Exhibit 10.1
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of
, 2015, is made by and between ZIMMER BIOMET 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 stockholders 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 stockholders.
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, 2015. Beginning on January 1,
2016, 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 or benefit plan, program, or arrangement maintained by the Company during the period of Disability.
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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.
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SECTION 3.02.
Severance Payments
. The following are the Severance Payments referenced
in Section 3.01:
(a)
Lump Sum Severance Payment
. In lieu of any further salary payments to the Executive for periods after the
Date of Termination, and in lieu of any severance benefits otherwise payable to the Executive, the Company will pay to the Executive, 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 remain subject to any forfeiture or clawback claims under the applicable option plan or award agreement.
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(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 Executive 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.
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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 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(c), if Executive signs
and does not rescind the General Release in accordance with Section 6.03, the Company will pay to the Executive the amount due under Section 3.02 on the sixtieth (60
th
) business day
(or the previous business if the 60
th
day is a holiday or weekend) following the Date of Termination.
(b) At the time that payment is made under Section 3.04(a), the Company will provide the Executive with a written statement setting forth
the manner in which all of the payments to Executive 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).
(c) 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).
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
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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 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.
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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.
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.
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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 following the date of the
Potential Change of Control, (b) the date of a Change in Control, (c) the date on which the Executive terminates employment for Good Reason (determined by treating the Potential Change in Control as a Change in Control in applying the
definition of Good Reason) or by reason of death, or (d) the date the Company terminates the Executive’s employment for any reason.
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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 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.
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(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(c). 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.
ARTICLE VIII
Notices
For the
purpose of this Agreement, notices and all other communications provided for in the Agreement will be in writing and will be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below, or to such other address as either party may
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furnish to the other in writing in accordance with this Article VIII, except that notice of change of address will be effective only upon actual receipt:
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To the Company:
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Zimmer Biomet Holdings, Inc.
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Attention: General Counsel
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345 East Main Street
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Post Office Box 708
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Warsaw, Indiana 46581-0708
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To the Executive:
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ARTICLE IX
Miscellaneous
This
Agreement will not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive will not have any right to be retained in the employ of the
Company. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in writing and signed by the Executive and an officer of the Company specifically designated by the Board. No
waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party will be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any other time. Neither party has made any agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement that are not expressly set forth in this Agreement. Except as
provided in the following two sentences, the validity, interpretation, construction, and performance of this
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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.
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.
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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, 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.
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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 Company’s 2009 Stock Incentive Plan, 2006 Stock Incentive Plan, 2001 Stock Incentive
Plan or 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 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.
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(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 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
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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
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 Biomet 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).
21
(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 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;
22
(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 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)
23
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
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.
24
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 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;
25
(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 Company’s Savings and Investment Program, which, for purposes of this Agreement, will be
deemed to include the Benefit Equalization Plan of the Company and Its Subsidiary or Affiliated Corporations Participating in the Company’s 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).
26
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EXECUTIVE
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ZIMMER BIOMET HOLDINGS, INC.
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By:
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Name:
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Name:
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Title:
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Exhibit 10.3
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U.S. Department of Justice
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Criminal Division
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Fraud Section, Suite 4100, Bond Building
1400 New York Avenue, NW
Washington, D.C. 20530
March 26, 2012
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Laurence Urgenson
Kirkland & Ellis LLP
655 Fifteenth Street, NW
Washington, DC 20005
Asheesh Goel
Ropes & Gray LLP
111 South Wacker Drive
Chicago, IL 60606
Dear Mssrs. Urgenson and Goel:
Biomet, Inc. (“Biomet”), by its undersigned attorneys, pursuant to authority granted by Biomet’s Board of Directors, and the
United States Department of Justice, Criminal Division, Fraud Section (the “Department”) enter into this deferred prosecution agreement (the “Agreement”). The terms and conditions of this Agreement are as follows:
1.
Criminal Information and Acceptance of Responsibility:
Biomet agrees to waive venue and acknowledges and agrees that the United
States will file the attached five-count criminal Information in the United States District Court for the District of Columbia. The Information charges Biomet, Inc. with conspiracy to commit an offense against the United States, in violation of 18
U.S.C. § 371, that is, to violate the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. § 78dd-l (Count One); three counts of violating the FCPA, 15 U.S.C. § 78dd-l and 18 U.S.C. § 2 (Counts Two through Four); and one
count of violating the books and records provisions of the FCPA, 15 U.S.C. § 78m (Count Five).
a. In so doing, Biomet knowingly
waives its right to indictment on these charges, as well as all rights to a speedy trial pursuant to the Sixth Amendment to the United States Constitution, 18 U.S.C. § 3161, and Federal Rule of Criminal Procedure 48(b). In addition, Biomet
consents to the filing of the Information and the Agreement in the United States District Court for the District of Columbia.
b. Biomet admits, accepts, and acknowledges that it is responsible for the acts of its officers,
employees and agents, and wholly-owned subsidiaries, as set forth in the Statement of Facts attached hereto as Attachment A, and incorporated by reference into this Agreement, and that the allegations described in the Information and the facts
described in Attachment A are true and accurate. Should the Department initiate the prosecution that is deferred by this Agreement, Biomet agrees that neither it nor any Biomet subsidiary or affiliate will contest the admissibility of, or
contradict, the Statement of Facts in any such proceeding, including any guilty plea or sentencing proceeding.
2.
Term of the
Agreement:
This Agreement is effective for a period beginning on the date on which the Information is filed in the United States District Court for the District of Columbia and ending three (3) years from that date (the “Term”).
However, Biomet agrees that, in the event that the Department determines, in its sole discretion, that Biomet has knowingly violated any provision of this Agreement, an extension or extensions of the term of the Agreement may be imposed by the
Department, in its sole discretion, for up to a total additional time period of one year, without prejudice to the Department’s right to proceed as provided in Paragraph 14 below. Any extension of the Agreement extends all terms of this
Agreement, including the obligations of corporate compliance monitorship and reporting described in Paragraphs 7-12 below, for an equivalent period. Conversely, in the event the Department finds, in its sole discretion, that there exists a change in
circumstances sufficient to eliminate the need for reporting and the other provisions of this Agreement have been satisfied, the Term of the Agreement may be terminated early.
3.
Relevant Considerations:
The Department enters into this Agreement based on the individual facts and circumstances presented by this
case and Biomet. Among the facts considered were the following:
a. Biomet investigated and disclosed to the Department and the United
States Securities and Exchange Commission (the “SEC”) the misconduct described in the Information and Statement of Facts, a portion of which was voluntarily disclosed;
b. Biomet reported its findings to the Department and the SEC;
c. Biomet cooperated fully with the Department’s investigation of this matter, as well as the SEC’s investigation;
d. Biomet undertook remedial measures, including the implementation of an enhanced compliance program and agreed to undertake further remedial
measures as contemplated by this Agreement;
e. Biomet agreed to continue to cooperate with the Department in any investigation of the
conduct of Biomet and its directors, officers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to violations of the FCPA;
f. Biomet has cooperated and agreed to continue to cooperate with the SEC and, at the direction of the Department, foreign authorities
investigating the conduct of Biomet and its directors, officers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to corrupt payments;
2
g. Biomet has cooperated and agreed to continue to cooperate with the Department in the
Department’s investigations of other companies and individuals in connection with business practices overseas in various markets; and
h. Were the Department to initiate a prosecution of Biomet and obtain a conviction, instead of entering into this Agreement to defer
prosecution, Biomet would potentially be subject to exclusion from participation in federal health care programs pursuant to 42 U.S.C. § 1320a-7(a).
4.
