Exhibit 10.16 February 21, 2001 Bruno Melzi C/O Zimmer, Inc. Italy PERSONAL AND CONFIDENTIAL Dear Bruno: Last year you and Bristol-Myers Squibb Company ("Bristol-Myers Squibb") executed a letter agreement dated November 3, 2000 (the "2000 Agreement"),...
Exhibit 10.16 February 21, 2001 Xxxxx Xxxxx C/X Xxxxxx, Inc. Italy PERSONAL AND CONFIDENTIAL Dear Bruno: Last year you and Xxxxxxx-Xxxxx Squibb Company ("Xxxxxxx-Xxxxx Squibb") executed a letter agreement dated November 3, 2000 (the "2000 Agreement"), and a letter amendment dated December 14, 2000 (the "2000 Amendment") that described the bonus payments and other incentives that you would receive in the event that Xxxxxx, Inc. ("Zimmer") was sold to a third-party entity on or before September 30, 2001. It now appears possible that Xxxxxxx-Xxxxx Squibb may divest its interest in Zimmer through a "spin-off" transaction involving the distribution of Zimmer stock to Xxxxxxx-Xxxxx Squibb shareholders (the "Spin-Off"). The Spin-Off may be preceded by a public offering of Zimmer shares (the "IPO"). During the divestiture process, we believe that operating the Zimmer business as usual is in the best interests of Xxxxxxx-Xxxxx Squibb, Zimmer and its employees. To provide assurance to you and to help ensure that the Zimmer business is managed and operated efficiently and effectively both before and after the divestiture, Xxxxxxx-Xxxxx Squibb and Zimmer wish to offer you the incentives described in this letter. If these incentives are satisfactory and you wish to participate, please sign and return this letter in the manner described on the last page of this letter. The terms and conditions of this letter agreement will apply in the event of an IPO or Spin-Off of Zimmer that occurs on or before September 30, 2001 and, with respect to payments and benefits contingent upon a Spin-Off, the consummation of the Spin-Off on or before March 31, 2002. In the event of a disposition of Zimmer which is not an IPO or Spin-Off occurring on or before September 30, 2001 and, with respect to payments and benefits contingent upon a Spin-Off, if the Spin-Off is not completed on or before March 31, 2002, the terms and conditions of this letter agreement will terminate and will not apply. Please note that if Zimmer is sold to a third party entity on or before September 30, 2001, you will receive the bonus payments and other incentives subject to the conditions described in the 2000 Agreement and the 2000 Amendment. As a member of the Zimmer management team, you are expected to carry out the duties and responsibilities of your job during the coming months. In addition, your assistance will be necessary to complete the divestiture process. For your extra efforts and cooperation in helping Xxxxxxx-Xxxxx Squibb and Zimmer during this period, you will be provided with the following incentives, subject to all of the terms and conditions of this letter agreement: 1. SPECIAL STOCK OPTION AWARD. Effective on the date of the Spin-Off or, if it occurs first, the IPO (the "Effective Date"), you will receive an option to purchase shares of Zimmer stock with an economic value at the time of grant of $175,000 using a generally accepted valuation methodology. This option will be issued under a new option and equity compensation plan (the "Zimmer Stock Incentive Plan") that will be adopted by Xxxxxx'x Board of Directors. Your option will vest in equal installments over a period of four years provided that you remain employed with Zimmer during that time, or as provided otherwise under the Zimmer Stock Incentive Plan. The exercise price will equal the fair market value of Zimmer stock at the time the option is granted. 2. SPECIAL RESTRICTED STOCK AWARD. As of the Effective Date, you will receive a grant of Zimmer restricted stock with a value (determined as if no restrictions applied) of $60,000. The restricted stock will vest in three equal installments on the third, fourth and fifth anniversaries of the grant of the award provided that you remain employed with Zimmer during that time. Any dividends that are payable on Zimmer stock Xxxxx Xxxxx February 21, 2001 Page 2 will be paid to you on this restricted stock on a current basis. This restricted stock will also be issued under the Zimmer Stock Incentive Plan. 3. CONVERSION OF OUTSTANDING STOCK OPTIONS. Any Xxxxxxx-Xxxxx Squibb stock options granted to you prior to the Effective Date (including, but not limited to, the options awarded to you on January 3, 2000 pursuant to a 50% reduction in target cash bonus under the Xxxxxxx-Xxxxx Squibb Company Performance Incentive Plan ("PIP")) that are outstanding on the date of the Spin-Off, will be converted into new Zimmer stock options. The number of shares and the exercise price of your new Zimmer options will be determined by the Xxxxxxx-Xxxxx Squibb Board of Directors based upon a conversion ratio that will be used for all Zimmer employees and that preserves any gains earned through the date of conversion. Your new Zimmer options will be vested in the same proportion that your Xxxxxxx-Xxxxx Squibb