10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010

Commission File Number 001-16407

ZIMMER HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 13-4151777
(IRS Employer
Identification No.)

345 East Main Street, Warsaw, IN 46580

(Address of principal executive offices)

Telephone: (574) 267-6131

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

As of April 23, 2010, 202,807,605 shares of the registrant’s $.01 par value common stock were outstanding.

ZIMMER HOLDINGS, INC.

INDEX TO FORM 10-Q

March 31, 2010

			Page
Part I — Financial Information
	Item 1.	Financial Statements
		Consolidated Statements of Earnings for the Three Months Ended March 31, 2010 and 2009		3
		Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009		4
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009		5
		Notes to Interim Consolidated Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
	Item 4.	Controls and Procedures		24
Part II — Other Information
		There is no information required to be reported under any items except those indicated below.
	Item 1.	Legal Proceedings		25
	Item 1A.	Risk Factors		25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
	Item 5.	Other Information		26
	Item 6.	Exhibits		26
Signatures				27
EX-10.1
EX-31.1
EX-31.2
EX-32
EX-99
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

2

Part I — Financial Information

Item 1.   Financial Statements

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except per share amounts, unaudited)

	Three Months Ended March 31,
	2010			2009
Net Sales	$	1,062.8		$	992.6
Cost of products sold		268.4			230.2
Gross Profit		794.4			762.4
Research and development		51.0			51.9
Selling, general and administrative		446.7			423.7
Acquisition, integration, realignment and other (Note 2)		2.6			7.0
Operating expenses		500.3			482.6
Operating Profit		294.1			279.8
Interest and other, net		(14.6	)		(3.7	)
Earnings before income taxes		279.5			276.1
Provision for income taxes		74.1			73.9
Net Earnings of Zimmer Holdings, Inc.	$	205.4		$	202.2
Earnings Per Common Share
Basic	$	1.01		$	0.91
Diluted	$	1.01		$	0.91
Weighted Average Common Shares Outstanding
Basic		203.0			221.5
Diluted		204.2			222.1

The accompanying notes are an integral part of these consolidated financial statements.

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)

	March 31,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	821.2		$	691.7
Certificates of deposit		50.2			66.4
Accounts receivable, less allowance for doubtful accounts		767.1			751.4
Inventories, net		896.5			913.2
Prepaid expenses and other current assets		118.0			105.4
Deferred income taxes		220.8			209.9
Total current assets		2,873.8			2,738.0
Property, plant and equipment, net		1,190.5			1,221.7
Goodwill		2,712.3			2,783.5
Intangible assets, net		834.0			858.0
Other assets		211.4			184.3
Total Assets	$	7,822.0		$	7,785.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	136.0		$	134.6
Income taxes		67.9			57.5
Other current liabilities		451.3			498.6
Total current liabilities		655.2			690.7
Other long-term liabilities		325.9			328.5
Long-term debt		1,127.0			1,127.6
Total Liabilities		2,108.1			2,146.8
Commitments and Contingencies (Note 14)
Stockholders’ Equity:
Common stock, $0.01 par value, one billion shares authorized, 254.2 million shares issued in 2010 (254.1 million in 2009)		2.5			2.5
Paid-in capital		3,231.6			3,214.6
Retained earnings		5,307.9			5,102.5
Accumulated other comprehensive income		304.9			358.6
Treasury stock, 51.4 million shares in 2010 (49.9 million in 2009)		(3,133.0	)		(3,039.5	)
Total Stockholders’ Equity		5,713.9			5,638.7
Total Liabilities and Stockholders’ Equity	$	7,822.0		$	7,785.5

The accompanying notes are an integral part of these consolidated financial statements.

4

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions, unaudited)

	For the Three Months
	Ended March 31,
	2010			2009
Cash flows provided by (used in) operating activities:
Net earnings of Zimmer Holdings, Inc.	$	205.4		$	202.2
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		84.9			79.6
Share-based compensation		12.7			17.1
Income tax benefit from stock option exercises		1.7			0.1
Excess income tax benefit from stock option exercises		(0.7	)		—
Inventory step-up		1.3			4.2
Changes in operating assets and liabilities, net of effect of acquisitions:
Income taxes		2.3			44.9
Receivables		(32.5	)		(6.3	)
Inventories		17.2			(32.2	)
Accounts payable and accrued expenses		(37.1	)		(111.5	)
Other assets and liabilities		4.3			(13.5	)
Net cash provided by operating activities		259.5			184.6
Cash flows provided by (used in) investing activities:
Additions to instruments		(39.3	)		(45.3	)
Additions to other property, plant and equipment		(11.6	)		(30.9	)
Purchases of certificates of deposit		(4.0	)		—
Sales of certificates of deposit		20.0			—
Acquisition of intellectual property rights		—			(7.6	)
Investments in other assets		(2.9	)		(0.6	)
Net cash used in investing activities		(37.8	)		(84.4	)
Cash flows provided by (used in) financing activities:
Net borrowing under credit facilities		—			210.0
Proceeds from employee stock compensation plans		4.9			3.3
Excess income tax benefit from stock option exercises		0.7			—
Repurchase of common stock		(93.5	)		(301.4	)
Acquisition of noncontrolling interest		—			(7.8	)
Net cash used in financing activities		(87.9	)		(95.9	)
Effect of exchange rates on cash and cash equivalents		(4.3	)		(4.1	)
Increase in cash and cash equivalents		129.5			0.2
Cash and cash equivalents, beginning of year		691.7			212.6
Cash and cash equivalents, end of period	$	821.2		$	212.8

The accompanying notes are an integral part of these consolidated financial statements.

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation

The financial data presented herein is unaudited and should be read in conjunction with the consolidated financial statements and accompanying notes included in the 2009 Annual Report on Form 10-K filed by Zimmer Holdings, Inc. In our opinion, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2009 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results for interim periods should not be considered indicative of results for the full year. Certain amounts in the three month period ended March 31, 2009 have been reclassified to conform to the current year presentation.

The words “we,” “us,” “our” and similar words refer to Zimmer Holdings, Inc. and its subsidiaries. Zimmer Holdings refers to the parent company only.

2.   Significant Accounting Policies

Acquisition, Integration, Realignment and Other  — We recognize expenses resulting directly from our business combinations and other items as “Acquisition, integration, realignment and other” expenses. Acquisition, integration, realignment and other expenses for the three month periods ended March 31, 2010 and 2009 included (in millions):

	Three Months
	Ended March 31,
	2010			2009
Impairment of assets	$	0.4		$	—
Consulting and professional fees		1.0			3.1
Employee severance and retention		(0.1	)		0.2
Information technology integration		0.1			0.1
Facility and employee relocation		—			0.8
Distributor acquisitions		—			0.3
Certain litigation matters		(0.8	)		—
Contract terminations		2.0			1.0
Other		—			1.5
Acquisition, integration, realignment and other	$	2.6		$	7.0

Recent Accounting Pronouncements — There are no recently issued accounting pronouncements that we have yet to adopt that are expected to have a material effect on our financial position, results of operations, or cash flows.

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.   Comprehensive Income

The reconciliation of net earnings to comprehensive income is as follows:

	Three Months
	Ended March 31,
	2010			2009
	(In millions)
Net earnings of Zimmer Holdings, Inc.	$	205.4		$	202.2
Other Comprehensive Income:
Foreign currency cumulative translation adjustments		(82.4	)		(41.6	)
Unrealized foreign currency hedge gains, net of tax		28.7			22.3
Reclassification adjustments on foreign currency hedges, net of tax		(0.9	)		(6.1	)
Unrealized losses on securities, net of tax		—			(0.5	)
Adjustments to prior service cost and unrecognized actuarial assumptions, net of tax		0.9			14.6
Total Other Comprehensive Loss		(53.7	)		(11.3	)
Comprehensive Income Attributable to Zimmer Holdings, Inc.	$	151.7		$	190.9

4.   Inventories

	March 31,		December 31,
	2010		2009
	(In millions)
Finished goods	$	708.7	$	718.6
Work in progress		57.1		48.0
Raw materials		130.7		146.6
Inventories, net	$	896.5	$	913.2

5.   Property, Plant and Equipment

	March 31,			December 31,
	2010			2009
	(In millions)
Land	$	21.6		$	21.8
Buildings and equipment		1,144.4			1,147.7
Capitalized software costs		162.2			158.8
Instruments		1,221.5			1,210.2
Construction in progress		61.0			62.0
		2,610.7			2,600.5
Accumulated depreciation		(1,420.2	)		(1,378.8	)
Property, plant and equipment, net	$	1,190.5		$	1,221.7

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.   Other Current Liabilities

	March 31,		December 31,
	2010		2009
	(In millions)
Other current liabilities:
Salaries, wages and benefits	$	75.7	$	95.7
Accrued liabilities		375.6		402.9
Total other current liabilities	$	451.3	$	498.6

7.   Debt

Long-term debt as of March 31, 2010 consisted of our unsecured senior notes (Senior Notes) and borrowings under our $1,350 million senior credit agreement (Senior Credit Facility). Outstanding long-term debt as of March 31, 2010 was $1,127.0 million, comprised of $998.8 million from our Senior Notes and $128.2 million from our Senior Credit Facility. There was no short-term debt outstanding. The estimated fair value of our Senior Notes as of March 31, 2010, based on quoted prices for the specific securities from transactions in active markets, was $990.9 million. The carrying value of the Senior Credit Facility approximates fair value, as the underlying instruments have variable interest rates at market value.

