common Stock pursuant to a Zimmer Stock Plan.


"PERSON" means an individual, a general or limited partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a limited liability entity, and a governmental entity or any department, agency or political subdivision thereof.


4


"PLAN" means any plan, policy, program, scheme, payroll practice, arrangement, contract, trust, insurance policy, or any agreement or funding vehicle, whether written or unwritten, providing compensation or benefits to Active Zimmer Employees, Former Zimmer Employees, or directors or consultants of the Zimmer Business. When immediately preceded by "Bristol-Myers Squibb", Plan means those Plans listed on Schedule 1.1 that are maintained by Bristol-Myers Squibb for the benefit of Active Zimmer Employees in effect as of the Distribution Date. When immediately preceded by "Zimmer", Plan means those Plans to be established by Zimmer pursuant to this Agreement.


"PRESENT VALUE OF FUTURE SCHEDULED CONTRIBUTIONS" means the present value of the portion of the Claim Liabilities which are not funded as of the Transition Termination Date.


"QDRO" means a domestic relations order which qualifies under Code Section 414(p) and ERISA Section 206(d) and which creates or recognizes an alternate payee's right to, or assigns an alternate payee, all or a portion of the benefits payable to a participant under a Bristol-Myers Squibb Plan.


"QMCSO" means a medical child support order which qualifies under ERISA Section 609(a) and which creates or recognizes the existence of an alternate recipient's right to, or assigns to an alternate recipient the right to, receive benefits for which a participant or beneficiary is eligible under a Bristol-Myers Squibb Health and Welfare Plan.


"RATIO" means the ratio determined by dividing the Bristol-Myers Squibb Stock Value by the Zimmer Stock Value; PROVIDED, HOWEVER, that adjustments may be made to the Ratio to minimize the independent, determinable and verifiable effect of events other than the Distribution on the price of Bristol-Myers Squibb Common Stock, the price of Zimmer Common Stock or the price of both.


"RESTRICTED STOCK" when immediately preceded by "Bristol-Myers Squibb" means a share of Bristol-Myers Squibb Common Stock which is subject to restrictions pursuant to a Bristol-Myers Squibb Stock Plan and when immediately preceded by "Zimmer" means a share of Zimmer Common Stock which is subject to restrictions pursuant to a Zimmer Stock Plan.


"RETIREMENT INCOME PLAN" when immediately preceded by "Bristol-Myers Squibb" means the Bristol-Myers Squibb Company Retirement Income Plan and when immediately preceded by "Zimmer" means the U.S. tax-qualified defined benefit pension plan to be established by Zimmer pursuant to this Agreement.


"SAVINGS AND INVESTMENT PROGRAM" when immediately preceded by "Bristol-Myers Squibb" means the Bristol-Myers Squibb Company Savings and Investment Program and when immediately preceded by "Zimmer" means the U.S. tax-qualified defined contribution plan and trust to be established by Zimmer pursuant to this Agreement.


"SEVERANCE PLAN" when immediately preceded by "Bristol-Myers Squibb" means the Bristol-Myers Squibb Company Severance Plan and any other plans and policies maintained by a member of the Bristol-Myers Squibb Group that provide for severance benefits upon termination of employment, including statutorily required payments, and when immediately


5


preceded by "Zimmer" means the plans or policies to be established or maintained by a member of the Zimmer Group to provide severance benefits upon termination of employment, including any statutorily required payments.


"STOCK APPRECIATION RIGHT" when immediately preceded by "Bristol-Myers Squibb" means a right to receive the dollar value of the appreciation of a share of Bristol-Myers Squibb Common Stock over the price per share at which the right was granted, and when immediately preceded by "Zimmer" means a right to receive the dollar value of the appreciation of a share of Zimmer Common Stock over the price per share at which the right was granted.


"STOCK PLAN" when immediately preceded by "Bristol-Myers Squibb" means any plan, program or arrangement, pursuant to which any Active Zimmer Employee holds Bristol-Myers Squibb Options, Bristol-Myers Squibb Stock Appreciation Rights or other Bristol-Myers Squibb equity incentives, and when immediately preceded by "Zimmer" means such plans, programs or arrangements to be established by Zimmer pursuant to this Agreement.


