Zimmer Holdings, Inc.: No Action, Interpretive and/or Exemptive Letter of June 19, 2003
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U.S. Securities and Exchange Commission

Securities Exchange Act of 1934 —
Rules 14d-10(a)(2) and 14d-11

No Action, Interpretive and/or Exemptive Letter:
Zimmer Holdings, Inc.

June 19, 2003

Response of the Office of Mergers and Acquisitions
Division of Corporation Finance


Re:  Zimmer Holdings, Inc.
Incoming letter dated June 19, 2003

Morton A. Pierce, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019

Re: Zimmer Holdings, Inc. Tender Offer for Shares and ADSs of Centerpulse AG and Shares of InCentive Capital AG
SEC File No. 5-50488

Dear Mr. Pierce:

In regard to your letter dated June 19, 2003, as supplemented by conversations with the staff, this response is attached to the enclosed photocopy of your correspondence. By including a copy of your correspondence, we avoid having to repeat or summarize the facts you presented in your letter. The defined terms in this letter have the same meaning as in your letter, unless otherwise noted.

Without necessarily concurring in your analysis and based on your representations and the facts presented in your letter, the U.S. Securities and Exchange Commission (Commission) hereby grants exemptions from Rule 14d-11 of the Securities Exchange Act of 1934 (Exchange Act). The Commission grants exemptions from Rule 14d-11(c) and (e) to permit Zimmer Holdings to make payment for shares and ADSs tendered during the Initial Offering Period and Subsequent Offering Period of the Offers after the expiration of the Subsequent Offering Period of the Offers to allow all shareholders an equal opportunity to participate in the Mix and Match Election and the InCentive Mix and Match Election. Further, the Commission grants an exemption from Rule 14d-11(b) to permit Zimmer Holdings to conduct the Subsequent Offering Period even though it plans to offer the Mix and Match Election and the InCentive Mix and Match Election. In granting this relief, we note that the Subsequent Offering Period is being conducted in accordance with the requirements of the Swiss Takeover Legislation.

In addition to the exemptive relief described above, the staff of the Division of Corporation Finance will not recommend that the Commission take enforcement action pursuant to Rule 14d-10(a)(2) under the Exchange Act, based on your representation that the consideration paid to InCentive shareholders in the InCentive Exchange Offer in respect of the portion of InCentive's assets consisting of Centerpulse shares is equivalent to the consideration InCentive would have received had such Centerpulse Shares been tendered in the Centerpulse Exchange Offer.
The foregoing exemptions from 14d-11 and the no-action position expressed above are based solely on your representations and the facts presented, including your representations regarding the conflicting regulatory schemes and tender offer practices. The relief granted is strictly limited to the application of these rules to the proposed transactions. Such transactions should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts and representations.

In addition, your attention is directed to the anti-fraud and anti-manipulation provisions of the federal securities laws, including Sections 10(b) and 14(e) of the Exchange Act and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the participants in the Offers. The Division of Corporation Finance expresses no view with respect to any other questions that the proposed transactions may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of any other federal or state laws to, the proposed transactions.

Sincerely,

For the Commission,
By the Division of Corporation Finance,
Pursuant to delegated authority,

Mauri L. Osheroff
Associate Director
Division of Corporation Finance

Attachment


Incoming Letter:

June 19, 2003

Pamela Carmody
Acting Chief
Office of Mergers and Acquisitions
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Dear Ms. Carmody:

We are writing on behalf of our client Zimmer Holdings, Inc., a company organized under the laws of Delaware ("Zimmer"). As discussed telephonically with you and other members of the staff, Zimmer intends to (i) commence an exchange offer (the "Centerpulse Offer") to acquire all of the issued and outstanding registered shares (the "Centerpulse Shares") of Centerpulse AG, a corporation organized under the laws of Switzerland ("Centerpulse"), including Centerpulse Shares represented by American depositary shares (the "Centerpulse ADSs"), and (ii) at the same time, commence an exchange offer (the "InCentive Offer" and, together with the Centerpulse Offer, the "Offers") to acquire all of the issued and outstanding bearer shares (the "InCentive Shares") of InCentive Capital AG, a publicly-traded investment company organized under the laws of Switzerland ("InCentive"). The InCentive Offer is being made to facilitate Zimmer's acquisition of Centerpulse, as InCentive currently holds approximately 18.9% of the outstanding Centerpulse Shares. On May 20, 2003, Zimmer pre-announced its Offers under Swiss law, which Offers are currently intended to be commenced on or about June 19, 2003 in order to comply with the requirements of Swiss law.