8.   Fair Value Measurement of Assets and Liabilities

The following assets and liabilities are recorded at fair value on a recurring basis as of March 31, 2010 (in millions):

			Fair Value Measurements at Reporting Date Using:
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Recorded		Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)
Assets
Available-for-sale securities	$	0.9	$	0.9	$	—	$	—
Derivatives, current and long-term		33.9		—		33.9		—
	$	34.8	$	0.9	$	33.9	$	—
Liabilities
Derivatives, current and long-term	$	22.5	$	—	$	22.5	$	—
	$	22.5	$	—	$	22.5	$	—

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following assets and liabilities were recorded at fair value on a recurring basis as of December 31, 2009 (in millions):

			Fair Value Measurements at Reporting Date Using:
			Quoted
			Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Recorded		Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)
Assets
Available-for-sale securities	$	0.9	$	0.9	$	—	$	—
Derivatives, current and long-term		12.4		—		12.4		—
	$	13.3	$	0.9	$	12.4	$	—
Liabilities
Derivatives, current and long-term	$	32.7	$	—	$	32.7	$	—
	$	32.7	$	—	$	32.7	$	—

Available-for-sale securities are valued using a market approach, based on quoted prices for the specific security from transactions in active exchange markets. Derivatives relate to foreign currency exchange forward contracts and foreign currency options entered into with various third parties. We value these instruments using a market approach based on foreign currency exchange rates obtained from active markets and perform an assessment of counterparty credit risk.

There were no significant nonrecurring fair value measurements made in the three month period ended March 31, 2010.

9.   Derivative Instruments and Hedging Activities

We are exposed to certain market risks relating to our ongoing business operations, including foreign currency risk, commodity price risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risk that we manage through the use of derivative instruments is foreign currency risk.

We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts and options with major financial institutions. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Swiss Francs, Japanese Yen, British Pounds, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Russian Rubles and Indian Rupees. We do not use derivative financial instruments for trading or speculative purposes.

We report all derivative instruments as assets or liabilities on the balance sheet at fair value.

Derivatives Designated as Hedging Instruments

Our revenues are generated in various currencies throughout the world. However, a significant amount of our inventory is produced in U.S. Dollars. Therefore, movements in foreign currency exchange rates may have different proportional effects on our revenues compared to our cost of products sold. To minimize the effects of foreign currency exchange rate movements on cash flows, we hedge intercompany sales of inventory expected to occur within the next 30 months with foreign currency exchange forward contracts and options. We designate these

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

derivative instruments as cash flow hedges. We have not entered into any derivative instruments designated as fair value or net investment in foreign operation hedges.

We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and that forecasted transactions have not changed significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default. For derivatives which qualify as hedges of future cash flows, the effective portion of changes in fair value is temporarily recorded in other comprehensive income and then recognized in cost of products sold when the hedged item affects net earnings. The ineffective portion of a derivative’s change in fair value, if any, is reported in cost of products sold immediately. The net amount recognized in earnings during the three month periods ended March 31, 2010 and 2009 due to ineffectiveness and amounts excluded from the assessment of hedge effectiveness was not significant.

For forward contracts and options outstanding at March 31, 2010, we have obligations to purchase U.S. Dollars and sell Euros, Japanese Yen, British Pounds, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Russian Rubles, and Indian Rupees and purchase Swiss Francs and sell U.S. Dollars at set maturity dates ranging from April 2010 through September 2012. The notional amounts of outstanding forward contracts and options entered into with third parties to purchase U.S. Dollars at March 31, 2010 were $1.1 billion. The notional amounts of outstanding forward contracts entered into with third parties to purchase Swiss Francs at March 31, 2010 were $209 million.

As of March 31, 2010 and December 31, 2009, all derivative instruments designated as cash flow hedges are recorded at fair value on the balance sheet. On our consolidated balance sheet, we recognize individual forward contracts and options with the same counterparty on a net asset/liability basis if we have a master netting agreement with the counterparty. The fair value of derivative instruments on a gross basis as of March 31, 2010 and December 31, 2009 is as follows (in millions):

	2010			2009
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
Asset Derivatives
Foreign exchange forward contracts	Other current assets	$	31.9	Other current assets	$23.3
Foreign exchange forward contracts	Other assets		13.6	Other assets	6.3
Total asset derivatives		$	45.5		$29.6
Liability Derivatives
Foreign exchange forward contracts	Other current liabilities	$	26.2	Other current liabilities	$35.4
Foreign exchange forward contracts	Other long-term liabilities		7.9	Other long-term liabilities	14.5
Total liability derivatives		$	34.1		$49.9

The fair value of outstanding derivative instruments recorded on the balance sheet at March 31, 2010, together with settled derivatives where the hedged item has not yet affected earnings, was a net unrealized gain of $6.2 million, or $13.8 million after taxes, which is deferred in other comprehensive income, of which $7.5 million, or $11.5 million after taxes, is expected to be reclassified to earnings over the next twelve months.

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Derivative instruments had the following effects on other comprehensive income (OCI) on our consolidated balance sheet and our consolidated statement of earnings on a gross basis for the three month periods ended March 31, 2010 and 2009 (in millions):

					Amount of
	Amount of				Gain/(Loss)
	Gain Recognized				Reclassified From OCI
	in OCI				to Cost of Products Sold
Derivative Instrument	2010		2009		2010			2009
Foreign exchange forward contracts	$	30.6	$	31.1	$	(0.4	)	$	4.3
Foreign exchange options		—		0.2		—			0.6
Total	$	30.6	$	31.3	$	(0.4	)	$	4.9

Derivatives Not Designated as Hedging Instruments

We enter into foreign currency forward exchange contracts with terms of one month to manage currency exposures for monetary assets and liabilities denominated in a currency other than an entity’s functional currency. As a result, any foreign currency remeasurement gains/losses recognized in earnings are generally offset with gains/losses on the foreign currency forward exchange contracts in the same reporting period. These offsetting gains/losses are recorded in cost of products sold as the underlying assets and liabilities exposed to remeasurement include inventory-related transactions. These contracts are settled on the last day of each reporting period. Therefore, there is no outstanding balance related to these contracts recorded on the balance sheet as of the end of the reporting period. The notional amounts of these contracts are typically in a range of $1.1 billion to $1.4 billion per quarter.

The following gains from these derivative instruments were recognized in cost of products sold on our consolidated statement of earnings (in millions):

	Three Months
	Ended March 31,
Derivative Instrument	2010		2009
Foreign exchange forward contracts	$	7.2	$	2.6
Total	$	7.2	$	2.6

This impact does not include any offsetting gains/losses recognized in earnings as a result of foreign currency remeasurement of monetary assets and liabilities denominated in a currency other than an entity’s functional currency.

10.   Income Taxes

We expect that the net amount of tax liability for unrecognized tax benefits will change in the next twelve months. We are currently under audit in numerous federal, state and foreign jurisdictions. While it is possible that such matters will be resolved in the next twelve months, we cannot reasonably estimate the amount or the periods in which changes in the unrecognized tax benefits will occur.

11.   Retirement Benefit Plans

We have defined benefit pension plans covering certain U.S. and Puerto Rico employees. The employees who are not participating in the defined benefit plans receive additional benefits under our defined contribution plans. Plan benefits are primarily based on years of credited service and the participant’s compensation. In addition to the

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

U.S. and Puerto Rico defined benefit pension plans, we sponsor various non-U.S. pension arrangements, including retirement and termination benefit plans required by local law or coordinated with government sponsored plans.

The components of net pension expense for the three month periods ended March 31, 2010 and 2009, for our U.S. and non-U.S. defined benefit retirement plans are as follows (in millions):

	Three Months
	Ended March 31,
	2010			2009
Service cost	$	6.3		$	6.9
Interest cost		4.6			4.9
Expected return on plan assets		(6.5	)		(6.9	)
Amortization of unrecognized prior service cost and actuarial loss		0.8			1.7
Net periodic benefit cost	$	5.2		$	6.6

We contributed $23.0 million during the three month period ended March 31, 2010 to our U.S. and Puerto Rico defined benefit plans and do not expect to contribute additional funds to these plans during the remainder of 2010. We contributed $3.4 million to our foreign-based defined benefit plans in the three month period ended March 31, 2010 and expect to contribute approximately $10 million to these foreign-based plans during the remainder of 2010.

12.   Earnings Per Share

The following is a reconciliation of weighted average shares for the basic and diluted shares computations (in millions):

	Three Months
	Ended
	March 31,
	2010		2009
Weighted average shares outstanding for basic net earnings per share		203.0		221.5
Effect of dilutive stock options and other equity awards		1.2		0.6
Weighted average shares outstanding for diluted net earnings per share		204.2		222.1

During the three month period ended March 31, 2010, an average of 12.8 million options to purchase shares of common stock were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of the common stock. During the three month period ended March 31, 2009, an average of 16.3 million options were not included.

In the three month period ended March 31, 2010, we repurchased 1.5 million shares of our common stock at an average price of $60.62 per share for a total cash outlay of $93.5 million, including commissions. Our Board of Directors previously authorized a $1.25 billion share repurchase program which was set to expire on December 31, 2009. In September 2009, the Board of Directors extended this program to December 31, 2010. $117.6 million remains authorized for future repurchases under this program.