"STOCK VALUE" when immediately preceded by "Bristol-Myers Squibb" means the closing price of Bristol-Myers Squibb Common Stock reported on the New York Stock Exchange on the Distribution Date, or on the first day prior to the Distribution Date that the New York Stock Exchange is open for trading if the New York Stock Exchange is not open for trading on the Distribution Date and when immediately preceded by "Zimmer" means the opening price of Zimmer Common Stock reported on the New York Stock Exchange on the first day following the Distribution Date that the New York Stock Exchange is open for trading.


"TRANSITION HEALTH AND WELFARE PLANS" has the meaning given such term in Section 4.01.


"TRANSITION PERIOD" means the period beginning on the Distribution Date and ending at midnight on the day just prior to the Transaction Termination Date.


"TRANSITION TERMINATION DATE" means January 1, 2002 (or such other date(s) that Zimmer and Bristol-Myers Squibb mutually agree with respect to each Plan).


"UNION PLANS" means collectively, the Snyder Laboratories, Inc. Union Employees' Pension Plan, the Medical Plan for United Steelworkers of America Local #2737-15, and the Zimmer Patient Care - United Steelworkers of America Local #2737-15 Plan.


"WELFARE CLAIMS" means all claims for benefits under the Health and Welfare Plans and any expenses related thereto.


"ZIMMER" has the meaning set forth in the Preamble.


"ZIMMER BUSINESS" has the meaning given such term in the Contribution and Distribution Agreement.


"ZIMMER COMMON STOCK" means the common stock of Zimmer, par value $.01 per share.


6


"ZIMMER FRINGE BENEFIT RATE" means the rate determined by Bristol-Myers Squibb Company's Benefits Department and Corporate Finance Department which represents the cost of providing benefits to Active Zimmer Employees in the U.S. as a percentage of payroll.


"ZIMMER GROUP" has the meaning given such term in the Contribution and Distribution Agreement.


"ZIMMER INDEMNITEES" has the meaning given such term in the Contribution and Distribution Agreement.


"ZIMMER INTERNATIONAL HEALTH AND WELFARE PLANS" has the meaning given such term in Section 2.09.


"ZIMMER STOCK FUND" means the fund under the Bristol-Myers Squibb Savings and Investment Program or the Zimmer Savings and Investment Program which is primarily invested in Zimmer Common Stock.


"ZIMMER UNION EMPLOYEE" means an Active Zimmer Employee who is covered by a Collective Bargaining Agreement.


ARTICLE II


GENERAL PRINCIPALS


Section 2.01 ASSUMPTION OF LIABILITIES. (a) Effective as of the Distribution Date, the Zimmer Group shall assume and be responsible for all employment and employee benefit-related matters, obligations and Liabilities that are payable on or after the Distribution Date, whether such matters, obligations and Liabilities arise before, on or after the Distribution Date, with respect to all Active Zimmer Employees, except as specifically provided otherwise in this Agreement. From and after the Distribution Date, (i) the Zimmer Group shall assume all responsibilities, Liabilities and obligations with respect to Active Zimmer Employees and their beneficiaries, including any claims incurred at any time and including any responsibilities, Liabilities or obligations that arise under any retention letter agreements that have been entered into between Zimmer, Bristol-Myers Squibb and certain Active Zimmer Employees, and (ii) the Bristol-Myers Squibb Group shall have no responsibilities, Liabilities or obligations with respect to the Active Zimmer Employees and their beneficiaries, except as specifically provided otherwise in this Agreement. Bristol-Myers Squibb shall retain all responsibilities, Liabilities and obligations with respect to Former Zimmer Employees and their beneficiaries that arise before, on or after the Distribution Date.


(b) Effective as of the Distribution Date, the Zimmer Group will assume all contracts, obligations and Liabilities with respect to independent contractors, consultants and tempo ...