options were vested and the nonvested portion of your new Zimmer options will vest from the original grant date of your Xxxxxxx-Xxxxx Squibb options according to the vesting schedule in such Xxxxxxx-Xxxxx Squibb options. Certain of your Xxxxxxx-Xxxxx Squibb options were subject to a price appreciation threshold of 30% for a period of eight years following grant. Your new Zimmer options will also be subject to a 30% price appreciation threshold that will be based upon the adjusted exercise price of your Zimmer options and future share price appreciation of Zimmer shares subject to the requirement that the price appreciation threshold be met for 15 consecutive trading days. Any Xxxxxxx-Xxxxx Squibb stock options granted to you after the date of this letter agreement that are converted into new Zimmer stock options will reflect any applicable conditions to exercisability such as vesting requirements or price appreciation thresholds. 4. 2001 PERFORMANCE INCENTIVE PLAN and PIP DEFERRAL PROGRAM. Your 2001 payment under the PIP will be calculated in accordance with the following terms and conditions: (i) your full target bonus will be in effect in 2001; (ii) your payment will be based upon actual results versus targeted performance criteria through the Effective Date, subject to the established PIP payout schedule; (iii) if the Effective Date is on or before June 30, 2001, a six-month bonus payment will be made; (iv) if the Effective Date occurs after June 30, 2001, you will accrue additional months of bonus credit beyond six months subject to any applicable conditions of the PIP; and (v) your 2001 PIP payment will be made on December 15, 2001 and February 15, 2002 consistent with the current plan provisions, provided that you remain employed with Zimmer through the aforementioned payment dates. Regarding your participation in the PIP Referral Program, you will receive distributions from your PIP deferral account consistent with the terms of your distribution election as soon as practicable after the Effective Date. 5. SPECIAL SEVERANCE UPON TERMINATION OF EMPLOYMENT. In the event that you are terminated without cause on the Effective Date or within twelve months following the consummation of the Spin-Off, you will be eligible to receive termination payments. Based on our common understanding of the current regulations of the Italian dirigenti of trade companies (CCNL dirigenti commercio), in no case will any termination payment be less than 12 months of base salary. (This 12 months of base salary is inclusive of any notice periods/payments that may apply. Twelve months base salary means your monthly base salary, not including the value of benefits, car, or any other allowances, multiplied by twelve). Should the current regulation, applicable to dirigenti of trade companies, be modified, as to reduce your termination payment, we will ensure that in no case will the payment be less than 12 months salary, inclusive of notice/payments which may apply. 6. CONDITIONS OF THIS LETTER AGREEMENT. The incentive payments and benefits described in this letter agreement are contingent upon: (a) the Effective Date occurring on or before September 30, 2001 and, with respect to payments and benefits contingent upon a Spin-Off, the consummation of the Spin-Off on or before March 31, 2002; (b) your continuous employment with Zimmer through and including the date of the relevant award, and your cessation of employment within the Xxxxxxx-Xxxxx Squibb controlled group (as defined under section 1563(a) of the Internal Revenue Code) as a result of Xxxxx Xxxxx February 21, 2001 Page 3 the Spin-Off; (c) your execution on the date of the consummation of the Spin-Off, and the effectiveness, of a general release in favor of Xxxxxxx-Xxxxx Squibb, its affiliates, and others related to such entities (including but not limited to their directors, officers, employees) and a limited release of Zimmer, its affiliates, and others related to such entities (including but not limited to their directors, officers, employees) with respect to Xxxxxx'x obligations in connection with the Spin-Off, in form and substance satisfactory to Xxxxxxx-Xxxxx Squibb and Zimmer, (d) your honoring the need for strict confidentiality regarding the IPO and the Spin-Off and the terms of this letter agreement, neither of which should be discussed with anyone (other than your personal financial or legal advisors) without the express and specific permission of Xxxxxx X. Xxxxxxxx, Senior Vice President, Corporate Development, it being acknowledged that matters relating to the IPO and the Spin-Off (except the terms of this letter agreement) may be discussed only with employees of Xxxxxxx-Xxxxx Squibb and its affiliates and their legal and financial advisors who are participating in the IPO and the Spin-Off process and no others (and then only with those individuals on a "need to know" basis); (e) your providing full support and cooperation in the best interests of Xxxxxxx-Xxxxx Squibb and Zimmer up to and including the date of the Spin-Off; and (f) following the Spin-Off, your taking no action, excluding normal competitive activity not contrary to law and not inconsistent with your other contractual obligations to Xxxxxxx-Xxxxx Squibb, Zimmer or their affiliates, but including any actions prohibited by this letter agreement, which would be considered contrary to the best interests of Xxxxxxx-Xxxxx Squibb, Zimmer or their affiliates. 