13.   Segment Information

We design, develop, manufacture and market orthopaedic reconstructive implants, dental implants, spinal implants, trauma products and related surgical products which include surgical supplies and instruments designed to aid in surgical procedures and post-operation rehabilitation. We also provide other healthcare related services. Revenue related to these other healthcare related services currently represents less than 1 percent of our total net sales. We manage operations through three major geographic segments — the Americas, which is comprised

12

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

principally of the United States and includes other North, Central and South American markets; Europe, which is comprised principally of Europe and includes the Middle East and Africa; and Asia Pacific, which is comprised primarily of Japan and includes other Asian and Pacific markets. This structure is the basis for our reportable segment information discussed below. Management evaluates operating segment performance based upon segment operating profit exclusive of operating expenses pertaining to global operations and corporate expenses, share-based compensation, certain claims, acquisition, integration, realignment and other, net curtailment and settlement, inventory step-up and intangible asset amortization expense. Global operations include research, development engineering, medical education, brand management, corporate legal, finance, and human resource functions, and U.S. and Puerto Rico based manufacturing operations and logistics. Intercompany transactions have been eliminated from segment operating profit. Net sales and segment operating profit are as follows (in millions):

	Net Sales				Operating Profit
	Three Months				Three Months
	Ended				Ended
	March 31,				March 31,
	2010		2009		2010			2009
Americas	$	615.7	$	594.6	$	306.6		$	289.7
Europe		286.1		265.1		104.8			116.6
Asia Pacific		161.0		132.9		61.1			49.9
Total	$	1,062.8	$	992.6
Share-based compensation						(12.7	)		(17.1	)
Inventory step-up						(1.3	)		(4.2	)
Acquisition, integration, realignment and other						(2.6	)		(7.0	)
Global operations and corporate functions						(161.8	)		(148.1	)
Operating profit					$	294.1		$	279.8

Net sales by product category are as follows (in millions):

	Three Months
	Ended
	March 31,
	2010		2009
Reconstructive implants	$	814.5	$	761.1
Dental		51.7		47.4
Trauma		60.4		56.9
Spine		60.0		64.6
OSP and other		76.2		62.6
Total	$	1,062.8	$	992.6

14.   Commitments and Contingencies

Intellectual Property and Product Liability-Related Litigation

In July 2008, we temporarily suspended marketing and distribution of the Durom^® Acetabular Component (Durom Cup) in the U.S. Following our announcement, product liability lawsuits and other claims have been asserted against us, some of which we have settled. There are a number of claims still pending, and additional claims may be submitted.

We recorded a provision of $69.0 million in 2008, representing management’s estimate of the Durom Cup-related claims that would be made in association with revisions occurring within two years of the original surgery. In

13

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the third quarter of 2009, based on claims information we received after we made our initial estimate, we increased our estimate of the number of claims for revisions within two years of the original surgery and increased the provision by $35.0 million, for a total of $104.0 million related to such claims. We have not recorded any adjustments to the provisions since the third quarter of 2009. These provisions were recorded as “Certain Claims” in our statement of earnings. The liability outstanding as of March 31, 2010 is $64.8 million, which we believe will be adequate to settle the remaining of these Certain Claims.

Our standard product liability accruals are recognized in selling, general and administrative expense. We have recorded provisions as part of our standard product liability accruals for claims relating to revisions of Durom Cup cases in the U.S. that have occurred, or are estimated to occur, more than two years after the original surgery. We recorded a provision of $9.8 million in the three month period ended March 31, 2010 for such claims, as compared with a provision of $0.9 million in the same 2009 period. The total provisions we have recorded for such claims as part of our standard product liability accruals from 2008 through March 31, 2010 amount to $42.2 million. The estimated liability outstanding relating to these claims as of March 31, 2010 is $29.0 million. It is difficult to estimate the number of claims we may eventually receive related to revisions that occur more than two years after the original surgery, so it is reasonably possible that our estimated liability may change in the near term. We will continue to evaluate the adequacy of this liability as more information becomes available.

We expect to pay the majority of the claims related to the Durom Cup within the next three years.

On February 15, 2005, Howmedica Osteonics Corp. filed an action against us and an unrelated party in the United States District Court for the District of New Jersey alleging infringement of U.S. Patent Nos. 6,174,934; 6,372,814; 6,664,308; and 6,818,020. On June 13, 2007, the Court granted our motion for summary judgment on the invalidity of the asserted claims of U.S. Patent Nos. 6,174,934; 6,372,814; and 6,664,308 by ruling that all of the asserted claims are invalid for indefiniteness. On August 19, 2008, the Court granted our motion for summary judgment of non-infringement of certain claims of U.S. Patent No. 6,818,020, reducing the number of claims at issue in the suit to five. On April 9, 2009, in response to our earlier petition, the U.S. Patent and Trademark Office (USPTO) instituted re-examination proceedings against U.S. Patent No. 6,818,020. The USPTO rejected all previously issued claims of U.S. Patent No. 6,818,020 as being unpatentable in light of one or more prior art references. On September 30, 2009, the Court issued an order staying proceedings in the litigation pending the outcome of the re-examination process. Subsequent to that stay order, Howmedica filed a motion seeking to certify an appeal of the summary judgment ruling on the ’934, ’814 and ’308 patents. That motion was granted on January 13, 2010. We expect that the U.S. Court of Appeals for the Federal Circuit will hear the appeal of that ruling in 2010. We continue to believe that our defenses against infringement are valid and meritorious, and we intend to continue to defend this lawsuit vigorously.

In addition to claims related to the Durom Cup discussed above, we are also subject to product liability and other claims and lawsuits arising in the ordinary course of business, for which we maintain insurance, subject to self-insured retention limits. We establish accruals for product liability and other claims in conjunction with outside counsel based on current information and historical settlement information for open claims, related legal fees and claims incurred but not reported. While it is not possible to predict with certainty the outcome of these cases, it is the opinion of management that, upon ultimate resolution, liabilities from these cases in excess of those recorded, if any, will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Government Investigations

In September 2007, we and other orthopaedic companies settled a U.S. government investigation pertaining to consulting contracts, professional services agreements and other agreements by which remuneration is provided to orthopaedic surgeons. As part of the settlement, we entered into a Corporate Integrity Agreement (CIA) with the Office of Inspector General of the Department of Health and Human Services (OIG-HHS). Under the CIA, which has a term expiring in 2012, we agreed, among other provisions, to continue the operation of our enhanced

14

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Corporate Compliance Program, designed to promote compliance with federal healthcare program requirements, in accordance with the terms set forth in the CIA. We also agreed to retain an independent review organization to perform annual reviews to assist us in assessing our compliance with the obligations set forth in the CIA to ensure that arrangements we enter into do not violate the Anti-Kickback Statute (42 U.S.C. § 1320a-7b). A material breach of the CIA may subject us to exclusion by OIG-HHS from participation in all federal healthcare programs, which would have a material adverse effect on our financial position, results of operations and cash flows.

In November 2007, we received a civil investigative demand from the Massachusetts Attorney General’s office seeking additional information regarding our financial relationships with a number of Massachusetts healthcare providers. We received a similar inquiry from the Oregon Attorney General’s office in October 2008. We are cooperating fully with the investigators with regard to these matters.

In September 2007, the Staff of the U.S. Securities and Exchange Commission (SEC) informed us that it was conducting an investigation regarding potential violations of the Foreign Corrupt Practices Act (FCPA) in the sale of medical devices in a number of foreign countries by companies in the medical device industry. In November 2007, we received a letter from the U.S. Department of Justice (DOJ) requesting that any information provided to the SEC also be provided to the DOJ on a voluntary basis. We are continuing to provide information and cooperate fully with the SEC and the DOJ with regard to this pending investigation. In addition, as part of our global compliance program, we have been conducting our own proactive reviews regarding FCPA compliance in jurisdictions that have not been involved in the pending investigation. These reviews have yielded information indicating that certain third-party, independent distributors of our products in two South American countries made certain payments that may have potential FCPA implications. In the course of continuing dialogues with the agencies, we voluntarily disclosed information relating to these matters to the SEC and the DOJ, and the reviews are ongoing. We cannot currently predict the outcome of the investigation or the impact of our voluntary disclosures to the authorities.

Putative Class Actions

On August 5, 2008, a complaint was filed in the U.S. District Court for the Southern District of Indiana, Plumbers and Pipefitters Local Union 719 Pension Fund v. Zimmer Holdings, Inc., et al., naming us and two of our executive officers as defendants. The complaint related to a putative class action on behalf of persons who purchased our common stock between January 29, 2008 and July 22, 2008. The complaint alleged that the defendants violated the federal securities law by allegedly failing to disclose developments relating to our orthopaedic surgical products manufacturing operations in Dover, Ohio and the Durom Cup. The plaintiff sought unspecified damages and interest, attorneys’ fees, costs and other relief. On December 24, 2008, the lead plaintiff filed a consolidated complaint that alleged the same claims and related to the same time period. The defendants filed a motion to dismiss the consolidated complaint on February 23, 2009. On December 1, 2009, the Court granted defendants’ motion to dismiss, without prejudice. On January 15, 2010, the plaintiff filed a motion for leave to amend the consolidated complaint. That motion is pending. We believe this lawsuit is without merit, and we and the individual defendants intend to defend it vigorously.