Cooperation:
During the term of this Agreement, Biomet shall continue to cooperate fully with the Department in any and all matters
relating to corrupt payments, related false books and records, and inadequate internal controls. At the request of the Department, Biomet shall also cooperate fully with such other domestic or foreign law enforcement authorities and agencies, as
well as the international financial institutions (“IFIs”), in any investigation of Biomet or any of its present and former directors, officers, employees, agents, consultants, contractors, and subcontractors, or any other party, in any and
all matters relating to corrupt payments, related false books and records, and inadequate internal controls, in such manner as the parties may agree. Biomet agrees that its cooperation shall include, but not be limited to, the following:
a. Biomet shall truthfully disclose all factual information not protected by a valid claim of attorney-client privilege or work product
doctrine with respect to its activities and those of its present and former subsidiaries and affiliates, and the directors, officers, employees, agents, subsidiaries, consultants, contractors, and subcontractors thereof, concerning all matters
relating to corrupt payments, related false books and records, and inadequate internal controls about which Biomet has any knowledge or about which the Department may inquire. This obligation of truthful disclosure includes the obligation of Biomet
to provide to the Department, upon request, any non-privileged document, record, or other tangible evidence relating to such corrupt payments, false books and records, and inadequate internal controls about which the Department may inquire of
Biomet.
b. Upon request of the Department, with respect to any issue relevant to its investigation of corrupt payments, related false
books and records, and inadequate internal controls in connection with the operations of Biomet, Biomet shall designate knowledgeable employees, agents, or attorneys to provide the Department with the information and materials described in Paragraph
4(a) above, on behalf of Biomet. It is further understood that Biomet must at all times provide complete, truthful, and accurate information.
3
c. With respect to any issue relevant to the Department’s investigation of corrupt payments,
related false books and records, and inadequate internal controls in connection with the operations of Biomet or any of its present or former subsidiaries or affiliates, Biomet shall use its best efforts to make available for interviews or
testimony, as requested by the Department, present or former directors, officers, employees, agents, and consultants of Biomet as well as directors, officers, employees, agents, and consultants of contractors and subcontractors. This includes, but
is not limited to, sworn testimony before a federal grand jury or in federal trials, as well as interviews with federal law enforcement authorities. Cooperation under this Paragraph will include identification of witnesses who, to the knowledge of
Biomet, may have material information regarding the matters under investigation.
d. With respect to any information, testimony,
documents, records, or other tangible evidence provided to the Department pursuant to this Agreement, Biomet consents to any and all disclosures, subject to applicable law and regulations, to other governmental authorities, including United States
authorities and those of a foreign government, and the IFIs, of such materials as the Department, in its sole discretion, shall deem appropriate.
5.
Payment of Monetary Penalty:
The Department and Biomet agree that application of the United States Sentencing Guidelines
(“USSG” or “Sentencing Guidelines”) to determine the applicable fine range yields the following analysis:
a.
Base
Offense
. Based upon USSG 2C1.1, the total offense level is 29, calculated as follows:
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2C1.1(a)(2)
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Base Offense Level
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12
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2C1.1(b)(1)
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More than one bribe
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+2
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2C1.1(b)(2)
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Value of benefit received between $2.5-7 million
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+18
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8C4.1
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Substantial assistance in the prosecution of others
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-1
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TOTAL OFFENSE LEVEL
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31
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b.
Base Fine
. Based upon USSG § 8C2.4(a)(l) and (d), the base fine is $13,500,000 (the fine
indicated in the Offense Level Fine Table ($13,500,000) is used where such number is greater than the pecuniary gain to the organization from the offense (approximately $4,400,000)).
c.
Culpability Score
. Based upon USSG § 8C2.5, the culpability score is 8, calculated as follows:
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(a)
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Base Culpability Score
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5
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(b)(1)
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Organization had 5,000 or more employees and an individual within high-level personnel of the organization participated in,
condoned, or was willfully ignorant of the offense
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+5
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(g)(2)
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The organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of
responsibility for its criminal conduct;
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-2
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TOTAL CULPABILITY SCORE
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8
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d.
Calculation of Fine Range
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Base Fine
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$
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13,500,000
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Multipliers
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1.6 (minimum)/3.2 (maximum)
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Fine Range
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$
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21,600,000-43,200,000
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Biomet agrees to pay a monetary penalty in the amount of $17,280,000, a 20 percent reduction off the bottom of the fine range.
Biomet and the Department agree that this fine is appropriate given Biomet’s extensive internal investigation, the nature and extent of Biomet’s cooperation in this matter, Biomet’s cooperation in the Department’s investigation
of other companies pursuant to 8C4.1, and Biomet’s extraordinary remediation. Biomet and the Department agree that Biomet will pay this $17,280,000 monetary penalty within ten days of the execution of this agreement. The $17,280,000 penalty is
final and shall not be refunded. Furthermore, nothing in this Agreement shall be deemed an agreement by the Department that the $17,280,000 amount is the maximum penalty that may be imposed in any future prosecution, and the Department is not
precluded from arguing that the Court should impose a higher fine, although the Department agrees that under those circumstances, it will recommend to the Court that the amount paid under this Agreement should be offset against any fine the Court
imposes as part of a future judgment. Biomet acknowledges that no tax deduction may be sought in connection with the payment of any part of this $17,280,000 penalty.
6.
Conditional Release from Criminal Liability
: In return for the full and truthful cooperation of Biomet, and its compliance with the
terms and conditions of this Agreement, the Department agrees not to use any information related to the conduct described in the attached Statement of Facts against Biomet or any of its wholly-owned or -controlled subsidiaries in any criminal or
civil case, except: (a) in a prosecution for perjury or obstruction of justice; (b) in a prosecution for making a false statement; (c) in a prosecution or other proceeding relating to any crime of violence; or (d) in a
prosecution or other proceeding relating to a violation of any provision of Title 26 of the United States Code. In addition, the Department agrees, except as provided herein, that it will not bring any criminal or civil case against Biomet related
to the conduct of present and former directors, officers, employees, agents, consultants, contractors, and subcontractors, as described in the attached Statement of Facts, or relating to information Biomet disclosed to the Department prior to the
date on which this Agreement was signed.
5
a. This Paragraph does not provide any protection against prosecution for any corrupt payments,
false books and records, or inadequate internal controls issues, if any, by Biomet in the future.
b. In addition, this Paragraph does not
provide any protection against prosecution for any corrupt payments, false books and records, or inadequate internal controls issues in the past which are not described in the attached Statement of Facts or were not disclosed to the Department prior
to the date on which this Agreement was signed. In addition, this Paragraph does not provide any protection against criminal prosecution of any present or former director, officer, employee, shareholder, agent, or consultant of Biomet for any
violations committed by them.
7.
Corporate Compliance Program:
Biomet represents that it has implemented and will continue to
implement and maintain a compliance and ethics program designed to prevent and detect violations of the FCPA and other applicable anticorruption laws throughout its operations, including those of its affiliates, joint ventures, contractors, and
subcontractors, with responsibilities that include interactions with foreign officials or other high-risk activities. Implementation of these policies and procedures shall not be construed in any future enforcement proceeding as providing immunity
or amnesty for any crimes not disclosed to the Department as of the date of signing this Agreement for which Biomet would otherwise be responsible.
8.
Corporate Monitor:
Biomet agrees to engage an independent corporate compliance monitor (“the Monitor”) within ninety
(90) calendar days of signing this Agreement. Within thirty (30) calendar days after the signing of this Agreement, and after consultation with the Department, Biomet will recommend to the Department three qualified Monitor candidates. The
Monitor shall have, at a minimum, the following qualifications:
a. demonstrated expertise with respect to the FCPA, including experience
counseling on FCPA issues;
b. experience designing and/or reviewing corporate compliance policies, procedures, and internal controls,
including FCPA-specific policies, procedures, and internal controls;
c. the ability to access and deploy resources as necessary to
discharge the Monitor’s duties as described in the Agreement; and
d. sufficient independence from Biomet to ensure effective and
impartial performance of the Monitor’s duties as described in this Agreement.
9. The Department retains the right, in its sole
discretion, to accept or reject any Monitor candidate proposed by Biomet pursuant to the Agreement. In the event the Department rejects a proposed Monitor, Biomet shall propose another candidate within ten (10) calendar days after receiving
notice of the rejection. This process shall continue until a Monitor acceptable to both parties is chosen. The Department may also propose the names of qualified Monitor candidates for consideration. The term of the monitorship, as set forth in
Attachment D, shall commence upon the Department’s acceptance of a Monitor candidate proposed by Biomet.