The terms of the Offers to be commenced by Zimmer, other than the purchase prices being offered thereby, will be substantially similar to the terms of the exchange offers for Centerpulse Shares (including Centerpulse Shares represented by Centerpulse ADSs) and InCentive Shares that were commenced by Smith & Nephew Group plc and Smith & Nephew plc (collectively, "Smith & Nephew" and, such exchange offers, the "Smith & Nephew Offers") on April 25, 2003. The Offers are structured in this manner in order to mirror, to the extent possible, the Smith & Nephew Offers and to provide the tendering holders of Centerpulse Shares, Centerpulse ADSs or InCentive Shares with a choice based principally on the consideration offered by Zimmer and Smith & Nephew. As a result of such similarities, the relief being sought by Zimmer herein includes the relief sought by, and granted to, Smith & Nephew by the Division of Corporation Finance pursuant to In The Matter of Smith & Nephew Group plc and Smith & Nephew plc Tender Offer for Shares and ADSs of Centerpulse AG and Shares of InCentive Capital AG, SEC File No. 5-50488 (Available April 24, 2003) (the "Smith & Nephew Letter").

We are requesting confirmation that the Division of Corporation Finance will not recommend that the Securities and Exchange Commission (the "SEC" or the "Commission") take enforcement action pursuant to Rule 14d-10(a)(2) under the Exchange Act in connection with Zimmer's conduct relating to the Offers. We also are requesting exemptive relief from Rule 14d-11 under the Exchange Act with respect to the Subsequent Offering Period (as defined below) to be provided by Zimmer pursuant to each of the Offers and the Mix and Match Facilities (as defined below).

BACKGROUND

Zimmer

Zimmer, based in Warsaw, Indiana, is a worldwide leader in the design, development, manufacture and marketing of reconstructive orthopaedic implants and trauma products. Orthopaedic reconstruction implants restore joint function lost due to disease or trauma in joints such as knees, hips, shoulders and elbows. Trauma products are devices used primarily to reattach or stabilize damaged bone and tissue to support the body's natural healing process. Zimmer also manufactures and markets other products related to orthopaedic surgery. For the year 2002, Zimmer recorded worldwide revenues of approximately $1.4 billion. Zimmer was founded in 1927 and has more than 3,600 employees worldwide.

Zimmer is a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and files with the Commission, among other reports and notices, annual reports on Form 10-K, quarterly reports on Form 10-Q and periodic reports on Form 8-K. Shares of Zimmer common stock ("Zimmer Stock") are listed and traded on the New York Stock Exchange ("NYSE") under the symbol "ZMH."

Centerpulse

Centerpulse, based in Zurich, Switzerland, is one of the world's leading medical technology companies serving the orthopaedic market on a global basis. Centerpulse designs, manufactures and markets artificial joints, special implants, traumatology and arthroscopy products and dental implants.

Centerpulse is a foreign private issuer as defined in Rule 3b-4(c) promulgated under the Exchange Act. The Centerpulse Shares are listed and traded on the SWX Swiss Exchange (the "Swiss Exchange") under the symbol "CEPN." The Centerpulse ADSs are listed and traded on the NYSE under the symbol "CEP," and each represents one-tenth (1/10th) of a Centerpulse Share. Centerpulse is subject to the informational reporting requirements of the Exchange Act and files periodic reports on Forms 20-F and 6-K with the Commission.