On November 20, 2008, a complaint was filed in the U.S. District Court for the Northern District of Indiana, Dewald v. Zimmer Holdings, Inc., et al., naming us and certain of our current and former directors and employees as defendants. The complaint relates to a putative class action on behalf of all persons who were participants in or beneficiaries of our U.S. or Puerto Rico Savings and Investment Programs (plans) between October 5, 2007 and the date of filing and whose accounts included investments in our common stock. The complaint alleges, among other things, that the defendants breached their fiduciary duties in violation of the Employee Retirement Income Security Act of 1974, as amended, by continuing to offer Zimmer stock as an investment option in the plans when the stock purportedly was no longer a prudent investment and that defendants failed to provide plan participants with complete and accurate information sufficient to advise them of the risks of investing their retirement savings in Zimmer stock. The plaintiff seeks an unspecified monetary payment to the plans, injunctive and equitable relief, attorneys’ fees, costs and other relief. On January 23, 2009, the plaintiff filed an amended complaint that alleges the

15

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

same claims and clarifies that the class period is October 5, 2007 through September 2, 2008. The defendants filed a motion to dismiss the amended complaint on March 23, 2009. The motion to dismiss is pending with the court. On June 12, 2009, the U.S. Judicial Panel on Multidistrict Litigation entered an order transferring the Dewald case to the U.S. District Court for the Southern District of Indiana for coordinated or consolidated pretrial proceedings with the Plumbers & Pipefitters Local Union 719 Pension Fund case referenced above. We believe this lawsuit is without merit, and we and the individual defendants intend to defend it vigorously.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global leader in the design, development, manufacture and marketing of orthopaedic reconstructive implants, dental implants, spinal implants, trauma products and related surgical products (sometimes referred to in this report as “OSP”). We also provide other healthcare related services. We have operations in more than 25 countries and market products in more than 100 countries. We manage operations through three reportable geographic segments — the Americas, Europe and Asia Pacific.

Certain percentages presented in Management’s Discussion and Analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes. In addition, certain amounts in the 2009 consolidated financial statements have been reclassified to conform to the 2010 presentation.

We believe the following developments or trends are important in understanding our financial condition, results of operations and cash flows for the three month period ended March 31, 2010 and our expected results for the remainder of 2010.

Demand (Volume and Mix) Trends

Increased volume and changes in the mix of product sales contributed 4 percentage points of sales growth during the three month period ended March 31, 2010, compared to a 1 percent decline in the same 2009 period.

We believe long-term market growth rates will be driven by an aging global population, obesity, proven clinical benefits, new material technologies, advances in surgical techniques and more active lifestyles, among other factors. In addition, the ongoing shift in demand to premium products, such as Longevity^® and Prolong^® Highly Crosslinked Polyethylenes, Trabecular Metal^TM Technology products, hip stems with Kinectiv^® Technology, high-flex knees, knee revision products, porous hip stems and the introduction of patient specific devices are expected to continue to positively affect sales growth.

Pricing Trends

Global selling prices decreased 1 percent during the three month period ended March 31, 2010, compared to flat pricing in the same 2009 period. Selling prices in the Americas decreased 1 percent during the three month period ended March 31, 2010, compared to flat pricing in the same 2009 period. Europe selling prices were flat during the three month periods ended March 31, 2010 and 2009. Asia Pacific selling prices were flat for the three month period ended March 31, 2010, compared to a 3 percent decrease in the same 2009 period. Bi-annual pricing adjustments went into effect in Japan on April 1, 2010, which will decrease pricing for the remainder of 2010 in our Asia Pacific region. With the effect of governmental healthcare cost containment efforts and continuing pressure from local hospitals and health systems, we expect selling prices will be down approximately 1 to 2 percent on a global basis for 2010.

Foreign Currency Exchange Rates

For the three month period ended March 31, 2010, foreign currency exchange rates resulted in a 4 percent increase in sales. We estimate that an overall weaker U.S. Dollar versus foreign currency exchange rates will have a positive effect of approximately 0-1 percent on sales for the year ending December 31, 2010. We address currency risk through regular operating and financing activities, and, under appropriate circumstances and subject to proper authorization, through the use of forward contracts and foreign currency options solely for managing foreign currency volatility and risk. Changes to foreign currency exchange rates affect sales growth, but due to offsetting gains/losses on hedge contracts, which are recorded in cost of products sold, the effect on net earnings in the near term is expected to be minimal.

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Healthcare Reform in the U.S.

We are currently assessing the impact that the healthcare reform legislation recently passed by the U.S. federal government will have on our business. The new law includes a 2.3 percent excise tax on a majority of our U.S. sales that is scheduled to be implemented in 2013. While the healthcare reform legislation is intended to reduce the number of uninsured and underinsured patients, we do not expect a significant increase in our procedure volumes as the majority of the procedures being performed are for patients who are already covered by Medicare.

Global Economic Conditions

We see encouraging signs that the markets for our products are improving. For the second straight quarter, volume/mix for our core reconstructive business contributed 4 percentage points of growth, which are the highest levels experienced in that category since the third quarter of 2008 when volume/mix trends were consistently in the mid to high single digits. Dental sales volume/mix was positive for the first time in over a year, as that category had been more affected by the economic environment than our other categories, as many dental procedures are not reimbursed by third-party payors. While we have seen signs that global economic conditions are beginning to improve, sales continue to remain under pressure as a result of the downturn, particularly in our Europe segment.

First Quarter Results of Operations

Net Sales by Operating Segment

The following table presents net sales by operating segment and the components of the percentage changes (dollars in millions):

	Three Months Ended March 31,
								Volume/						Foreign
	2010		2009		% Inc			Mix			Price			Exchange
Americas	$	615.7	$	594.6		4	%		4	%		(1	)%		1	%
Europe		286.1		265.1		8			1			—			7
Asia Pacific		161.0		132.9		21			11			—			10
Total	$	1,062.8	$	992.6		7			4			(1	)		4

“Foreign Exchange” as used in the tables in this report represents the effect of changes in foreign currency exchange rates on sales growth.

Net Sales by Product Category

The following table presents net sales by product category and the components of the percentage changes (dollars in millions):

	Three Months Ended March 31,							Volume/						Foreign
	2010		2009		% Inc (Dec)			Mix			Price			Exchange
Reconstructive
Knees	$	460.4	$	428.5		7	%		5	%		(1	)%		3	%
Hips		315.7		299.6		5			2			(1	)		4
Extremities		38.4		33.0		16			14			—			2
Total		814.5		761.1		7			4			(1	)		4
Dental		51.7		47.4		9			3			3			3
Trauma		60.4		56.9		6			1			2			3
Spine		60.0		64.6		(7	)		(9	)		—			2
OSP and other		76.2		62.6		22			19			—			3
Total	$	1,062.8	$	992.6		7			4			(1	)		4

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The following table presents net sales by product category by region (dollars in millions):

	Three Months Ended March 31,
	2010		2009		% Inc (Dec)
Reconstructive
Knees
Americas	$	286.2	$	275.8		4	%
Europe		113.6		104.8		8
Asia Pacific		60.6		47.9		26
Hips
Americas		146.8		141.6		4
Europe		111.8		107.9		4
Asia Pacific		57.1		50.1		14
Extremities
Americas		29.6		25.6		16
Europe		6.5		5.7		14
Asia Pacific		2.3		1.7		34
Total		814.5		761.1		7
Dental
Americas		27.2		26.1		4
Europe		18.8		16.7		12
Asia Pacific		5.7		4.6		25
Trauma
Americas		32.6		32.4		—
Europe		11.8		10.6		11
Asia Pacific		16.0		13.9		16
Spine
Americas		44.0		51.5		(15	)
Europe		12.9		10.5		23
Asia Pacific		3.1		2.6		20
OSP and other
Americas		49.3		41.6		19
Europe		10.7		8.9		19
Asia Pacific		16.2		12.1		34
Total	$	1,062.8	$	992.6		7

Knees

The NexGen^® Complete Knee Solution product line, including Gender Solutions^TM Knee Femoral Implants, the NexGen LPS-Flex Knee, the NexGen CR-Flex Knee and the Gender Solutions Natural-Knee^® Flex System led knee sales. In addition, sales of partial knee devices, including the Zimmer^® Uni Knee and the recently released Gender Solutions Patello Femoral Joint, contributed to Knee growth for the quarter. In Europe, changes in foreign currency exchange rates positively affected knee sales in the three month period ended March 31, 2010 by 6 percent. In Asia Pacific, changes in foreign currency exchange rates positively affected knee sales in the three month period ended March 31, 2010 by 14 percent.

Hips

The Zimmer M/L Taper Stem, the Zimmer M/L Taper Stem with Kinectiv Technology, the CLS^® Spotorno^® Stem from the CLS Hip System and the Alloclassic^® Zweymüller^® Hip Stem led hip stem sales. In addition, sales of revision Hip products such as the ZMR^® Hip System and the Trabecular Metal Revision Shell and Augment Cups were strong in the quarter when compared to the prior year period, as were sales of BIOLOX^®1 delta Heads and Fitmore^® Hip Stems. In Europe, changes in foreign currency exchange rates positively affected hip sales in the three

¹ Registered trademark of CeramTec AG

19

month period ended March 31, 2010 by 7 percent. In Asia Pacific, changes in foreign currency exchange rates positively affected hip sales in the three month period ended March 31, 2010 by 9 percent.

Extremities

Extremities sales growth was strong across all regions as these types of procedures have become more widely accepted. The Bigliani/Flatow^® Complete Shoulder Solution and the Zimmer Trabecular Metal Reverse Shoulder System led extremities sales.