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10. The Monitor will be retained by Biomet for a period of not less than eighteen
(18) months from the date the Monitor is selected. The term of the monitorship, including the circumstances that may support an extension of the term, as well as the Monitor’s powers, duties, and responsibilities will be as set forth in
Attachment D. Biomet may not employ or be affiliated with the Monitor for a period of not less than one year from the date of the termination of the monitorship.
11. At the end of the monitorship, provided all requirements set forth in Paragraph 8 of Attachment D are met, Biomet will report on its
compliance to the Department as set forth in Paragraph 12 below for the remainder of the term of this Agreement.
12.
Corporate
Compliance Reporting:
Biomet agrees that, following the monitorship, it will report to the Department periodically, at no less than six-month intervals, for the remainder of this Agreement, regarding remediation and implementation of the
enhanced compliance measures set forth by the monitor as described in Paragraph 8 of Attachment D. Biomet shall designate a senior company officer as the person responsible for overseeing Biomet’s corporate compliance reporting obligations.
Should Biomet discover credible evidence that questionable or corrupt payments or questionable or corrupt transfers of property or interests may have been offered, promised, paid, or authorized by any Biomet entity or person, or any entity or person
working directly for Biomet, or that related false books and records have been maintained, Biomet shall promptly report such conduct to the Department. During this period, Biomet shall conduct and prepare at least three follow-up reviews and
reports, as described below:
a. Biomet shall undertake follow-up reviews at six-month intervals, each incorporating the Department’s
views and comments on Biomet’s prior reviews and reports, to further monitor and assess whether the policies and procedures of Biomet are reasonably designed to detect and prevent violations of the FCPA and other applicable anticorruption laws.
Reports shall be transmitted to Deputy Chief (FCPA Unit), Fraud Section, Criminal Division, Department of Justice, 10th and Constitution Ave., N.W., Bond Building, Fourth Floor, Washington, D.C. 20530.
b. The first follow-up review and report shall be completed by no later than 180 calendar days after the approval of the enhanced compliance
measures described in Paragraph 8 of Attachment D by the Department. Subsequent follow-up reviews and reports shall be completed by no later than 180 calendar days after the completion of the preceding follow-up review.
c. Biomet may extend the time period for submission of any of the follow-up reports with prior written approval of the Department.
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13.
Deferred Prosecution:
In consideration of: (a) the past and future cooperation of
Biomet described in Paragraphs 3 and 4 above; (b) Biomet’s payment of a monetary penalty of $17,280,000; and (c) Biomet’s implementation and maintenance of remedial measures, the Department agrees that any prosecution of Biomet
for the conduct set forth in the attached Statement of Facts, and for the conduct that Biomet disclosed to the Department, prior to the signing of this Agreement, be and hereby is deferred for the Term of this Agreement. The Department further
agrees that if Biomet fully complies with all of its obligations under this Agreement, the Department will not continue the criminal prosecution against Biomet described in Paragraph 1 and, after the Term, this Agreement shall expire and the
Department shall seek move to dismiss, with prejudice, the criminal Information filed against Biomet.
14.
Breach of the Agreement:
If, during the Term of this Agreement, the Department determines, in its sole discretion, that Biomet has: (a) committed any felony under federal law
1
subsequent to the signing of this Agreement;
(b) at any time, provided deliberately false, incomplete or misleading information; or (c) otherwise breached the Agreement, Biomet shall thereafter be subject to prosecution for any federal criminal violation of which the Department has
knowledge, including the charges in the Information, which may be pursued by the Department in the U.S. District Court for the District of Columbia. Any such prosecutions may be premised on information provided by Biomet. Any such prosecution that
is not time-by the applicable statute of limitations on the date of the signing of this Agreement may be commenced against Biomet notwithstanding the expiration of the statute of limitations between the signing of this Agreement and the expiration
of the Term plus one year. Thus, by signing this Agreement, Biomet agrees that the statute of limitations with respect to any prosecution that is not time-barred on the date of this Agreement shall be tolled for the Term plus one year.
15. In the event that the Department determines that Biomet has breached this Agreement, the Department agrees to provide Biomet with written
notice of such breach prior to instituting any prosecution resulting from such breach. Biomet shall, within thirty (30) days of receipt of such notice, have the opportunity to respond to the Department in writing to explain the nature and
circumstances of such breach, as well as the actions Biomet has undertaken to address and remediate the situation, which explanation the Department shall consider in determining whether to institute a prosecution.
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The filing or unsealing of a qui tam action shall not, by itself, constitute a breach of this Agreement.
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16. In the event that the Department determines that Biomet has breached this Agreement:
a. All statements made by or on behalf of Biomet to the Department or to the Court, including the attached Statement of Facts, and any
testimony given by Biomet before a grand jury or any tribunal, at any legislative hearings whether prior or subsequent to this Agreement, or any leads derived from such statements or testimony, shall be admissible in evidence in any and all criminal
proceedings brought by the Department against Biomet; and
b. Biomet shall not assert any claim under the United States Constitution, Rule
11 (f) of the Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence, or any other federal rule, that statements made by or on behalf of Biomet prior or subsequent to this Agreement, and any leads derived therefrom,
should be suppressed. The decision whether conduct or statements of any current director or employee, or any person acting on behalf of, or at the direction of, Biomet, will be imputed to Biomet for the purpose of determining whether Biomet has
violated any provision of this Agreement shall be in the sole discretion of the Department.
17. Biomet acknowledges that the Department
has made no representations, assurances, or promises concerning what sentence may be imposed by the Court if Biomet breaches this Agreement and this matter proceeds to judgment. Biomet further acknowledges that any such sentence is solely within the
discretion of the Court and that nothing in this Agreement binds or restricts the Court in the exercise of such discretion.
18.
Sale
or Merger:
Biomet agrees that in the event it sells, merges, or transfers all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, merger, or
transfer, it shall include in any contract for sale, merger, or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement.
19.
Public Statements by Biomet:
Biomet expressly agrees that it shall not, through present or future attorneys, directors, officers,
employees, agents, or any other person authorized to speak for Biomet make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by Biomet set forth above or the facts described in the attached Statement of
Facts. Any such contradictory statement shall, subject to cure rights of Biomet described below, constitute a breach of this Agreement and Biomet thereafter shall be subject to prosecution as set forth in Paragraphs 14-16 of this Agreement. The
decision whether any public statement by any such person contradicting a fact contained in the Statement of Facts will be imputed to Biomet for the purpose of determining whether they have breached this Agreement shall be at the sole discretion of
the Department. If the Department determines that a public statement by any such person contradicts in whole or in part a statement contained in the Statement of Facts, the Department shall so notify Biomet, and Biomet may avoid a breach of this
Agreement by publicly repudiating such statement(s) within five business days after notification. Consistent with the obligations of Biomet as set forth above, Biomet shall be permitted to raise defenses and to assert affirmative claims in civil and
regulatory proceedings relating to the matters set forth in the Statement of Facts. This Paragraph does not apply to any statement made by any present or former employee of Biomet in the course of any criminal, regulatory, or civil case initiated
against such individual, unless such individual is then specifically authorized to speak on behalf of Biomet.
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20. Biomet agrees that if it or any of its direct or indirect affiliates or subsidiaries issues a
press release or holds any press conference in connection with this Agreement, Biomet shall first consult the Department to determine: (a) whether the release or proposed statements at the press conference are true and accurate with respect to
matters between the Department and Biomet; and (b) whether the Department has no objection to the release.
21. The Department agrees
to bring to the attention of governmental and other authorities the facts and circumstances relating to the nature of the conduct underlying this Agreement, including the nature and quality of Biomet’s cooperation and remediation, if requested
by Biomet to do so. By agreeing to provide this information, the Department is not agreeing to advocate on behalf of Biomet, but rather is providing facts to be evaluated independently by the authorities.
22.
Limitations on Binding Effect of Agreement:
This Agreement is binding on Biomet and the Department but specifically does not bind
any other federal agencies, or any state, local, or foreign law enforcement or regulatory agencies, although the Department will bring the cooperation of Biomet and its compliance with its other obligations under this Agreement to the attention of
such agencies and authorities if requested to do so by Biomet.