Ownership of Centerpulse Shares by U.S. Holders

Based on current publicly available information (i) there are approximately 11,909,313 Centerpulse Shares outstanding (including Centerpulse Shares represented by Centerpulse ADSs), (ii) 334,678 Centerpulse Shares are held in the form of Centerpulse ADSs (representing approximately 2.8% of the outstanding Centerpulse Shares) and (iii) 2,395,000 Centerpulse Shares (including Centerpulse Shares represented by Centerpulse ADSs), constituting approximately 20.1% of the outstanding Centerpulse Shares (including Centerpulse Shares represented by Centerpulse ADSs) and constituting approximately 24.8% of the outstanding Centerpulse Shares (including Centerpulse Shares represented by Centerpulse ADSs) after excluding all outstanding Centerpulse Shares held by InCentive (the only holder of more than 10% of the outstanding Centerpulse Shares), are held by U.S. holders (as such term is used in Rule 14d-1 under the Exchange Act).

The final rule release for cross-border tender and exchange offers, business combinations and rights offerings relating to the securities of foreign companies (Release Nos. 33-7759, 34-42054, 39-2378; International Series Release No. 1208) (the "Cross Border Release") provides that if a bidder commences a tender offer during an ongoing tender offer for securities of the same class that is the subject of its offer, the second bidder will be eligible to use the same exemption, whether Tier I or Tier II, as the prior offeror provided that all the conditions of the exemption, other than the limitation on U.S. ownership, are satisfied by the second bidder. As stated in the Cross Border Release, this allows the second bidder (which would be Zimmer in this case) to rely on the same exemption being relied upon by the first bidder (which would be Smith & Nephew in this case), and levels the playing field in the case of competing offers. In the Smith & Nephew Letter, Smith & Nephew represented that U.S. holders did not hold more than 40% of the outstanding Centerpulse Shares (including Centerpulse Shares represented by Centerpulse ADSs) and, therefore, relied on the Tier II exemption pursuant to Rule 14d-1(d) under the Exchange Act for purposes of its exchange offer for Centerpulse Shares. In the Centerpulse Offer, Zimmer will rely on the Tier II exemption set forth in Rule 14d-1(d) under the Exchange Act, which reliance is consistent with the Commission's guidance set forth in the Cross Border Release.

InCentive

Based on information contained in the Smith & Nephew Letter, InCentive, based in Zug, Switzerland, acquires equity stakes in public and privately owned Swiss and foreign companies in the context of consolidations, restructuring efforts, mergers and takeovers. InCentive also invests in growth areas such as healthcare, technology and the Indian economy. InCentive's business strategy is to acquire and hold a controlling or at least dominant shareholder interest in its investments.

Based on information contained in Smith & Nephew's public filings, as of April 22, 2003, InCentive's assets consisted of:

  • 2,237,577 Centerpulse Shares;
     
  • private equity investments;
     
  • public security investments and a foreign exchange contract; and
     
  • other financial instruments.

InCentive Ownership of Centerpulse Shares

Based on information contained in the Smith & Nephew Letter, as of April 17, 2003, (i) the Centerpulse Shares owned by InCentive had a value of CHF 670.2 million (calculated based on the closing price of Centerpulse Shares as of such date) that was equal to approximately 84.3% of the aggregate value of the assets of InCentive as of such date and (ii) InCentive had liabilities of approximately CHF 24.0 million, of which approximately CHF 20.0 million consisted of reserves for transaction costs incurred in connection with Smith & Nephew's exchange offer for InCentive Shares (including reserves for potential losses on the disposal of InCentive's private equity investments).

Pursuant to terms of the Transaction Agreement, dated March 20, 2003, between Smith & Nephew and InCentive (the "Smith & Nephew-InCentive Transaction Agreement"), InCentive is in the process of disposing of its public and private investments, other than its Centerpulse Shares, for cash. According to the Smith & Nephew Letter, InCentive's liabilities and other receivables will also be discharged for cash prior to the expiration of Smith & Nephew's offer for InCentive Shares. Therefore, as of the scheduled expiration date of Smith & Nephew's exchange offer, it is expected that InCentive's assets will consist solely of Centerpulse Shares and cash.