Dental

Dental sales improved following a year of weaker demand caused by the global economic downturn in 2009. Sales were led by the Tapered Screw-Vent^® Implant System. Regenerative product sales exhibited strong growth in the three month period ended March 31, 2010.

Trauma

Zimmer Periarticular Locking Plates and the ITST^® Intertrochanteric/Subtrochanteric Fixation System led trauma sales, while sales of cable products also made a strong contribution in the quarter. Tibial nail and interlocking screw sales within the Zimmer Natural Nail^TM system increased as we continued the roll-out of this product line.

Spine

Our spinal business in the Americas continued to experience challenges related to the Dynesys^® Dynamic Stabilization System. Growth in spine sales in Europe and Asia Pacific was driven by the stabilization of our distribution channels, which followed the integration activity of 2009. Solid sales of the PathFinder^® and Sequoia^® Pedicle Screw Systems and our Universal Clamp^® System partly offset a decline in sales of the Dynesys system in the three month period ended March 31, 2010.

OSP and other

OSP sales were led by PALACOS^®2 Bone Cement and powered instruments. Our wound debridement products also made a strong contribution as we continue to make progress recovering market share after a voluntary recall and temporary suspension of production.

Expenses as a Percent of Net Sales

	Three Months Ended March 31,
	2010			2009			Inc (Dec)
Cost of products sold		25.3	%		23.2	%		2.1
Research and development		4.8			5.2			(0.4	)
Selling, general and administrative		42.0			42.7			(0.7	)
Acquisition, integration, realignment and other		0.2			0.7			(0.5	)
Operating profit		27.7			28.2			(0.5	)
Interest and other, net		(1.4	)		(0.4	)		1.0

Cost of Products Sold

The increase in cost of products sold as a percentage of net sales for the three month period ended March 31, 2010 compared to the same 2009 period was driven by higher manufacturing costs per unit due to lower production levels in late 2009 into 2010. Additionally, we recognized foreign currency hedge losses in the 2010 period compared to hedge gains recognized in the 2009 period.

² Registered trademark of Heraeus Kulzer GmbH

20

Under our hedging program, for derivatives which qualify as hedges of future cash flows, the effective portion of changes in fair value is temporarily recorded in other comprehensive income, and then recognized in cost of products sold when the hedged item affects earnings.

Operating Expenses

Research and development expense, or R&D, decreased to $51.0 million from $51.9 million for the three month period ended March 31, 2010 compared to the same 2009 period. R&D spending in the 2009 period was higher due to development activities related to the Continuum^TM Acetabular System and Zimmer MMC^TM Cup products as well as the Zimmer Natural Nail system. While currently below the low end of our target range of 5 to 6 percent of sales, we expect R&D spending in 2010 to reach that target for the full year as new development programs accelerate.

Selling, general and administrative expense, or SG&A, increased to $446.7 million from $423.7 million for the three month period ended March 31, 2010 compared to the same 2009 period, which represents an improvement in SG&A as a percentage of sales by 70 basis points. The 70 basis point improvement represents controlled spending during a time of increasing sales. Part of the sales improvement is caused by changes in foreign currency rates, which positively impacted SG&A as a percentage of sales. A majority of our SG&A spending is incurred in the U.S., primarily from our corporate headquarters and similar functions at our various businesses such as Dental, Trauma, Spine and OSP. Therefore, SG&A expense does not respond to changes in foreign currency rates proportionally to our revenue.

The overall dollar increase in spending was driven by higher product liability claims (see discussion of product liability claims in Note 14 to the consolidated financial statements), increased medical education and training activities, increased instrument costs and incremental costs associated with certain operational excellence and growth initiatives. These were partially offset by lower costs, including elimination of monitor fees, related to the settlement with the U.S. government that successfully concluded in March 2009.

Acquisition, integration, realignment and other expenses for the three month period ended March 31, 2010 were $2.6 million, compared to $7.0 million in the same 2009 period. The decrease is due to a reduction in consulting and professional fees and lower legal fees due to the settlement of certain litigation matters.

Operating Profit, Interest and Other Expense, Income Taxes and Net Earnings

Operating profit for the three month period ended March 31, 2010 increased to $294.1 million, from $279.8 in the same 2009 period. The reduction in operating profit to sales ratio is primarily due to higher production costs.

Interest and other, net for the three month period ended March 31, 2010, increased to $14.6 million, compared to $3.7 million in the same 2009 period. The increase in interest expense is a result of the senior unsecured notes that we issued in November 2009.

The effective tax rate on earnings before income taxes for the three month period ended March 31, 2010 decreased to 26.5 percent, from 26.8 percent in the same 2009 period.

Net earnings increased 1.6 percent to $205.4 million for the three month period ended March 31, 2010, compared to $202.2 million in the same 2009 period. Basic and diluted earnings per share both increased 11 percent to $1.01, from $0.91 in the same 2009 period. The disproportional change in earnings per share as compared with net earnings is attributed to the effect of 2010 and 2009 share repurchases.

Liquidity and Capital Resources

Cash flows provided by operating activities were $259.5 million for the three month period ended March 31, 2010, compared to $184.6 million in the same 2009 period. The principal source of cash from operating activities was net earnings. Non-cash items included in net earnings accounted for another $98.9 million of operating cash. All other items of operating cash flows reflect a use of $44.8 million of cash, compared to a use of $118.5 million in the same 2009 period. In the 2009 period we resolved outstanding payments to healthcare professionals and institutions, resulting in substantial cash outflows. A reduction in inventory levels during the 2010 period compared

21

to an increase in inventory levels during the 2009 period also contributed to the improvement in cash flows from operating activities, partially offset by higher tax payments in the 2010 period.

At March 31, 2010, we had 60 days of sales outstanding in trade accounts receivable, which represents an increase of 4 days compared to December 31, 2009 and a decrease of 1 day compared to March 31, 2009. At March 31, 2010, we had 302 days of inventory on hand, which is consistent with December 31, 2009 and an improvement of 71 days from March 31, 2009.

Cash flows used in investing activities were $37.8 million for the three month period ended March 31, 2010, compared to $84.4 million in the same 2009 period. Additions to instruments decreased by $6.0 million during the three month period ended March 31, 2010 compared to the same 2009 period. Spending on other property, plant and equipment decreased to $11.6 million during the three month period ended March 31, 2010, compared to $30.9 million in the same 2009 period. We expect spending on property, plant and equipment and instruments to increase over subsequent quarters in 2010 as we replace machinery and equipment in the normal course of business and invest in instruments to support our new product launches. During the first quarter of 2010, we purchased and sold approximately $4.0 million and $20.0 million, respectively, in certificates of deposit that have original maturities greater than 90 days. Investments in other assets in both 2010 and 2009 primarily relate to payments to acquire certain foreign-based distributors.

Cash flows used in financing activities were $87.9 million for the three month period ended March 31, 2010, compared to $95.9 million in the same 2009 period. For the three months ended March 31, 2010, we purchased 1.5 million common shares for a total of $93.5 million, including commissions, under our stock repurchase program authorized by our Board of Directors, compared to $301.4 million in the same 2009 period. In the 2009 period, we borrowed against our senior credit facility, in part, to fund these share repurchases. Proceeds from our stock compensation plans have increased in the three month period ended March 31, 2010, compared to the same 2009 period, due to an increase in employee stock option exercises.

We have two outstanding tranches of unsecured senior notes (Senior Notes): $500 million aggregate principal amount of 4.625% Senior Notes due November 30, 2019 and $500 million aggregate principal amount of 5.75% Senior Notes due November 30, 2039. Interest on the Senior Notes is payable on May 30 and November 30 of each year beginning on May 30, 2010 until maturity. We may redeem the Senior Notes at our election in whole or in part at any time prior to maturity.

We have a five year $1,350 million revolving, multi-currency, senior unsecured credit facility maturing November 30, 2012 (Senior Credit Facility). We had $128.2 million outstanding under the Senior Credit Facility at March 31, 2010, and an availability of $1,221.8 million.

We also have available uncommitted credit facilities totaling $83.9 million.

We may use excess cash or further borrow against our Senior Credit Facility, subject to limits set by our Board of Directors, to repurchase additional common stock under the $1.25 billion program which expires December 31, 2010. $117.6 million remains authorized for future repurchases under this program.

Management believes that cash flows from operations and available borrowings under the Senior Credit Facility are sufficient to meet our working capital, capital expenditure and debt service needs. Should investment opportunities arise, we believe that our earnings, balance sheet and cash flows will allow us to obtain additional capital, if necessary.

Recent Accounting Pronouncements

There are no recently issued accounting pronouncements that we have yet to adopt that are expected to have a material effect on our financial position, results of operations, or cash flows.

Critical Accounting Estimates

There were no changes in the three month period ended March 31, 2010 to the application of critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2009.

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We evaluate the carrying value of goodwill and indefinite life intangible assets annually, or whenever events or circumstances indicate the carrying value may not be recoverable. We evaluate the carrying value of finite life intangible assets whenever events or circumstances indicate the carrying value may not be recoverable. Significant assumptions are required to estimate the fair value of goodwill and intangible assets, most notably estimated future cash flows generated by these assets. As such, these fair valuation measurements use significant unobservable inputs. Changes to these assumptions could require us to record impairment charges on these assets.

In the fourth quarter of 2009 we incurred a goodwill impairment charge of $73.0 million related to our U.S. Spine reporting unit. Although there were signs of improvement in the three month period ended March 31, 2010, such as growth in sales of acquired Abbott Spine products, our U.S. Spine reporting unit continues to experience challenges, so we performed another impairment test in the first quarter of 2010.