23.
Complete Agreement:
This Agreement sets forth all the terms of
the Deferred Prosecution Agreement between Biomet and the Department. No amendments, modifications, or additions to this Agreement shall be valid unless they are in writing and signed by the Department and a duly authorized representative of Biomet.
24.
Notice:
Any notice to the Department under this Agreement shall be given by personal delivery, overnight delivery by a
recognized delivery service, or registered or certified mail, in each case, for the Department, addressed to Deputy Chief-FCPA Unit, Fraud Section, Criminal Division, U.S. Department of Justice, Fourth Floor, 1400 New York Avenue, N.W., Washington,
D.C. 20005. Any notice to Biomet under this agreement shall be given by personal delivery, overnight delivery by a recognized delivery service, or registered or certified mail, addressed to Bradley J. Tandy, Senior Vice President, General Counsel,
and Secretary, Biomet, Inc., 56 East Bell Drive, P.O. Box 587, Warsaw, IN, 46581-0587. Notice shall be effective upon actual receipt by the Department or Biomet.
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AGREED:
FOR BIOMET, INC.:
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/s/ LAURENCE URGENSON
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LAURENCE URGENSON
Kirkland & Ellis
LLP
Counsel for Biomet, Inc.
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/s/ ASHEESH GOEL
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ASHEESH GOEL
Ropes & Gray LLP
Counsel for Biomet, Inc.
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/s/ BRADLEY J. TANDY
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BRADLEY J. TANDY
Senior Vice President,
General Counsel, and Secretary Biomet, Inc.
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FOR THE DEPARTMENT OF JUSTICE:
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JEFFREY KNOX
Principal Deputy Chief, Fraud
Section
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By:
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/s/ KATHLEEN M HAMANN
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KATHLEEN M HAMANN
Trial Attorney, Fraud
Section
Criminal Division
United States Department of
Justice
1400 New York Avenue, NW
Washington, D.C. 20530
(202) 305-7413
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Filed at Washington, D.C., on this 26 day of March, 2012.
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OFFICER’S CERTIFICATE
I have read this Agreement and carefully reviewed every part of it with counsel for Biomet, Inc. (“Biomet”). I understand the terms
of this Agreement and voluntarily agree, on behalf of Biomet, to each of its terms. Before signing this Agreement, I consulted with outside counsel for Biomet. Counsel fully advised me of the rights of Biomet, of possible defenses, of the Sentencing
Guidelines’ provisions, and of the consequences of entering into this Agreement.
I have carefully reviewed this Agreement with the
Board of Directors of Biomet. I have advised, and caused outside counsel for Biomet to advise, that Board of Directors fully of the rights of Biomet, of possible defenses and of the consequences of entering into the Agreement.
No promises or inducements have been made other than those contained in this Agreement. Furthermore, no one has threatened or forced me, or to
my knowledge any person authorizing this Agreement on behalf of Biomet, in any way to enter into this Agreement. I am also satisfied with the attorney’s representation in this matter. I certify that I am an officer of Biomet and that I have
been duly authorized by Biomet to execute this Agreement on behalf of Biomet.
Date: 3/22, 2012
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Biomet, Inc.
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By:
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/s/ Bradley J. Tandy
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Bradley J. Tandy
Senior Vice President,
General Counsel, and Secretary
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CERTIFICATE OF COUNSEL
I am counsel for Biomet, Inc. (“Biomet”) in the matter covered by this Agreement. In connection with such representation, I have
examined relevant Biomet documents and have discussed this Agreement with the Biomet Board of Directors. Based on my review of the foregoing materials and discussions, I am of the opinion that: the representative of Biomet has been duly authorized
to enter into this Agreement on behalf of Biomet and that this Agreement has been duly and validly authorized, executed, and delivered on behalf of Biomet and is a valid and binding obligation of Biomet. Further, I have carefully reviewed this
Agreement with the Board of Directors and General Counsel of Biomet. I have fully advised them of the rights of Biomet, of possible defenses, of the Sentencing Guidelines’ provisions and of the consequences of entering into this Agreement. To
my knowledge, the decision of Biomet to enter into this Agreement is an informed and voluntary one.
Date: March 23, 2012
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/s/ Laurence Urgenson
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Laurence Urgenson
Kirkland & Ellis,
LLP
Counsel for Biomet, Inc.
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/s/ Asheesh Goel
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Asheesh Goel
Ropes & Gray LLP
Counsel for Biomet, Inc.
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ATTACHMENT A STATEMENT OF FACTS
The following Statement of Facts is incorporated by this reference as part of the Deferred Prosecution Agreement (the “Agreement”)
between the United States Department of Justice, Criminal Division, Fraud Section (the “Department”) and Biomet, Inc. (“Biomet”) and the parties hereby agree and stipulate that the following information is true and accurate. As
set forth in Paragraph 1 of the Agreement, Biomet accepts and acknowledges that it is responsible for the acts of its officers, employees, and agents that are set forth below.
Should the Department initiate the prosecution that is deferred by this Agreement, Biomet agrees that it will neither contest the
admissibility of, nor contradict, this Statement of Facts in any such proceeding.
The Foreign Corrupt Practices Act
1. The Foreign Corrupt Practices Act of 1977 (“FCPA”), as amended, Title 15, United States Code, Sections 78dd-l, et seq., was
enacted by Congress for the purpose of, among other things, making it unlawful for certain classes of persons and entities to act corruptly in furtherance of an offer, promise, authorization, or payment of money or anything of value to a foreign
government official for the purpose of securing any improper advantage, or of obtaining or retaining business for, or directing business to, any person. The FCPA also requires that any issuer of securities shall make and keep books, records, and
accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.
Relevant Entities and Individuals
2. Defendant Biomet, Inc. (“Biomet”) was incorporated in Indiana with its principal place of business in Warsaw, Indiana and
manufactured and sold orthopedic medical devices worldwide. Until September 25, 2007, it issued and maintained a class of publicly-traded securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (15 U.S.C.
§ 781), which traded on the NASDAQ. As such, it was required to file periodic reports with the United States Securities and Exchange Commission under Section 13 of the Securities Exchange Act (15 U.S.C. § 78m). Accordingly, Biomet was
an “issuer” within the meaning of the FCPA, 15 U.S.C. § 78dd-l(a). By virtue of its status as an issuer, Biomet was required to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected
the transactions and disposition of assets of Biomet and its subsidiaries, including those described below, which were incorporated into the books, records, and accounts of Biomet.
3. Biomet Argentina SA (“Biomet Argentina”), a wholly-owned subsidiary of Biomet, was an Argentine corporation through which Biomet
conducted business in Argentina.
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4. Biomet International Corporation (“Biomet International”), a wholly-owned subsidiary
of Biomet, was a Delaware corporation through which Biomet sold products into Brazil.
5. “Brazilian Distributor,” a Brazilian
company, had exclusive distribution rights for Biomet reconstructive products in Brazil.
6. Biomet China, a wholly-owned subsidiary of
Biomet, was a Chinese corporation through which Biomet sold products into China.
7. “Chinese Distributor,” a Chinese company,
acted as a distributer of Biomet products in China.
8. Scandimed AB (“Scandimed”), a wholly owned-subsidiary of Biomet, was a
Swedish corporation through which Biomet sold products into China and elsewhere.
9. “Director of Internal Audit,” a U.S.
citizen, was the Director of Internal Audit of Internal Audit for Biomet, and was based in Warsaw, Indiana.
10. “Latin America
Auditor,” a U.S. citizen, was an auditor at Biomet and was based in Warsaw, Indiana.
11. “Vice President,” a U.S. citizen,
was a senior vice president for Biomet, and was based in Warsaw, Indiana.
12. “Operations Manager,” a U.S. citizen, was an
operations manager for Biomet, and was based in Warsaw, Indiana.
13. “Associate Regional Manager,” a U.S. citizen, was the
Associate Regional Manager for Biomet International in Asia/Pacific, and was based in Hong Kong SAR.
14. “President of International
Operations,” a U.S. citizen, was the President of International Operations for Biomet and was based in Warsaw, Indiana.