Ownership of InCentive Shares by U.S. Holders

Based on information contained in the Smith & Nephew Letter, as of March 26, 2003, there were 2,147,202 outstanding InCentive Shares (including treasury shares held by InCentive) and, as of such date, no InCentive Shares were held by U.S. holders. Due to the fact that InCentive Shares are bearer shares, it is not possible to determine, based on publicly available information, whether, and, if so, to what extent, U.S. holders may currently directly hold InCentive Shares. However, according to the Smith & Nephew Letter, Smith & Nephew and InCentive do not believe after reasonable inquiry that, as of April 24, 2003, U.S. holders held any of the outstanding InCentive Shares.

SWISS TAKEOVER LEGISLATION

In Switzerland, tender offers for securities listed on the Swiss Exchange are regulated under the Swiss Federal Act on Stock Exchanges and Securities Trading of March 24, 1995 and its implementing ordinances (the "Swiss Takeover Legislation"). The Swiss Takeover Legislation forms the basis of the regulatory framework governing takeovers in Switzerland. It operates, inter alia, to ensure fair and equal treatment of all shareholders in relation to takeovers of Swiss companies listed on the Swiss Exchange. The Swiss Takeover Legislation is administered by the Swiss Takeover Board (the "STOB"). The STOB, which can only make recommendations, consists of representatives of securities dealers, investors and listed companies. It is supervised by the Swiss Federal Banking Commission, which is responsible for enforcement actions and the review of any appeals against the recommendations of the STOB. Prior to launching an exchange offer, the offeror must appoint an independent review body (the "Review Body"), which is normally an auditing firm. Prior to the publication of the offer prospectus in Switzerland, the Review Body must verify that the exchange offer complies with the Swiss Takeover Legislation, with a particular focus on the completeness of the offer prospectus, compliance with the principle of equal treatment and the availability of financing for the exchange offer. The report of the Review Body must be included in the Swiss offer prospectus. After the publication of the Swiss offer prospectus, the Review Body is responsible for the verification of any transactions outside the exchange offer, the publication of interim and final results, the proper execution of the exchange offer and compliance with the Swiss Takeover Legislation throughout the course of the exchange offer. The findings of the Review Body are to be included in a final report to the STOB.

The STOB, relying in part on the Review Body's reports, and after conducting any further independent analysis it deems relevant with respect to the proposed offer structure, must then determine whether the proposed offer structure complies with the Swiss Takeover Legislation, including that legislation's provision for the equal treatment of holders of a class of shares subject to a tender offer.

Following Zimmer's pre-announcement of the Offers on May 20, 2003, the STOB has reconciled the length of the competing offer of Zimmer with the length of the initial offer of Smith & Nephew. Zimmer's Offers (i) must be launched no later than June 19, 2003, (ii) will be subject to a 10 Swiss trading day "cooling off" period during which tenders will not be recognized as valid tenders under the Offers and (iii) will then remain open for a period of 40 Swiss trading days. Any extension of the initial offer periods beyond 40 Swiss trading days will need to be approved by the STOB under the Swiss Takeover Legislation.

THE OFFERS

Centerpulse Offer

In the Centerpulse Offer, Zimmer will offer 3.68 shares of Zimmer Stock and CHF 120 in cash, without interest, for each outstanding Centerpulse Share, and 0.368 of a share of Zimmer Stock and the U.S. dollar equivalent of CHF 12 in cash, without interest, for each outstanding Centerpulse ADS, that are tendered in the Centerpulse Offer. Holders of Centerpulse Shares will receive the cash portion of their consideration in Swiss francs, and holders of Centerpulse ADSs will receive the cash portion of their consideration in U.S. dollars.