Using methodology similar to that used in the fourth quarter of 2009, we determined the estimated fair value of the reporting unit using an equal weighting of income and market approaches. The estimated fair value of the reporting unit was greater (although not substantially greater) than the carrying value of the net assets, so we did not record a goodwill impairment charge.

If the estimated cash flows of the U.S. Spine reporting unit decrease relative to our current estimates, we may have to record impairment charges in the future. Factors that could result in our cash flows being lower than our current estimates include: 1) decreased revenues caused by changes in the healthcare market, poor execution of our operating plans, or our inability to generate new product revenue from our research and development activities, and 2) our inability to achieve the estimated operating margins in our forecasts due to unforeseen factors. Additionally, changes in the broader economic environment could cause changes to our estimated discount rates which will impact our estimated fair values, or may cause changes to the comparable transaction methodology we employed under the market approach of estimating fair value.

We have five other reporting units subject to goodwill impairment testing, but no interim impairment testing was performed on these reporting units as there were no events or circumstances that would warrant an interim test. For each of those five reporting units, the estimated fair value substantially exceeded its carrying value at the last annual impairment test.

Forward-Looking Statements

This quarterly report contains certain statements that are forward-looking statements within the meaning of federal securities laws. When used in this report, the words “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “target,” “forecast,” “intend,” “assume,” “guide,” “seek” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to:

•  competition;

•  pricing pressures;

•  dependence on new product development, technological advances and innovation;

•  the impact of the recently enacted federal healthcare reform legislation, including the new excise tax on medical devices;

•  reductions in reimbursement levels by third-party payors and cost containment efforts of healthcare purchasing organizations;

•  the costs of defending or resolving putative class action litigation arising out of trading or ownership of our stock;

•  our compliance through 2012 with the Corporate Integrity Agreement we entered into as part of the September 2007 settlement with the United States government;

•  the success of our quality initiatives;

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•  the outcome of the investigation by the U.S. government into Foreign Corrupt Practices Act matters announced in October 2007;

•  challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the U.S. Food and Drug Administration and foreign government regulators, such as more stringent requirements for regulatory clearance of our products;

•  tax reform measures, tax authority examinations and associated tax risks and potential obligations;

•  retention of our independent agents and distributors;

•  changes in customer demand for our products and services caused by demographic changes or other factors;

•  changes in general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations;

•  our ability to protect proprietary technology and other intellectual property and claims for infringement of the intellectual property rights of third parties;

•  product liability claims;

•  the impact of temporarily suspending U.S. marketing and distribution of the Durom Cup on our sales growth, our customer relationships, our entry into the U.S. hip resurfacing market and product liability claims;

•  the possible disruptive effect of additional strategic acquisitions and our ability to successfully integrate acquired companies;

•  our ability to form and implement strategic alliances;

•  changes in prices of raw materials and products and our ability to control costs and expenses;

•  changes in general industry and market conditions, including domestic and international growth rates;

•  our dependence on a limited number of suppliers for key raw materials and outsourced activities; and

•  shifts in our product category sales mix or our regional sales mix away from products or geographic regions that generate higher operating margins.

Readers of this report are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.

We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be set forth in our periodic reports and our other filings with the Securities and Exchange Commission.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4.   Controls and Procedures

We have established disclosure controls and procedures and internal controls over financial reporting to provide reasonable assurance that material information relating to us, including our consolidated subsidiaries, is made known on a timely basis to management and the Board of Directors. However, no control system, no matter how well designed and operated, can provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II — Other Information

Item 1.   Legal Proceedings

Information pertaining to legal proceedings can be found in Note 14 to the interim consolidated financial statements included in Part I of this report.

Item 1A.   Risk Factors

Except as set forth below, there have been no material changes from the risk factors disclosed in Part I — Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

The risk factor under “RISKS RELATED TO OUR INDUSTRY” entitled “The impact of healthcare reform in the U.S. on us is uncertain” is replaced in its entirety by the following:

The impact of the recently enacted federal healthcare reform legislation on our business remains uncertain.

During the first quarter of 2010, the U.S. Congress passed and the President signed into law the Patient Protection and Affordable Care Act, as well as the Health Care and Education Reconciliation Act of 2010, which represent a significant change to the current U.S. healthcare system. The legislation is far-reaching and is intended to expand access to health insurance coverage over time. The new law will likely have a significant impact upon various aspects of our business operations. For example, to the extent that the number of uninsured or underinsured patients is reduced, demand for our products in the U.S. could marginally increase. However, the new law provides for new taxes and fees, including a 2.3 percent excise tax on medical devices scheduled to be implemented in 2013 that will apply to U.S. sales of a majority of our medical device products.

Many of the details of the new law will be included in new and revised regulations, which have not yet been promulgated, and require additional guidance and specificity to be provided by the Department of Health and Human Services, Department of Labor and Department of the Treasury. Accordingly, while it is too early to understand and predict the ultimate impact of the new legislation on our business, the legislation could have a material adverse effect on our business, cash flows, financial condition and results of operations.

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Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes repurchases of common stock settled during the three month period ended March 31, 2010:

					Total Number of		Approximate
					Shares Purchased		Dollar Value of
					as Part of		Shares that May
	Total Number				Publicly		Yet Be Purchased
	of Shares		Average Price		Announced Plans		Under Plans
	Purchased		Paid per Share		or Programs*		or Programs
January 2010		1,042,413	$	62.36		50,936,061	$	146,113,286
February 2010		500,000		57.01		51,436,061		117,602,079
March 2010		—		—		51,436,061		117,602,079
Total		1,542,413	$	60.62		51,436,061	$	117,602,079

* Includes repurchases made under expired programs as well as the current program authorizing $1.25 billion of repurchases through December 31, 2010.

Item 5.   Other Information

During the period covered by this report, the Audit Committee of our Board of Directors approved the engagement of PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform certain non-audit services related to certain accounting and tax matters. This disclosure is made pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002.

Item 6.   Exhibits

The following exhibits are filed or furnished as part of this report:

10.1	*	Form of Change in Control Severance Agreement with Jeffrey B. Paulsen
31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99		Zimmer Holdings, Inc. Employee Stock Purchase Plan (As amended and restated effective January 1, 2010)
101		The following materials from Zimmer Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, formatted in XBRL (Extensible Business Reporting Language): (1) the Consolidated Statements of Earnings, (2) the Consolidated Balance Sheets, (3) the Consolidated Statements of Cash Flows, and (4) Notes to Consolidated Financial Statements, tagged as blocks of text.

* indicates management contracts or compensatory plans or arrangements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ZIMMER HOLDINGS, INC. (Registrant)
Date: May 4, 2010		By:	/s/  James T. Crines
			James T. Crines
			Executive Vice President, Finance and
			Chief Financial Officer
Date: May 4, 2010		By:	/s/  Derek M. Davis
			Derek M. Davis
			Vice President, Finance and Corporate
			Controller and Chief Accounting Officer

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EX-10.1

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

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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.

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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:

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          (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

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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

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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

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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.

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          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).

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          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).

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          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

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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.

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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,

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(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

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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.

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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.

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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:

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EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David C. Dvorak, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zimmer Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2010

/s/  David C. Dvorak

David C. Dvorak

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James T. Crines, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zimmer Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2010

/s/  James T. Crines

James T. Crines

Executive Vice President, Finance

and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zimmer Holdings, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  David C. Dvorak

David C. Dvorak

President and Chief Executive Officer

May 4, 2010

/s/  James T. Crines

James T. Crines

Executive Vice President, Finance

and Chief Financial Officer

May 4, 2010

EX-99

Exhibit 99

ZIMMER HOLDINGS, INC.

EMPLOYEE STOCK PURCHASE PLAN
(As amended and restated effective January 1, 2010)

     Section 1. Designation and Purpose. The name of this Plan is the Zimmer Holdings, Inc. Employee Stock Purchase Plan. The purpose of the Plan is to provide Employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. The Plan is intended to qualify as an “Employee Stock Purchase Plan” under Code Section 423. The provisions of the Plan will, accordingly, be construed so as to extend and limit participation in a manner within the requirements of that section of the Code. However, the Company makes no undertaking or representation to maintain such qualification. In addition, this Plan authorizes the grant of options and issuance of Common Stock that do not qualify under Code Section 423 pursuant to rules, procedures, or sub-plans adopted by the Committee and designed to achieve desired tax or other objectives in particular locations outside the United States.

For purposes of this Plan and with respect to the Code Section 423 component of the Plan, unless the Committee otherwise determines, each Designated Subsidiary (as defined in Section 2(l) below) shall be deemed to participate in a separate offering from the Company or any other Designated Subsidiary, provided that the terms of participation within any such offering are the same for all Employees in such offering, as determined under Code Section 423.

     Section 2. Definitions. As used in the Plan, the following terms, when capitalized, have the following meanings:

          (a) “Beneficiary” means, with respect to a Participant, the individual or estate designated, pursuant to Section 12, to receive the Participant’s Payroll Deduction Account balance and Common Stock Account assets after the Participant’s death.

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

          (c) “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time, and its interpretive rules and regulations.

          (d) “Committee” means a committee established pursuant to Section 13 to administer the Plan.

          (e) “Common Stock” means the common stock of the Company or any stock into which that common stock may be converted.