15.
“Doctor,” a citizen of the People’s Republic of China, was head of orthopedics at a Chinese public hospital in Shanghai.
Argentina
16. Argentina
has a public healthcare system wherein approximately half of hospitals are publicly owned and operated. Health care providers (“HCPs”) who work in the public sector are government employees, providing health care services in their official
capacities. Therefore, such HCPs in Argentina are “foreign officials” as that term is defined in the FCPA, 15 U.S.C. § 78dd-l (f)(l)(A).
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17. Beginning prior to 2000, publicly-employed Argentine physicians who implanted Biomet products
sent invoices to Biomet Argentina, which, on their face, were for professional services or consulting, but doctors were actually being paid a commission to induce the purchase of the product, which ranged from 15-20 percent of Biomet’s sales.
18. Starting in 2000, after the Argentine tax authorities forbade tax-free payments to surgeons, Biomet Argentina recorded the payments
made on the invoices falsely as “royalties” or “other sales and marketing.”
19. On or around February 7, 2000, a
memo was circulated in Biomet’s Miami office, including to Operations Manager, about opening a direct-sales operation in Argentina, in which he included a budget allocation of “13-20% commission to surgeon.”
20. In or around 2001, Biomet purchased a company in Argentina through which it began making direct sales.
21. On or around February 28, 2003, Director of Internal Audit circulated an internal audit report on Argentina to Vice President,
Operations Manager, and others in Biomet in Indiana, in which he states, “[R]oyalties are paid to surgeons if requested. These are disclosed in the accounting records as commissions.”
22. In or around August 2005, the managing director of Biomet Argentina raised concerns regarding potential payments to customs officials and
requested an internal audit.
23. From in or around September 2005 to in or around October 2005, Director of Internal Audit, Latin America
Auditor, and others from the Internal Audit, Legal, and Compliance Departments of Biomet conducted an investigation into the allegations of the managing director of Biomet Argentina.
24. On or around January 10, 2006, the managing director of Biomet Argentina sent an email to Latin America Auditor in Indiana that
attached a monthly list of payments to doctors that were a percentage of the cost of products purchased by the doctor during the month.
25. On or around February 22, 2006, Latin America Auditor circulated an internal report on the audit, which stated, “Other
allegations being investigated by Biomet’s legal team include fraudulent product registration certificates, bribery of customs officials, and other charges as reported to legal via electronic media. It was later determined that certificates
were fraudulent and bribes were made [sic].”
26. In or around November 2006, Latin America Auditor sent her report on the audit of
Biomet Argentina to Vice President, Operations Manager, and others in Indiana, which stated, “The commission expense recorded on the income statement is actually royalties paid to doctors for using Biomet products. This account should be
renamed to royalty’s [sic] expense.”
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27. On or around February 26, 2007, an employee of Biomet Argentina emailed Latin America
Auditor information regarding cash disbursements, which stated, “Payment for surgeon commissions: the payments for surgeon commissions will be made on the 20th of each month.”
28. On or around December 7, 2007, a sales and marketing manager for Latin America for Biomet sent a report on a visit to Biomet
Argentina to Operations Manager, in which he noted as an issue of concern, “Doctors receive a ‘consulting fee’ for every surgery.”
29. On or around February 19, 2008, a sales and marketing manager for Biomet Argentina sent a list of payments made to physicians to the
managing director of Biomet Argentina.
30. In or around March 2008, the managing director of Biomet Argentia reported the payments to
surgeons to internal compliance personnel.
31. On or around August 7, 2008, Biomet Argentina sent its financial report, which
included 15-20% commissions to surgeons, to Operations Manager and others in Indiana
32. In or around August 2008, Biomet distributed new
compliance guidelines that emphasized the FCPA and related issues, and the company’s Argentine general manager sought advice from the company’s lawyers, causing Biomet to suspend payments to Argentine doctors.
33. In or around December 2008, Biomet suspended all sales in Argentina.
34. In total, from 2000 to 2008, defendant Biomet, Biomet Argentina SA, and their related subsidiaries and employees, authorized the payment,
directly or indirectly, of approximately $436,000 in cash incentives to publicly-employed Argentine HCPs to induce the purchase of Biomet products.
Brazil
35. Brazil has a
socialized public healthcare system that provides universal health care to all Brazilian citizens, and the majority of hospitals are publicly-controlled. HCPs who work in the public sector are government employees, providing health care services in
their official capacities. Therefore, such HCPs in Brazil are “foreign officials” as that term is defined in the FCPA, 15 U.S.C.
§ 78dd-l(f)(l)(A).
36. On or around August 15, 2001, Brazilian Distributor emailed Vice President in Indiana, copying Director of Internal Audit and others,
noting that Brazilian Distributor was paying “commission [sic] to doctors”
37. On or around February 20, 2002, Director of
Internal Audit sent a memo to Vice President and Operations Manager regarding a limited audit performed of the books and records of Brazilian Distributor, in which he stated, “[Brazilian Distributor] makes payments to surgeons that may be
considered as a kickback. These payments are made in cash that allows the surgeon to receive income tax free . The accounting entry is to increase a prepaid expense account. In the consolidated financials sent to Biomet, these payments were
reclassified to expense in the income statement.”
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38. On or around August 21, 2003, Brazilian Distributor emailed Vice President in Indiana,
copying Operations Manager, Director of Internal Audit, and others, stating “Prepaid now was fully reclassified to expenses accounts, commissions to doctors continue to be the major item.…”
39. On or around February 19, 2004, Biomet Argentina forwarded the 2003 financial statements of Brazilian Distributor, which included the
20% commissions to doctors as “commissions,” to Operations Manager in Indiana.
40. On or around February 20, 2004,
Operations Manager forwarded the financial statements of Brazilian Distributor to Vice President.
41. In or around April 2008,
Biomet sent accountants and outside counsel to Brazil to conduct due diligence, during which Brazilian Distributor admitted that they paid doctors for buying Biomet products and described the payments as “scientific incentives.”
42. In or around May 2008, Biomet terminated its relationship the Brazilian Distributor.
43. In total, from 2001 to 2008, defendant Biomet, Biomet International, and their related subsidiaries and employees, authorized the payment,
directly or indirectly, of more than $1.1 million, some or all of which was used to pay cash incentives to publicly-employed Brazilian HCPs to induce the purchase of Biomet products.
China
44. China has a
national healthcare system wherein most Chinese hospitals are publicly owned and operated. HCPs who work at publicly-owned hospitals are government employees, providing health care services in their official capacities. Therefore, such HCPs in China
are “foreign officials” as that term is defined in the FCPA, 15 U.S.C. § 78dd-l(f)(l)(A).
45. On or around
February 1, 2001, China Distributor sent an email to a Associate Regional Manager, stating that the distributor was paying a 10-15% “rebate” to surgeons on the sale of Biomet artificial hips.
46. On or around February 2, 2001, Associate Regional Manager sent an email to Biomet in the United Kingdom, noting that Scandimed
“offer[s] higher-than-average ‘commission’ to surgeons.…”
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47. On or around February 6, 2001, a Scandimed employee emailed President of International
Operations in Indiana and Biomet employees in the United Kingdom, stating, “Re. ‘commission’ to surgeons, Scandimed has no control over this … as we understand it, giving commission [sic] or gifts of various kinds to surgeons is
common in China.”
48. On or around February 6, 2001, President of international Operations responded to the Scandimed email,
copying Operations Manager, stating, “[T]he only problem with a company paying high commissions in a tight market is that the prices must be low enough to the dist[ributor] to allow for these high commissions.…”
49. On or around April 10, 2001, Chinese Distributor sent an email to President of International Operations, copying Associate Regional
Manager, discussing a doctor who was trying to stop commissions being paid to physicians by medical device companies.
50. On or around
May 18, 2001, Chinese Distributor sent an email copying Associate Regional Manager, stating “[Doctor] will become the most loyal customer of Biomet if we send him to Switzerland.”