As in the case of Smith & Nephew's offer for Centerpulse Shares, the Centerpulse Offer will include a mix and match election (the "Mix and Match Election"), whereby holders of Centerpulse Shares and Centerpulse ADSs may elect to receive either more shares of Zimmer Stock or more cash than the standard entitlement. However, the Mix and Match Election will be available only to the extent that off-setting elections have been made by other tendering holders. To the extent that elections cannot be satisfied as a result of such off-setting elections, entitlements to shares of Zimmer Stock and cash in excess of the standard entitlement will be reduced on a pro rata basis. Once the share allocations have been determined, the cash element of the consideration will be reduced or increased (as the case may be) for each holder of Centerpulse Shares or Centerpulse ADSs who has been allocated an increased or reduced number of shares of Zimmer Stock. All calculations will be made by reference to the number of acceptances and elections as of the last day of the Subsequent Offering Period and, for the purposes of these calculations, the value per share of Zimmer Stock shall be US$48.28, the per share closing price of Zimmer Stock on May 19, 2003, the day immediately prior to the pre-announcement of the Offers pursuant to Swiss Takeover Legislation. In calculating the allocation of shares of Zimmer Stock, the InCentive Mix and Match Election (as defined below) in the InCentive Offer will be taken into account so that each holder of InCentive Shares will receive the same mix of shares of Zimmer Stock and cash as such holder would have received if InCentive had tendered its Centerpulse Shares in the Centerpulse Offer and made the elections requested by the holders of InCentive Shares pursuant to the InCentive Mix and Match Election.

The Centerpulse Offer will be structured as a single offer to all holders of Centerpulse Shares and Centerpulse ADSs, both within and outside the United States. Zimmer has filed with the Commission a registration statement on Form S-4, Registration No. 333-105561, containing a preliminary exchange offer prospectus (the "Centerpulse Registration Statement") and, on the commencement date of the Centerpulse Offer, will file a Tender Offer Statement on Schedule TO. The Centerpulse Registration Statement also will include as an exhibit a Form of Swiss offer prospectus which will be disseminated to all holders of Centerpulse Shares outside the United States. The Centerpulse Offer will be conducted in compliance with Swiss Takeover Legislation, the Exchange Act and the rules and regulations promulgated thereunder, except with respect to those matters for which relief is requested hereunder, and, subject to approval of the STOB, is currently intended to commence on or about June 19, 2003.

The Centerpulse Offer will be conditioned upon, among other things, (i) Zimmer stockholders having approved the issuance of shares of Zimmer Stock pursuant to the Offers; (ii) receipt of all applicable regulatory approvals; and (iii) the valid tender of at least 66-2/3% of the total number of the Centerpulse Shares, Centerpulse ADSs and, provided the InCentive Offer has become unconditional, Centerpulse Shares held by InCentive, on a fully diluted basis at the expiration of the Initial Offering Period (as defined below).

The expiration date of the Centerpulse Offer is currently anticipated to be 40 Swiss trading days after the commencement of the Centerpulse Offer (a period in excess of the minimum 20 U.S. business day offer period required under the Exchange Act) (the "Initial Offering Period"). If, at the expiration of the Centerpulse Offer, all of the conditions of the Centerpulse Offer have been fulfilled or, to the extent permitted, waived, Zimmer will issue a press release announcing acceptance of all tendered Centerpulse Share and Centerpulse ADSs no later than four Swiss trading days thereafter, as required by the Swiss Takeover Legislation. As is the case in the Smith & Nephew Offers, on the first Swiss trading day after the announcement of acceptance of shares tendered pursuant to the Centerpulse Offer, there will commence a 10 Swiss trading day subsequent offering period during which additional Centerpulse Shares and Centerpulse ADSs may be tendered (the "Subsequent Offering Period"). There will be no withdrawal rights during the Subsequent Offering Period. Holders who tender Centerpulse Shares or Centerpulse ADSs prior to the expiration of the Initial Offering Period may deliver Mix and Match Elections during the Subsequent Offering Period. Also, holders who tender Centerpulse Shares or Centerpulse ADSs during the Subsequent Offering Period may deliver Mix and Match Elections during the Subsequent Offering Period.