          (f) “Common Stock Account” means the account established for each Participant to hold Common Stock purchased under the Plan pursuant to Section 6.

     (g) “Company” means Zimmer Holdings, Inc, a Delaware corporation, and any successor by Corporate Transaction.

     (h) “Compensation” means the total cash compensation received by an Employee from the Company, a partnership of which the Company is a general partner, or a Designated Subsidiary, including an Employee’s salary, wages, overtime, shift differentials, bonuses, commissions, and incentive compensation, but excluding relocation and expense reimbursements, tuition reimbursements, scholarship grants, and income realized as a result of participation in any stock option, stock purchase, or similar plan of the Company or any Subsidiary.

     (i) “Contributions” means all amounts made by a Participant and credited to the Participant’s Payroll Deduction Account pursuant to the Plan (whether via payroll deductions, check or other means determined by the Committee).

     (j) “Corporate Transaction” means a sale of all or substantially all of the Company’s assets, or a merger, consolidation, or other capital reorganization of the Company with or into another corporation.

     (k) “Designated Broker” means a broker (or any successor or replacement broker) selected by the Committee from time to time to serve as the Designated Broker under the terms of the Plan.

     (l) “Designated Subsidiary” means a Subsidiary that has been designated by the Board or the Committee, in their sole discretion, as eligible to participate in the Plan with respect to its Employees.

     (m) “Employee” means any person, including an Officer, who performs services for the Company or a Subsidiary and who is initially classified as an employee on the payroll records of the Company or a Designated Subsidiary. If the Company or a Designated Subsidiary treats a person as an independent contractor for tax or labor law purposes, and that person is subsequently determined to be an employee of the Company or a Designated Subsidiary by the Internal Revenue Service or any other federal, state, or local government agency or court of competent authority, that person will become an Employee on the date that the determination is finally adjudicated or otherwise accepted by the Company or the affected Designated Subsidiary, as long as he or she otherwise meets the requirements of this Section 2(m). Such a person will not, under any circumstances, be treated as an Employee for the period of time during which the Company or Designated Subsidiary treated the person as an independent contractor, even if the determination of employee status has retroactive effect.

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

     (o) “Fair Market Value” means, with respect to any date, the closing price of the Common Stock for that date (or, in the event that the Common Stock is not traded on that date, the closing price on the immediately preceding trading date),

2

as reported by the New York Stock Exchange. If the Common Stock is no longer traded on the New York Stock Exchange, then “Fair Market Value” means, with respect to any date, the fair market value of the Common Stock as determined by the Committee in good faith. The Committee’s determination will be conclusive and binding on all persons.

     (p) “Offering Date” means the first business day of each Offering Period of the Plan.

     (q) “Offering Period” means a period of six (6) months commencing on January 1 and July 1 of each year, or such other period as determined by the Committee, provided, however, that in no event will the Offering Period be a period longer than twenty-seven (27) months.

     (r) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.

     (s) “Payroll Deduction Account” means the account established for a Participant to hold the Participant’s Contributions pursuant to Section 5.

     (t) “Plan” means the Zimmer Holdings, Inc. Employee Stock Purchase Plan.

     (u) “Purchase Date” means the last day of each Offering Period of the Plan.

     (v) “Purchase Price” means, with respect to an Offering Period, an amount equal to ninety percent (90%) of the Fair Market Value of a Share of Common Stock on the Purchase Date, or such other amount as may be determined by the Committee.

     (w) “Share” means a share of Common Stock, as adjusted in accordance with Section 16 of the Plan.

     (x) “Subsidiary” means a domestic or foreign corporation of which not less than fifty percent (50%) of the voting shares are held by the Company or a Subsidiary, within the meaning of Code Section 424, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.

Section 3. Eligibility.

     (a) Any person who is an Employee as of an Offering Date in a given Offering Period will be eligible to participate in the Plan for that Offering Period, subject to the requirements of Section 4 and the limitations imposed by Code Section 423(b). Notwithstanding the foregoing, (1) the Committee may restrict participation in the Plan to full-time Employees pursuant to criteria and procedures established by the Committee, and (2) the Committee may establish administrative rules and may impose an eligibility service requirement of up to two years of

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employment with the Company or a Designated Subsidiary with respect to participation on any prospective Offering Date. The Board may also determine that a designated group of highly compensated employees are ineligible to participate in the Plan, so long as the excluded category fits within the definition of “highly compensated employee” in Code Section 414(q). For purposes of the Plan, an Employee will be considered a full-time Employee unless his or her customary employment is less than 20 hours per week or five months per year. Further, the Committee may designate whether a Subsidiary is a Designated Subsidiary for purposes of the Code Section 423 or non-Code Section 423 component.

     (b) Notwithstanding any other provision of the Plan, no Employee will be eligible to participate in the Plan if the Employee (or any other person whose stock would be attributed to the Employee pursuant to Code Section 424(d)) owns capital stock of the Company and/or holds outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company.

     Section 4. Participation. An Employee may become a Participant in the Plan by completing a subscription agreement that authorizes payroll deductions and any other required documents (“Enrollment Documents”) provided by the Committee or its designee and submitting them to the Committee (or its designee) or the Designated Broker, pursuant to the rules prescribed by the Committee, during the 30-day period prior to the applicable Offering Date, unless a different time for submission of the Enrollment Documents is set by the Board or the Committee for all Employees with respect to a given Offering Period. The Enrollment Documents will set forth the amount of the Participant’s Compensation, up to one hundred percent (100%) or such lower limit as is designated by the Committee, to be paid as Contributions pursuant to the Plan. The Committee may provide for a separate election (of a different percentage) for a specified item or items of pay. In countries where payroll deductions are not feasible, the Committee may permit an Employee to participate in the Plan by an alternative means, such as by check.

     Section 5. Method of Payment of Contributions.

     (a) A Participant’s payroll deductions will begin either on the first pay date following the Offering Date or the date on which the Participant submits Enrollment Documents in accordance with Section 4, whichever is later, and will end on the last pay date on or prior to the Purchase Date of the Offering Period to which the Enrollment Documents are applicable, unless the Participant elects to withdraw from the Plan as provided in Section 8. A Participant’s Enrollment Documents will remain in effect for successive Offering Periods unless the Participant elects to withdraw from the Plan as provided in Section 8 or unless the Participant timely submits new Enrollment Documents to change the rate of payroll deductions for a subsequent Offering Period in accordance with rules established by the Committee.

     (b) All Contributions made by a Participant will be held by the Company as part of its general assets; however, the Company will establish a Payroll Deduction Account for each Participant and credit each Participant’s Contributions to the

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Participant’s Payroll Deduction Account. A Participant may not make any additional payments to the Participant’s Payroll Deduction Account, except as authorized by the Committee in countries where payroll deductions are not feasible.

     (c) No interest will accrue on a Participant’s Contributions to the Plan, unless required by local law and specified by the Committee.

     (d) Except as otherwise specified by the Committee, payroll deductions made with respect to Employees paid in currencies other than U.S. dollars will be accumulated in local (non-U.S.) currency and converted to U.S. dollars as of the Purchase Date.

     Section 6. Participant Purchases and Common Stock Accounts. On each Purchase Date, each Participant will be deemed, without further action, to have elected to purchase Shares of Common Stock with the entire balance in the Participant’s Payroll Deduction Account, and the Designated Broker will credit the purchased shares to the Participant’s Common Stock Account.

     (a) The Participant will be credited with the number of whole and fractional Shares (rounded to the nearest thousandth) that the Participant’s Payroll Deduction Account balance can purchase at the Purchase Price on that Purchase Date.

     (b) All dividends paid with respect to the whole and fractional Shares of the Common Stock, and Shares so purchased will be reinvested in Common Stock and added to the Shares held for a Participant in the Participant’s Common Stock Account.

     (c) Expenses incurred in the purchase of Shares and the expenses of the Designated Broker will be paid by the Participant.

     (d) A Participant will have no interest or voting right in a Share until a Share has been purchased on the Participant’s behalf under the Plan.

     (e) Shares held in a Participant’s Common Stock Account will be registered in the name of the Designated Broker or its nominee for the benefit of the Participant. Shares to be delivered to a Participant under the Plan will be reregistered in the name of the Participant or in the name of the Participant and the Participant’s spouse.

     Section 7. Limitation on Purchases. Participant purchases are subject to the following limitations:

     (a) During any one calendar year, a Participant may not purchase, under the Plan, or under any other plan qualified under Code Section 423, Shares of Common Stock having a Fair Market Value on the applicable Offering Date in excess of $25,000. In addition, in no event shall the number of Shares of Common Stock that a Participant may purchase during any Offering Period under the Plan exceed 5,000 Shares of Common Stock.

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     (b) A Participant’s Payroll Deduction Account may not be used to purchase Common Stock on any Purchase Date to the extent that, after such purchase, the Participant would own (or be considered as owning within the meaning of Code Section 424(d)) stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company. For this purpose, stock that the Participant may purchase under any outstanding option will be treated as owned by that Participant.

     (c) As of the first Purchase Date on which this Section limits a Participant’s ability to purchase Common Stock, the Participant’s payroll deductions will terminate, and the Participant will receive a refund of the balance in the Participant’s Payroll Deduction Account as soon as practicable after the Purchase Date.

     (d) In no event will the aggregate amount of purchases of Common Stock pursuant to the Plan equal or exceed twenty percent (20%) of the outstanding stock of the Company.

     Section 8. Withdrawal from Participation.