51. On or around May 21, 2001, Chinese Distributor sent an email to Associate Regional Manager, copying Vice President, President of
international Operations, and Operations Manager, stating “[Doctor] is the department head of [public hospital]. [Doctor] uses about 10 hips and knees a month and it’s on an uptrend, as he told us over dinner a week ago …. Many key
surgeons in Shanghai are buddies of his. A kind word on Biomet from him goes a long way for us. Dinner has been set for the evening of the 24
th
. It will be nice. But dinner aside, I’ve got to
send him to Switzerland to visit his daughter.”
52. On or around January 29, 2002, Associate Regional Manager prepared a
summary of distribution in China, noting, “Chinese surgeons typically receive a commission on sales, which can range from 5% to 25%. Distributors are expected to hold banquets for surgeons, and to sponsor meetings.”
53. In or around March 2002, in connection with a field visit to review operations in China, Biomet employees, including Associate Regional
Manager, Vice President, and President of International Operations, discussed “commissions” paid to doctors of up to 20 percent for sales and “consulting fees” paid to doctors for conducting clinical trials; the discussion also
included a proposal for a two week visit for Chinese doctors to the United Kingdom, with the second week being a “holiday” paid for by Chinese Distributor.
54. On or around April 21, 2002, Chinese Distributor sent an email to Associate Regional Manager discussing payments to surgeons,
stating, “When we say ‘Surgeon Rebate included’, it means the invoice price includes a predetermined percentage for the surgeon. For example, a vendor invoices the hospital for a set of plate & screws at RMB 3,000.00. The
vendor will have to deliver RMB 750.00 (25% in this case) in cash to the surgeon upon completion of surgery [sic].”
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55. On or around March 14, 2005, Director of Internal Audit instructed an auditor to
classify improper payments being made to doctors in connection with certain clinical trials as “entertainment.”
56. On or
around December 28, 2005, an employee of Biomet China emailed Associate Regional Manager, noting that doctors conducting certain clinical trials are paid a 10–15% “consulting fee.”
57. In or around late 2006, Biomet ended its relationship with the Chinese Distributor.
58. From on or around October 6 through on or around October 13, 2007, Biomet China sponsored the travel of 20 surgeons to Barcelona
and Valencia for training, including a substantial portion of the trip being devoted to sightseeing and other entertainment at Biomet’s expense.
59. On or around October 11, 2007, the product manager for Biomet China sent an email to Associate Regional Manager, discussing ways to
evade efforts by the Chinese government to halt corruption in health care by requiring all international companies to declare actual cost for import to the government, noting, “Obviously, China government [sic] doesn’t have ability to
forbid the corruption from hospitals & surgeons…,” proposing four methods for avoiding the regulation, including falsified invoices.
Books and Records
60.
From in or around 2000 to in or around 2008, in the District of the District of Columbia and elsewhere, at the end of each of Biomet’s fiscal years, the books and records of Biomet Argentina, Biomet International, and Biomet China contained
false characterizations of bribes paid to publicly employed HCPs, as “commissions,” “royalties,” “consulting fees,” “other sales and marketing,” “scientific incentives,” and “consulting
fees,” and those books and records were incorporated into the books and records of Biomet for purposes of preparing Biomet’s year-end financial statements, which were filed with the Securities and Exchange Commission in Washington, D.C.
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ATTACHMENT B
CERTIFICATE OF CORPORATE RESOLUTION
WHEREAS, BIOMET, INC. (“Biomet” or, the “Company”) has been engaged in discussions with the United States Department of
Justice, Criminal Division, Fraud Section (the “Department”) in connection with issues arising in relation to certain corrupt payments to foreign officials to obtain and retain business for the Biomet; and
WHEREAS, in order to resolve such discussions, it is proposed that the Company enter into a certain agreement with the Department; and
WHEREAS the Company’s General Counsel, together with outside counsel for the Company, have advised the Board of Directors of the
Company’s rights, possible defenses, the Sentencing Guidelines’ provisions, and the consequences of entering into such agreement with the Department;
Therefore, this Board hereby RESOLVES that:
1. The Company (a) consents to the filing in the United States District Court for the District of Columbia of an Information charging
Biomet, Inc. with conspiracy to commit an offense against the United States, namely, to violate the Foreign Corrupt Practices Act (“FCPA”) (15 U.S.C. § 78dd-l), in violation of 18 U.S.C. § 371; and the payment of bribes, in
violation of 15 U.S.C. § 78dd-l and 18 U.S.C. § 2 (Count Two); (b) waives indictment on such charges and enters into a Deferred Prosecution Agreement with the Department; and (c) agrees to accept a monetary penalty against
Biomet of $17,280,000, and to pay $17,280,000 to the United States Treasury with respect to the conduct described in the Information and the Statement of Facts.
2. The General Counsel, or his delegate, is hereby authorized, empowered, and directed, on behalf of the Company, to execute the Deferred
Prosecution Agreement substantially in such form as reviewed by this Board of Directors at this meeting with such changes as the General Counsel, or his delegate, may approve;
3. The General Counsel, or his delegate, is hereby authorized, empowered, and directed to take any and all actions as may be necessary or
appropriate, and to approve the forms, terms, or provisions of any agreement or other documents as may be necessary or appropriate to carry out and effectuate the purpose and intent of the foregoing resolutions; and
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4. All of the actions of the General Counsel, which actions would have been authorized by the
foregoing resolutions except that such actions were taken prior to the adoption of such resolutions, are hereby severally ratified, confirmed, approved, and adopted as actions on behalf of the Company.
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Date: 3/22, 2012
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/s/ Jeffrey R. Binder
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Jeffrey R. Binder
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Chairman, Board of Directors
Biomet,
Inc.
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ATTACHMENT C
CORPORATE COMPLIANCE PROGRAM
In order to address deficiencies in its internal controls, policies, and procedures regarding compliance with the Foreign Corrupt Practices
Act (“FCPA”), 15 U.S.C. §§ 78dd-l, et seq., and other applicable anti-corruption laws, Biomet, Inc. and its subsidiaries (collectively, “Biomet”) agree to continue to conduct, in a manner consistent with all of its
obligations under this Agreement, appropriate reviews of its existing internal controls, policies, and procedures.
Where necessary and
appropriate, Biomet agrees to adopt new or to modify existing internal controls, policies, and procedures in order to ensure that it maintains: (a) a system of internal accounting controls designed to ensure that Biomet makes and keeps fair and
accurate books, records, and accounts; and (b) a rigorous anti-corruption compliance code, standards, and procedures designed to detect and deter violations of the FCPA and other applicable anti-corruption laws. At a minimum, this should
include, but not be limited to, the following elements to the extent they are not already part of the company’s existing internal controls, policies, and procedures:
1. Biomet will develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA, including its
anti-bribery, books and records, and internal controls provisions, and other applicable counterparts (collectively, the “anti-corruption laws,”), including strong, explicit, and visible support and commitment from senior management to the
program.
2. Biomet will develop and promulgate compliance standards and procedures designed to reduce the prospect of violations of the
anti-corruption laws and Biomet’s compliance code and will take appropriate measures to encourage and support the observance of ethics and compliance standards and procedures against foreign bribery at all levels of the company. These standards
and procedures shall apply to all directors, officers, and employees and, where necessary and appropriate, outside parties acting on behalf of Biomet in a foreign jurisdiction, including but not limited to, agents and intermediaries, consultants,
representatives, distributors, teaming partners, contractors and suppliers, consortia, and joint venture partners (collectively, “agents and business partners”), and shall notify all employees that compliance with the standards and
procedures is the duty of individuals at all levels of the company. Such standards and procedures shall include policies governing:
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b.
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Hospitality, entertainment, and expenses;
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d.
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Political contributions;
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e.
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Charitable donations and sponsorships;
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f.
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Facilitation payments; and
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g.
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Solicitation and extortion.
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3. Biomet will develop these compliance standards and procedures,
including internal controls, ethics, and compliance programs on the basis of a risk assessment addressing the individual circumstances of the company, in particular the foreign bribery risks facing the company, including, but not limited to, its
geographical organization, interaction with governments, and industrial sector of operation.