After the expiration of the Subsequent Offering Period, Zimmer will determine the results of the Mix and Match Election and the InCentive Mix and Match Election (as defined below). As required by Swiss Takeover Legislation, within 10 Swiss trading days after the expiration of the Subsequent Offering Period, Zimmer will issue Zimmer Stock and cause cash to be distributed in consideration for Centerpulse Shares and Centerpulse ADSs tendered during the Initial Offering Period and Subsequent Offering Period.

InCentive Offer

Similar to Smith & Nephew's exchange offer for InCentive shares, the InCentive Offer will be structured so as to ensure that the consideration paid to holders of InCentive Shares in respect of the portion of InCentive's assets consisting of Centerpulse Shares is equivalent to the consideration that InCentive would have received had such Centerpulse Shares been tendered in the Centerpulse Offer. The consideration to be received by InCentive shareholders in the InCentive Offer will be equal to (i) their pro rata portion of the same combination of Zimmer Stock and cash as InCentive would have received had it tendered the Centerpulse Shares held by it in the Centerpulse Offer plus (ii) cash in an amount equal to the net cash assets, if any, of InCentive.

The InCentive Offer will have a mix and match election (the "InCentive Mix and Match Election" and, together with the Mix and Match Election, the "Mix and Match Facilities") that is substantially identical to the Mix and Match Election. The InCentive Mix and Match Election will apply only to the Zimmer Stock and cash to be received by holders of InCentive Shares in consideration for the Centerpulse Shares held by InCentive, and not to the additional cash to be received by such holders as consideration for the net cash assets of InCentive. As discussed above, the elections of InCentive shareholders will be taken together with the elections of holders of Centerpulse Shares and Centerpulse ADSs in determining the mix of Zimmer Stock and cash that each tendering holder will receive in the Offers.

Zimmer has filed with the Commission a registration statement on Form S-4, Registration No. 333-105562, containing a preliminary exchange offer prospectus (the "InCentive Registration Statement"), in connection with the InCentive Offer. The InCentive Registration Statement also will include as an exhibit a Form of Swiss offer prospectus which will be disseminated to all holders of InCentive Shares outside the United States. The InCentive Offer will be conducted in compliance with Swiss Takeover Legislation, the Exchange Act and the rules and regulations promulgated thereunder, except with respect to those matters for which relief is requested hereunder, and, subject to approval of the STOB, will commence at the same time the Centerpulse Offer is commenced.

The exchange offer procedures used in the InCentive Offer will be identical to the procedures used in the Centerpulse Offer in all material respects. For example, the initial offering period of the InCentive Offer will be the Initial Offering Period. There will be a subsequent offering period provided in the InCentive Offer that has the same procedures as the Subsequent Offering Period.

SEC RULES INVOLVED

Rule 14d-10(a)(2)

Rule 14d-10(a)(2) requires that the consideration paid to any security holder in an exchange offer be the highest consideration paid to any other security holder during such offer. As described above, the InCentive Offer is an offer for all of the outstanding InCentive Shares and not for Centerpulse Shares. Because the purpose of the InCentive Offer is to facilitate the Centerpulse Offer and because InCentive is expected, at the time of consummation of the InCentive Offer, to have no assets other than Centerpulse Shares and cash, the InCentive Offer could arguably be viewed as part of the Centerpulse Offer, and thus subject to Rule 14d-10(a)(2).

Rule 14d-11

Rule 14d-11 provides that a bidder may elect to provide a subsequent offering period of three business days to 20 business days after the expiration of the initial offering period applicable to the tender offer during which additional tenders may be accepted. To be eligible to provide a subsequent offering period under Rule 14d-11, a bidder must, among other things, (i) immediately accept and promptly pay for all securities tendered during the initial offering period applicable to the tender offer, (ii) immediately accept and promptly pay for all securities as they are tendered during the subsequent offering period and (iii) if the bidder is offering a choice of different forms of consideration, ensure that there is no ceiling on any form of consideration offered. Zimmer will provide for a subsequent offering period in the Offers, but will not make payment on securities tendered at any point during the Offers until after the end of the Subsequent Offering Period. Because (a) the payment for shares tendered during the Initial Offering Period and shares tendered during the Subsequent Offering Period will not be made until after the expiration of the Subsequent Offering Period to allow all shareholders an equal opportunity to participate in the Mix and Match Election and the InCentive Mix and Match Election, as the case may be, and (b) the Mix and Match Election and the InCentive Mix Match Election could be viewed as resulting in a choice of different forms of consideration with a ceiling on the amount of each type of consideration offered, the Subsequent Offering Period to be provided in the Centerpulse Offer and the InCentive Offer could arguably be viewed as conflicting with the requirements of Rule 14d-11.