7. NON-COMPETE AND NON-SOLICITATION. As a condition to your receipt of any payments or benefits under this letter agreement, you agree that, for a period commencing on the date of your execution of this letter agreement and ending on the date which is one year after the consummation of the Spin-Off you will not, directly or indirectly, (i) own, manage, control or participate in the ownership, management or control of, be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association, or other business entity, or otherwise engage in any business, which is engaged in any manner in, or otherwise competes with, the business of Zimmer or any of its affiliates in the United States of America or any of the countries in which Zimmer or any of its affiliates is doing business, (ii) solicit on behalf of any other corporation, partnership, proprietorship, firm, association, or other business entity, any person or business that is a customer or supplier of Zimmer or any of its affiliates, or (iii) solicit for employment, hire, employ, or retain in any capacity (including but not limited to as an employee, director, independent contractor, consultant or otherwise), other than for employment within Zimmer or its affiliates in conjunction with the IPO and Spin-Off or within Xxxxxxx-Xxxxx Squibb or its affiliates, any person who is employed or otherwise engaged on a full or part-time basis by Xxxxxxx-Xxxxx Squibb or its affiliates (including but not limited to Zimmer). You understand and agree that a breach by you of this paragraph would be a material breach of your obligations under this letter agreement, and that, if any amounts have been provided to you under the terms of this letter agreement prior to any such breach, in addition to any other remedy that may be available to Xxxxxxx-Xxxxx Squibb in law or at equity, upon demand, you will promptly return all such amounts to Xxxxxxx-Xxxxx Squibb or Zimmer as appropriate. 8. NOT AN EMPLOYMENT AGREEMENT. The terms of this letter agreement neither bind you to continued employment with Xxxxxxx-Xxxxx Squibb, Zimmer, their affiliates or any successor thereto, nor confer any rights upon you with respect to the continuation of employment by Xxxxxxx-Xxxxx Squibb, Zimmer, their affiliates or any successor thereto. 9. WITHHOLDING. With the exception of your PIP payments, which will be paid to you through normal payroll processing for PIP, with appropriate withholding of relevant taxes, if applicable, the tax liabilities that may arise from other payments will be your sole responsibility. Xxxxx Xxxxx February 21, 2001 Page 4 10. EXCLUSIVE RETENTION AND SEVERANCE BENEFIT. In the event that any or all other employees of Zimmer receive or are offered either a retention or similar bonus payable upon or in connection with the IPO or the Spin-Off (a "Retention Bonus"), or an enhanced severance benefit payable upon or in connection with the IPO or the Spin-Off, you understand and agree that you will not be eligible to receive such Retention Bonus or enhanced severance benefit, except as explicitly set forth in this letter agreement. 11. RETURN OF COMPANY PROPERTY AND USE OF COMPANY PERQUISITES. In the event of your separation from Xxxxxxx-Xxxxx Squibb, Zimmer or their affiliates (whether prior to or in connection with the IPO or Spin-Off), you agree to return all property belonging to Xxxxxxx-Xxxxx Squibb, Zimmer or their affiliates (including but not limited to any company laptop or computers, and other equipment, documents and property belonging to Xxxxxxx-Xxxxx Squibb, Zimmer or their affiliates) upon such separation (in accordance with the normal practice relating thereto); provided, however, at Xxxxxx'x discretion, you may continue to retain use of your employer-provided automobile. 12. GOVERNING LAW; JURISDICTION. This letter agreement will be governed by and construed under the laws of the State of New York, without regard to its principles of conflict of laws. You and Xxxxxxx-Xxxxx Squibb agree to submit to the jurisdiction of the courts of the state of New York in the event of any dispute regarding this letter agreement. Please acknowledge your understanding of and agreement to the provisions of this letter agreement by signing and returning a copy of this letter to me by March 9, 2001. Very truly yours, /s/ Xxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxxx Senior Vice President Corporate Development Xxxxxxx-Xxxxx Squibb Company Xxxxx Xxxxx Xxxxxx, Inc. AGREED TO AND ACCEPTED: ---------------------------- DATE: ----------------------- For specific acceptance of Paragraph #7 (Non-Compete and Non-Solicitation) AGREED TO AND ACCEPTED: ---------------------------- DATE: -----------------------