4. Biomet shall review its compliance
standards and procedures, including internal controls, ethics, and compliance programs, no less than annually, and updated as appropriate, taking into account relevant developments in the field and evolving international and industry standards, and
update and adapt as necessary to ensure the continued effectiveness of the company’s internal controls, ethics, and compliance programs.
5. Biomet will assign responsibility to one or more senior corporate executives of Biomet for the implementation and oversight of compliance
with policies, standards, and procedures regarding the anti-corruption laws. Such corporate official(s) shall have direct reporting obligations to independent monitoring bodies, including internal audit, Biomet’s Board of Directors, or any
appropriate committee of the Board of Directors, and shall have an adequate level of autonomy from management as well as sufficient resources and authority to maintain such autonomy.
6. Biomet will ensure that it has a system of financial and accounting procedures, including a system of internal controls, reasonably
designed to ensure the maintenance of fair and accurate books, records, and accounts to ensure that they cannot be used for the purpose of foreign bribery or concealing such bribery.
7. Biomet will implement mechanisms designed to ensure that the policies, standards, and procedures of Biomet regarding the anti-corruption
laws are effectively communicated to all directors, officers, employees, and, where appropriate, agents and business partners. These mechanisms shall include: (a) periodic training for all directors, officers, and employees, and, where
necessary and appropriate, agents and business partners; and (b) annual certifications by all such directors, officers, and employees, and, where necessary and appropriate, agents, and business partners, certifying compliance with the training
requirements.
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8. Biomet will establish an effective system for:
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a.
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Providing guidance and advice to directors, officers, employees, and, where appropriate, agents and business partners, on complying with Biomet’s compliance policies, standards, and procedures, including when they
need advice on an urgent basis on difficult situations in foreign jurisdictions;
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b.
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Internal and, where possible, confidential reporting by, and protection of, directors, officers, employees, and, where appropriate, agents and business partners, not willing to violate professional standards or ethics
under instructions or pressure from hierarchical superiors, as well as for directors, officers, employee, and, where appropriate, agents and business partners, willing to report breaches of the law or professional standards or ethics concerning
anti-corruption occurring within the company, suspected criminal conduct, and/or violations of the compliance policies, standards, and procedures regarding the anti-corruption laws for directors, officers, employees, and, where necessary and
appropriate, agents and business partners; and
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c.
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Responding to such requests and undertaking appropriate action in response to such reports.
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9. Biomet will institute appropriate disciplinary procedures to address, among other things, violations of the anti-corruption laws and
Biomet’s compliance and ethics program by Biomet’s directors, officers, and employees. Biomet shall implement procedures to ensure that where misconduct is discovered, reasonable steps are taken to remedy the harm resulting from such
misconduct, and to ensure that appropriate steps are taken to prevent further similar misconduct, including assessing the internal controls, ethics, and compliance program and making modifications necessary to ensure the program is effective.
10. Biomet will institute appropriate due diligence and compliance requirements pertaining to the retention and oversight of all agents and
business partners, including:
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a.
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Properly documented risk-based due diligence pertaining to the hiring and appropriate and regular oversight of agents and business partners;
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b.
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Informing agents and business partners of Biomet’s commitment to abiding by laws on the prohibitions against foreign bribery, and of Biomet’s ethics and compliance standards and procedures or other measures
for preventing and detecting such bribery; and
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c.
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Seeking a reciprocal commitment from agents and business partners.
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11. Where appropriate, Biomet will include standard provisions in agreements, contracts, and
renewals thereof with all agents and business partners that are reasonably calculated to prevent violations of the anti-corruption laws, which may, depending upon the circumstances, include: (a) anti-corruption representations and undertakings
relating to compliance with the anti-corruption laws; (b) rights to conduct audits of the books and records of the agent or business partner to ensure compliance with the foregoing; and (c) rights to terminate an agent or business partner
as a result of any breach of anti-corruption laws, and regulations or representations and undertakings related to such matters.
12.
Biomet will conduct periodic review and testing of the compliance code, standards, and procedures designed to evaluate and improve their effectiveness in preventing and detecting violations of anti-corruption laws and Biomet’s compliance and
ethics programs, taking into account relevant developments in the field and evolving international and industry standards.
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ATTACHMENT D
CORPORATE COMPLIANCE MONITOR
The duties and authority of the Corporate Compliance Monitor (the “Monitor”), and the obligations of Biomet, Inc.
(“Biomet”) with respect to the Monitor and the Department, are as described below:
1. Biomet shall retain the Monitor for a
period of not less than eighteen (18) months. Subject to certain conditions specified below that would, in the sole discretion of the Department, allow for a reduction or extension of the term (the “Term of the Monitorship”), the
Monitor shall be retained until the criteria in Paragraph 8 are satisfied or the Agreement expires, whichever occurs first.
2. The
Monitor’s primary responsibility is to assess and monitor Biomet’s compliance with the terms of this Agreement so as to specifically address and reduce the risk of any recurrence of Biomet’s misconduct. During the Term of the
Monitorship, the Monitor will evaluate, in the manner set forth in Paragraphs 3 through 10 below, the effectiveness and implementation of the corporate compliance program, internal controls and financial reporting policies and procedures of Biomet
as they relate to Biomet’s current and ongoing compliance with the anti-bribery provisions of the FCPA and other anti-corruption laws applicable to Biomet (collectively, the “anti-corruption laws”), and take such reasonable steps as,
in his or her view, may be necessary to fulfill the foregoing mandate (the “Mandate”).
3. Biomet shall cooperate fully with the
Monitor, and the Monitor shall have the authority to take such reasonable steps as, in his or her view, may be necessary to be fully informed about Biomet’s compliance program within the scope of the Mandate in accordance with the principles
set forth herein and applicable law, including data protection, blocking statutes, and labor laws and regulations applicable to Biomet. To that end, Biomet shall: provide the Monitor access to Biomet’s documents and resources; not limit such
access, except as provided in this Paragraph; and provide guidance on applicable laws (such as relevant data protection, blocking statutes, and labor laws). Biomet shall provide the Monitor with access to all information, documents, records,
facilities and/or employees, as requested by the Monitor, that fall within the scope of the Mandate of the Monitor under this Agreement. Any disclosure by Biomet to the Monitor concerning corrupt payments shall not relieve Biomet of any otherwise
applicable obligation to truthfully disclose such matters to the Department.
a. The parties agree that no attorney-client relationship
shall be formed between Biomet and the Monitor.
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b. In the event that Biomet seeks to withhold from the Monitor access to information, documents,
records, facilities and/or employees of Biomet that may be subject to a claim of attorney-client privilege or to the attorney work-product doctrine, or where Biomet reasonably believes production would otherwise be inconsistent with applicable law,
Biomet shall work cooperatively with the Monitor to resolve the matter to the satisfaction of the If the matter cannot be resolved, at the request of the Monitor, Biomet shall promptly provide written notice to the Monitor and the Department. Such
notice shall include a general description of the nature of the information, documents, records, facilities and/or employees that are being withheld, as well as the basis for the claim. To the extent Biomet has provided information to the Department
in the course of the investigation leading to this action pursuant to a non-waiver of privilege agreement, Biomet and the Monitor may agree to production of such information to the Monitor pursuant to a similar non-waiver agreement.
4. To carry out the Mandate during the Term of the Monitorship, the Monitor shall conduct an initial review and prepare an initial report,
followed by at least one (l) follow-up review and report as described in Paragraph 7 below, and one (1) final report as described in Paragraph 8 below. With respect to the initial report and the follow-up review, after consultation with
Biomet and the Department, the Monitor shall prepare a written work plan, which shall be submitted no fewer than sixty (60) calendar days prior to commencing each review to Biomet and the Department for comment, which comment shall be provided
no more than thirty (30) calendar days after receipt of the written work plan. The Monitor’s work plan for the initial review shall include such steps as are reasonably necessary to conduct an effective initial review in accordance with
the Mandate, including developing an understanding, to the extent the Monitor deems appropriate, of the facts and circumstances surrounding any violations that may have occurred before the date of this Agreement is filed with the Court. In
developing such understanding, the Monitor is to rely to the extent possible on available information and documents provided by Biomet, and it is not intended that the Monitor will conduct his or her own inquiry into those historical events. In
developing each work plan and in carrying out the reviews pursuant to such plans, the Monitor is encouraged to coordinate with Biomet personnel, including auditors and compliance personnel, and, to the extent the Monitor deems appropriate, he or she
may rely on Biomet processes, on the results of studies, reviews, audits and analyses conducted by or on behalf of Biomet and on sampling and testing methodologies. Any disputes between Biomet and the Monitor with respect to the work plan shall be
decided by the Department in its sole discretion.