DISCUSSION

Rule 14d-10(a)(2)

While Zimmer's purpose for the InCentive Offer is to facilitate the ultimate acquisition of all of the outstanding Centerpulse Shares which is the subject of an existing exchange offer by Smith & Nephew, we believe that the Offers represent two distinct offers for the purposes of Rule 14d-10(a)(2). When the Commission adopted Rule 14d-10(a)(2) and the "best price rule" in July 1986, promulgated by Release Nos. 33-6653 and 34-23241 and corrected by Release Nos. 33-6653B and 34-23241B (the "Best Price Release"), we respectfully submit that it did not intend to capture transactions of the type occurring in the present case.

The Best Price Release's stated goal was to provide investor protection and preclude discriminatory tender offers by preventing the extension of a tender offer to only a select group of stockholders or allowing one group of stockholders to receive different consideration than that offered to others. The Best Price Release contemplated precluding discrimination among stockholders in an offer in which the class or classes of securities involved were those of a single company. We believe Rule 14d-10(a)(2) was not meant to capture differences in treatment and consideration between two offers for the separate securities of two distinct companies. InCentive is a publicly traded Swiss investment company with operations and management independent from those of Centerpulse. InCentive was not formed solely for the purpose of holding Centerpulse Shares. We further assert that were the Offers to be deemed one offer, Zimmer's actions would still not be at odds with the requirements of 14d-10(a)(2).

The InCentive Offer, as it relates to the Centerpulse Offer, will not be in conflict with the requirements of 14d-10(a)(2) because there is no set of circumstances that would allow InCentive shareholders who tender their InCentive Shares to receive consideration in the aggregate in respect of the Centerpulse Shares held by InCentive greater than the value InCentive would receive if it tendered its Centerpulse Shares into the Centerpulse Offer. As it is expected that InCentive's assets will consist solely of Centerpulse Shares and cash by the expiration of the InCentive Offer, the InCentive Offer is structured in such a way as to ensure that for each InCentive Share tendered, an InCentive shareholder will receive pro rata a combination of Zimmer Stock and cash equivalent to the corresponding economic value that one InCentive Share represents relative to one Centerpulse Share. Any consideration provided to InCentive shareholders in excess of this amount will compensate InCentive shareholders for InCentive's net cash assets from the disposal of holdings other than Centerpulse Shares, and will not amount to InCentive shareholders indirectly receiving additional consideration for the Centerpulse Shares held by InCentive. In other words, each InCentive Share represents a certain amount of Centerpulse Shares and the net cash assets of InCentive. Consequently, we believe the consideration offered to InCentive shareholders in the InCentive Offer does not in form or in substance constitute consideration greater than that offered to Centerpulse shareholders for purposes of 14d-10(a)(2).

Rule 14d-11

Subsequent Offering Period

As previously noted, Rule 14d-11 requires that for a bidder to provide for a subsequent offering period it must, among other things, (i) immediately accept and promptly pay for all securities tendered during the initial offering period and (ii) immediately accept and promptly pay for all securities as they are tendered during the subsequent offering period. Centerpulse shareholders and InCentive shareholders will receive payment for their tendered securities in the Offers within 10 Swiss trading days following the end of the Subsequent Offering Period. Zimmer will use this time to determine what percentage of Zimmer Stock and cash each tendering Centerpulse shareholder or InCentive shareholder is entitled to receive as a result of elections made under the Mix and Match Facilities. We believe that the Subsequent Offering Period applicable to the Offers comply with the requirements of Rule 14d-11.