     (a) A Participant may withdraw all, but not less than all, of the Contributions credited to the Participant’s Payroll Deduction Account at any time prior to a Purchase Date by notifying the Committee or its designee or the Designated Broker of the Participant’s election to withdraw, pursuant to rules prescribed by the Committee. If a Participant elects to withdraw, all of the Participant’s Contributions credited to the Participant’s Payroll Deduction Account will be returned to the Participant and the Participant may not make any further Contributions to the Plan for the purchase of Shares during that Offering Period.

     (b) A Participant’s voluntary withdrawal during an Offering Period will not have any effect upon the Participant’s eligibility to participate in the Plan during a subsequent Offering Period or in the Participant’s ability to retain Common Stock previously credited to the Participant in the Participant’s Common Stock Account.

     Section 9. Stock Purchases by Designated Broker. As of each Purchase Date, the Designated Broker will acquire, using the accumulated balances of all Participants’ Payroll Deduction Accounts, Shares of Common Stock to be credited to those Participants’ Common Stock Accounts.

     (a) The Designated Broker will acquire Shares that are newly issued or held as treasury shares by the Company or, if directed by the Committee, will acquire Shares by purchases on the open market or in private transactions.

     (b) If Shares are purchased in one or more transactions on the open market or in private transactions at the direction of the Committee, the Company will pay the Designated Broker the difference between the Purchase Price and the price at which the Shares are purchased for Participants.

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     Section 10.Common Stock Account Withdrawals. Except as otherwise provided in this Section, upon 14 days advance written notice to the Designated Broker, a Participant may elect to withdraw the assets in the Participant’s Common Stock Account.

     (a) A Participant may elect to obtain a certificate for the whole Shares of Common Stock credited to the Participant’s Common Stock Account. As a condition of participation in the Plan, each Participant will agree to notify the Company if the Participant sells or otherwise disposes of any of the Participant’s Shares of Common Stock within two years of the Purchase Date on which the Shares were purchased.

     (b) A Participant may elect that all Shares in the Participant’s Common Stock Account be sold and that the proceeds, less expenses of sale, be remitted to the Participant.

     (c) In either event, the Designated Broker will sell any fractional Shares held in the Common Stock Account and remit the proceeds of such sale, less selling expenses, to the Participant.

Notwithstanding the foregoing, the Committee may require that Shares of Common Stock credited to a Participant’s Common Stock Account be retained by the Designated Broker for a designated period of time and may restrict dispositions during that period, and/or the Committee may establish other procedures to permit tracking of disqualifying dispositions of the Shares of Common Stock or to restrict transfer of the Shares.

     Section 11. Cessation of Participation. If a Participant dies or terminates employment, the Participant will cease to participate in the Plan, the Company or its designee will refund the balance in the Participant’s Payroll Deduction Account, and the Designated Broker will distribute the assets in the Participant’s Common Stock Account.

     (a) In the event of a Participant’s death, the Participant’s Payroll Deduction Account balance and the Participant’s Common Stock Account assets will be distributed to the Participant’s Beneficiary.

     (b) If a Participant terminates employment, the Participant’s Payroll Deduction Account balance and the Participant’s Common Stock Account assets will be distributed to the Participant. For purposes of this Section 11, a Participant’s employment will not be considered terminated in the case of a transfer of employment to the Company or another Subsidiary. However, in the event of a transfer of employment, the Committee may transfer a Participant’s participation to a separate offering or non-Code Section 423 offering that the entity the Participant is being transferred to participates in, if advisable or necessary considering the application of local law and the Code Section 423 requirements.

     (c) Upon distribution, the Participant or, in the event of the Participant’s death, the Participant’s Beneficiary, may elect to obtain a certificate for the whole Shares of Common Stock credited to the Participant’s Common Stock Account or may elect that any whole Shares in the Participant’s Common Stock Account be sold. In that event, the Designated Broker will sell such whole Shares and any fractional

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Shares held in the Common Stock Account and remit the proceeds of such sale, less selling expenses, to the Participant or Beneficiary.

Notwithstanding the foregoing, if a Participant dies or terminates employment, the Committee may require that Shares of Common Stock credited to the Participant’s or Beneficiary’s Common Stock Account be retained by the Designated Broker for a designated period of time and may restrict dispositions during that period, and/or the Committee may establish other procedures to permit tracking of disqualifying dispositions of the Shares of Common Stock or to restrict transfer of the Shares.

     Section 12. Designation of Beneficiary. Each Payroll Deduction Account and each Common Stock Account will be in the name of the Participant. To the extent permitted by the Committee, a Participant may designate a Beneficiary to receive the Participant’s interests in both accounts in the event of the Participant’s death by complying with procedures prescribed by the Committee. If a Participant is married and the designated Beneficiary is not the spouse, spousal consent will be required for such designation to be effective. A Participant may change a Beneficiary designation (with spousal consent if necessary) at any time by complying with the procedures prescribed by the Committee. If a Participant dies without having designated a Beneficiary, or if the Beneficiary does not survive the Participant, the Participant’s estate will be the Participant’s Beneficiary.

     Section 13. Administration of the Plan. The Plan will be administered by the Committee, consisting of not less than three members appointed by the Board.

     (a) The Committee will be the Compensation Committee of the Board unless the Board appoints another committee to administer the Plan. The Board from time to time may fill vacancies on the Committee.

     (b) Subject to the express provisions of the Plan, the Committee will have the discretionary authority to take any and all actions (including directing the Designated Broker as to the acquisition of Shares) necessary to implement the Plan and to interpret the Plan; to prescribe, amend, and rescind rules and regulations relating to it; and to make all other determinations necessary or advisable in administering the Plan. All such determinations will be final and binding upon all persons.

     (c) A quorum of the Committee will consist of a majority of its members and the Committee may act by vote of a majority of its members at a meeting at which a quorum is present, or without a meeting by a written consent to their action taken signed by all members of the Committee.

     (d) The Committee may request advice or assistance or employ or designate such other persons as are necessary for proper administration of the Plan.

     Section 14. Rights Not Transferable. Rights under the Plan are not transferable by a Participant.

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     Section 15. Shares Reserved for the Plan. Subject to the following sentence and any adjustments as provided in Section 16, the maximum number of Shares that will be made available for purchase under the Plan will be 3,000,000 Shares or the lesser number of Shares determined by the Board.

     Section 16. Change in Capital Structure. Despite anything in the Plan to the contrary, the Committee may take the following actions without the consent of any Participant or Beneficiary, and the Committee’s determination will be conclusive and binding on all persons for all purposes.

     (a) In the event of a Common Stock dividend, Common Stock split, or any combination of Shares, a Corporate Transaction in which the Company is the surviving corporation, or any other change in the Company’s capital stock (including, but not limited to, the creation or issuance to stockholders generally of rights, options or warrants for the purchase of common stock or preferred stock of the Company), the number and kind of shares of stock or securities of the Company to be subject to the Plan, the maximum number of shares or securities that may be delivered under the Plan, and the selling price and other relevant provisions of the Plan will be appropriately adjusted by the Committee, whose determination will be binding on all persons.

     (b) If the Company is a party to a Corporate Transaction in which the Company is not the surviving corporation, the Committee may take such actions with respect to the Plan as the Committee deems appropriate.

     Section 17. Amendment of the Plan. The Board may at any time, or from time to time, amend the Plan in any respect. The stockholders of the Company, however, must approve any amendment that would increase the number of Shares of Common Stock that may be issued under the Plan (other than an increase merely reflecting a change in capitalization of the Company pursuant to Section 16) or a change in the designation of any corporations (other than a Subsidiary) whose employees become Employees under the Plan.

     Section 18. Termination of the Plan. The Plan and all rights of Employees and Beneficiaries under the Plan will terminate:

     (a) on the Purchase Date that Participants become entitled to purchase a number of Shares greater than the number of reserved Shares remaining available for purchase as set forth in Section 15, or

     (b) at any date at the discretion of the Board.

In the event that the Plan terminates under circumstances described in (a) above, reserved Shares remaining as of the termination date will be credited to Participants’ Common Stock Accounts on a prorata basis. Upon termination of the Plan, each Participant will receive the balance in the Participant’s Payroll Deduction Account and all Shares in the Participant’s Common Stock Account.

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     Section 19. Indemnification of Committee. Service on the Committee will constitute service as a director of the Company so that members of the Committee will be entitled to indemnification and reimbursement as directors of the Company pursuant to its Certificate of Incorporation and Bylaws.

     Section 20. Government Regulations. The Plan, the grant and exercise of the rights to purchase Shares under the Plan, and the Company’s or Designated Broker’s obligation to sell and deliver Shares upon the exercise of rights to purchase Shares, will be subject to all applicable federal, state and foreign laws, rules and regulations, and to such approvals by any regulatory or government agency as may, in the opinion of counsel for the Company, be required.

     Section 21. Reports. Statements of account will be provided to Participants by the Committee or the Designated Broker at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and credited to Participants’ Common Stock Accounts, and the remaining cash balance, if any, in Participants’ Payroll Deduction Accounts.

     Section 22. Governing Law. This Plan shall be governed by the laws of the State of Indiana, except that a sub-plan adopted for a Designated Subsidiary in a location outside of the United States will be governed by the laws of the jurisdiction in which that Designated Subsidiary is located.

     Section 23. Effective Date. This Plan as amended and restated by the Board on February 11, 2010 shall be effective as of January 1, 2010.

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