5. The initial review shall commence no later than ninety (90) calendar days from
the date of the engagement of the Monitor (unless otherwise agreed by Biomet, the Monitor and the Department), and the Monitor shall issue a written report within ninety (90) calendar days of initiating the initial review, setting forth the
Monitor’s assessment and making recommendations reasonably designed to improve the effectiveness of Biomet’s program for ensuring compliance with the anti-corruption laws. The Monitor is encouraged to consult with Biomet concerning his or
her other findings and recommendations on an ongoing basis, and to consider and reflect Biomet’s comments and input to the extent the Monitor deems appropriate. The Monitor need not in his or her initial or subsequent reports recite or describe
comprehensively Biomet’s history or compliance policies, procedures and practices, but rather may focus on those areas with respect to which the Monitor wishes to make recommendations for improvement or which the
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Monitor otherwise concludes merit particular attention. The Monitor shall provide the report to the Board of Directors of Biomet and contemporaneously transmit copies to Deputy Chief FCPA Unit,
Fraud Section, Criminal Division, U.S. Department of Justice, 10th and Constitution Ave., N.W., Bond Building, Fourth Floor, Washington, D.C. 20530. After consultation with Biomet, the Monitor may extend the time period for issuance of the report
for up to thirty (30) calendar days with prior written approval of the Department.
6. Within ninety (90) calendar days after
receiving the Monitor’s report, Biomet shall adopt all recommendations in the report; provided, however, that within thirty (30) calendar days after receiving the report, Biomet shall notify the Monitor and the Department in writing of any
recommendations that Biomet considers unduly burdensome, inconsistent with local or other applicable law or regulation, impractical, unduly costly or otherwise inadvisable. With respect to any recommendation that Biomet considers unduly burdensome,
inconsistent with local or other applicable law or regulation, impractical, unduly costly or otherwise inadvisable, Biomet need not adopt that recommendation within that time but shall propose in writing an alternative policy, procedure or system
designed to achieve the same objective or purpose. As to any recommendation on which Biomet and the Monitor do not agree, such parties shall attempt in good faith to reach an agreement within thirty (30) calendar days after Biomet serves the
written notice. In the event Biomet and the Monitor are unable to agree on an acceptable alternative proposal, Biomet shall promptly consult with the Department. Any disputes between Biomet, on the one hand, and the Monitor, on the other hand, with
respect to the recommendations shall be decided by the Department in its sole discretion. The Department may consider the Monitor’s recommendation and Biomet’s reasons for not adopting the recommendation in determining whether Biomet has
fully complied with its obligations under this Agreement. Pending such determination, Biomet shall not be required to implement any contested recommendation(s). With respect to any recommendation that the Monitor determines cannot reasonably be
implemented within ninety (90) calendar days after receiving the report, the Monitor may extend the time period for implementation with prior written approval of the Department.
7. The Monitor shall undertake at least one follow-up review to carry out the Mandate. Within one hundred and twenty (120) calendar days
of initiating the follow-up review, the Monitor shall: (a) complete the review; (b) certify whether the compliance program of Biomet, including its policies and procedures, is reasonably designed and implemented to detect and prevent
violations within Biomet of the anti-corruption laws and is functioning effectively; and (c) report on the Monitor’s findings in the same fashion as set forth in Paragraph 5 with respect to the initial review. The first follow-up review
shall commence one year after the initial review commenced. If, reasonably promptly after completing the follow-up review, the Monitor and the Department mutually agree that Biomet has not by that time successfully satisfied its obligations under
the Agreement with respect to the Monitor’s Mandate, the Term of the Monitorship shall be extended for one additional year, and the Monitor shall undertake a second follow-up review in accordance with the procedures for such follow-up reviews
set out in the Agreement. If, after completing a second follow-up review, the Monitor and the Department again mutually agree that the Biomet has not successfully satisfied its obligations under the
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Agreement with respect to the Monitor’s Mandate, the Term of the Monitorship shall be extended until expiration of the Agreement, and the Monitor shall undertake a third follow-up review in
accordance with the procedures for such follow-up reviews set out in the Agreement. Additional follow-up reviews, should any be required, shall commence one year after the first follow-up review commenced. After consultation with Biomet, the Monitor
may extend the time period for these follow-up reviews for up to sixty (60) calendar days with prior written approval of the Department.
8. If, reasonably promptly after completing a follow-up review, the Monitor, the Department, and the Biomet mutually agree that Biomet’s
compliance program is reasonably designed and implemented to detect and prevent violations of the anti-corruption laws and is functioning effectively, the Monitor and the Biomet shall submit to the Department a written report within sixty
(60) calendar days of the submission of the follow up review setting forth a complete description of its remediation efforts to date, its proposals reasonably designed to improve the internal controls, policies, and procedures of Biomet for
ensuring compliance with the FCPA and other applicable anticorruption laws, and the proposed scope for the Biomet’s self-reporting. This report shall include a schedule of enhanced compliance obligations already undertaken by the Biomet for the
Department’s approval, and the Biomet’s self-reporting shall include measures taken to implement the enhanced compliance obligations. The Biomet may extend the time period for issuance of the report with prior written approval of the
Department. At such time as the Department approves the schedule of enhanced compliance obligations, the Monitorship shall be terminated and the Biomet will self-report to the Department on its enhanced compliance obligations for the remainder of
the term of the Agreement, as described in Paragraph 12 of the Agreement.
9. In undertaking the assessments and reviews described in
Paragraphs 4 through 8 of this Agreement, the Monitor shall formulate conclusions based on, among other things: (a) inspection of relevant documents, including Biomet’s current anti-corruption policies and procedures; (b) on-site
observation of selected systems and procedures of Biomet at sample sites, including internal controls and record-keeping and internal audit procedures; (c) meetings with, and interviews of, relevant employees, officers, directors and other
persons at mutually convenient times and places; and (d) analyses, studies and testing of Biomet’s compliance program with respect to the anticorruption laws.
10. Should the Monitor, during the course of his or her engagement, discover that questionable or corrupt payments or questionable or corrupt
transfers of property or interests may have been offered, promised, paid or authorized by any entity or person within Biomet, or any entity or person working directly or indirectly for Biomet, either (a) after the date on which this Agreement
is accepted by the Court or (b) that have not been adequately dealt with by Biomet (collectively, “improper activities”), the Monitor shall promptly report such improper activities to Biomet’s General Counsel for further action.
If the Monitor believes that any improper activity or activities may constitute a significant violation of law, the Monitor shall also report such improper activity to the Department. The Monitor shall disclose improper activities in his or her
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discretion directly to the Department, and not to the General Counsel, only if the Monitor believes that disclosure to Biomet’s General Counsel would be inappropriate under the
circumstances, and in such case should disclose the improper activities to Biomet’s General Counsel as promptly and completely as the Monitor deems appropriate under the circumstances. The Monitor shall address in his or her reports the
appropriateness of Biomet’s response to all improper activities, whether previously disclosed to the Department or not. Further, in the event that Biomet, or any entity or person working directly or indirectly within Biomet, refuses to provide
information necessary for the performance of the Monitor’s responsibilities, if the Monitor believes that such refusal is without just cause, the Monitor shall disclose that fact to the Department. Biomet shall not take any action to retaliate
against the Monitor for any such disclosures or for any other reason. The Monitor may report any criminal or regulatory violations by Biomet or any other entity discovered in the course of performing his or her duties in the same manner as described
above.
11. At least annually, and more frequently if appropriate, representatives from Biomet and the Department will meet together to
discuss the monitorship and any suggestions, comments or improvements Biomet may wish to discuss with or propose to the Department.
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