Rule 14d-1(d)(2)(iv) provides that payment made in accordance with the requirements of the home jurisdiction law or practice will satisfy the "prompt payment" requirements of Rule 14e-1(c). Rule 14e-1(c) specifically contemplates that a bidder electing to offer a subsequent offering period under Rule 14d-11 may make payment for tendered securities during the subsequent offering period and in compliance with Rule 14d-11. Moreover, Rule 14d-1(d)(2)(v) provides that a bidder will satisfy the announcement and prompt payment requirements of Rule 14d-11 if the bidder announces the results of the tender offer, including the approximate number of securities deposited to date, pays for tendered securities in accordance with the requirements of the home jurisdiction law or practice and commences the subsequent offering period immediately following such announcement. The announcement of the number of shares tendered during the Initial Offering Period will be made in accordance with the Swiss Takeover Legislation, and Zimmer will further comply with the Swiss Takeover Legislation by making payments for shares tendered during the Initial Offering Period and Subsequent Offering Period within 10 Swiss trading days after the expiration of the Subsequent Offering Period.

Mix and Match Facilities

Pursuant to Rule 14d-10(c)(1), where a bidder offers more than one type of consideration in a tender offer, stockholders must be afforded an equal right to elect among each of the types of consideration offered. Under Rule 14d-11, where a bidder is offering stockholders a choice of different forms of consideration, the bidder may elect to provide a subsequent offering period if, among other things, there is no ceiling on any form of consideration offered. We believe that the Mix and Match Facilities, as previously described, comply with the requirements of 14d-11.

While the terms of the Offers each consist of more than one type of consideration, the ratio between shares of Zimmer Stock and cash being offered for each Centerpulse Share is the same for each Centerpulse shareholder and InCentive shareholder. For the purposes of determining the proportions of Zimmer Stock and cash that shareholders of both companies will receive, the elections of Centerpulse shareholders and InCentive shareholders will be taken together. In addition, the InCentive Mix and Match Election will only apply to the Zimmer Stock and cash received by InCentive shareholders as consideration for the Centerpulse Shares held by InCentive, and not to the additional cash to be received by these shareholders as consideration for the cash assets of InCentive. The purpose of the Mix and Match Facilities is to facilitate exchanges between shareholders of Centerpulse and InCentive. The maximum number of shares of Zimmer Stock to be issued under the Offers and the maximum amount of cash to be paid under the Offers will not vary as a result of the Mix and Match Facilities. Centerpulse shareholders and InCentive shareholders may participate in the Mix and Match Facilities only to the extent that other shareholders make offsetting elections as to the type of consideration they receive. Therefore, we are of the belief that the Mix and Match Facilities do not act as a ceiling on any form of consideration offered as contemplated by Rule 14d-11. In addition, we believe that the relief we are requesting with respect to the Mix and Match Facilities is consistent with the no-action relief granted in Amerada Hess Corporation Offer for Shares and ADSs of LASMO plc (Available December 13, 2000).

RELIEF REQUESTED

We hereby respectfully request confirmation that the Division of Corporation Finance will not recommend that the Commission take enforcement action pursuant to Rule 14d-10(a)(2) under the Exchange Act in connection with the Offers. We respectfully request exemptive relief from Rule 14d-11 to (i) permit Zimmer to offer a Subsequent Offering Period with respect to the Offers with payment for shares tendered during the Initial Offering Period and Subsequent Offering Period to be made in accordance with the Swiss Takeover Legislation and (ii) allow for the Mix and Match Facilities.

If you have any questions about, or desire any additional information regarding, the matters discussed in this letter, please call me (212-259-6640), M. Adel Aslani-Far (212-259-7606) or Jack S. Bodner (212-259-8319). If for any reason you do not concur with any of the views expressed in this letter, we respectfully request an opportunity to confer with you prior to any written response.

Very truly yours,

/s/ Morton A. Pierce
Morton A. Pierce

 

http://www.sec.gov/divisions/corpfin/cf-noaction/zimmer061903.htm


Modified: 06/25/2003