Company Name: Antigenics, Inc.
Public Availability Date: July 20, 2000

[LETTER OF INQUIRY]

June 15, 2000

VIA OVERNIGHT DELIVERY

Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.

Washington, D.C. 20549

Re: Tacking of Holding Period of Securities Pursuant to Rule 144(d)(3)

Ladies and Gentlemen:

We respectfully request that the Staff of the Division of Corporation Finance (the "Staff") of the Securities and Exchange Commission concur with our interpretation of the tacking provisions under Rule 144(d)(3) with respect to the circumstances described below.

Our client, PC Partners, a private investment partnership, received shares of common stock of Antigenics, Inc., a newly-formed Delaware corporation (the "Corporation") in exchange for its membership interests in Antigenics, LLC, a then-existing Delaware limited liability company (the "LLC") which was merged with and into the Corporation on or about February 7, 2000 (the "Recapitalization"). The Recapitalization was consummated solely for the purpose of effecting the initial public offering of shares of common stock of the Corporation.

We are aware that the Staff has issued no-action letters delineating the criteria for determining the ability of holders of securities to tack their holding period under Rule 144(d)(3) in reorganizations of limited partnerships into corporations, and for reorganizations of limited liability companies into corporations. We believe that the facts underlying our clients circumstances satisfy the criteria delineated by the Staff in these no-action letters, as well as the policy underlying the Rule. Therefore, we believe that our client should be permitted to tack the holding period of its LLC interests to the holding period of the shares of the Corporation it received in the Recapitalization.

As stated in the preliminary note to Rule 144, the purpose of the required holding periods is to ensure that an investor has assumed the economic risk of his or her investment. The method for determining the holding periods for subsections (d) and (k) of Rule 144 are set forth in subsection (d) of Rule 144. Rule 144(d) permits the tacking of the holding periods for different securities where the underlying risks of an investment have not changed and no new investment decision is made, such as in a recapitalization. In particular, Rule 144(d)(3)(i) states that "securities acquired from the issuer ... pursuant to a ... recapitalization shall be deemed to have been acquired at the same time as the securities ... surrendered in connection with the recapitalization."

In several recent no-action letters, the Staff has permitted partners of a limited partnership and members of a limited liability company to tack the holding period of their interests to the holding period of securities of a corporation which succeeded to the business of the limited partnership or limited liability company. In cases where tacking was permitted, the following criteria were present: (1) the partnership agreement or other organizational document expressly contemplated reorganization into a corporation; (2) the holders of the securities of the predecessor entity seeking to tack did not have veto or meaningful other voting rights with respect to the transaction; (3) there was no change to the business or operations of the entity as a result of the reorganization; (4) the equity interests of the shareholders of the successor corporation were based on their proportionate interests in the prior entity; and (5) no additional consideration was provided by the equity holders of the predecessor entity in connection with issuance to them of the shares of the successor corporation. ¹

Relevant Facts

In July 1995, a corporation, which, as is described herein, was the predecessor to the Corporation, formed the LLC for the purpose of raising capital for its business purposes. In October 1995, such predecessor corporation transferred substantially all of its assets and liabilities to the LLC. In June 1996, the LLC completed the first of a number of private placements of its equity securities, in which our client acquired a twenty five one-hundredths of one percent (0.25%) equity interest in the LLC (the "Fractional Interest") and was admitted as a member of the LLC pursuant to an Amended and Restated Limited Liability Company Agreement dated as of June 1, 1996 (the "Operating Agreement").

The Operating Agreement vested the management of the LLC in its board of managers. Our client, including any and all principals or other affiliates or agents of our client, has never served on the board of managers, nor has it or they held any other position with respect to the LLC (other than as a holder of the Fractional Interest). The Operating Agreement did not specifically contemplate reorganization of the LLC into a corporation.

In addition to prior amendments and restatements which are not relevant to the instant case, the Operating Agreement was further amended in December 1998 (the "December Amendment") in connection with a private placement of securities of the LLC (the "1998 Offering"). The December Amendment effected changes to the Operating Agreement in two relevant respects. First, the definition of "IPO" was added to the Operating Agreement, which definition provides, in pertinent part,

"IPO" shall mean the sale of securities in an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act") by the Company, a successor to the Company or a company to which the Company has transferred any of its assets (each, a "Successor Corporation"). (emphasis added)

Second, Section 4.18 of the Operating Agreement was amended by the December Amendment to provide, in pertinent part,

(b) without the approval of Members holding at least ninety percent (90%) of the Percentage Interests, the Board of Managers shall not have the right or power to ...

...(iv) cause the Company to enter into any sale or transfer of all or substantially all of the assets of the Company to another corporation (emphasis added) or entity, any merger, consolidation or reorganization of the Company into or with another corporation (emphasis added) or entity, with the result that, upon conclusion of the transaction, the equity interest of the Company immediately prior thereto do not represent (either by remaining outstanding or by being converted into equity interests or voting securities of the surviving entity) more than 50% of the combined voting power of the equity interest or voting securities of the continuing or surviving entity of such consolidation, merger or reorganization, or to convert itself into any other type of entity;...

The 1998 Offering and the LLCs further financing activities diluted our clients Fractional Interest to less than nineteen one-hundredths of one percent (0.19%). The LLCs financing efforts culminated with the Corporation filing a registration statement with the Securities and Exchange Commission in late 1999 to effect an initial public offering of the Corporations common stock (the "Public Offering").

As noted above, in order to facilitate the Recapitalization and the Public Offering, the LLC and the Corporation entered into an Agreement and Plan of Merger on or about January 4, 2000. Although the LLC sought approval from its members to effect the Recapitalization, our client did not cast a vote in connection therewith. ²

The Recapitalization was consummated on or about February 7, 2000. Following completion of the Recapitalization, the Corporation, as the successor entity to the LLC, carried on the business of the LLC. Further, in the Recapitalization, the number of shares of common stock of the Corporation each member of the LLC was entitled to receive was directly proportionate to that members interest in the LLC and no member of the LLC was required to provide any additional consideration for the shares of the Corporation received by it in the Recapitalization.

Our client presently holds 38,594 shares of the Corporations common stock. The certificate evidencing these shares bears a legend restricting their transfer absent registration or an exemption from registration under applicable securities laws. Our client desires to have this legend removed in order to freely trade these shares. Having received these shares on or about February 7, 2000, our client must include the period in which it held its Fractional Interest in the LLC to the period in which it holds its shares of common stock of the Corporation to enable their present resale under Rule 144(d)(3).

Existing No-Action Letters

In the leading no-action letter on this subject, Hygeia Sciences, Inc., 1986 SEC No-Act. LEXIS 1897 (Mar. 13, 1986), the Staff permitted limited partners to tack the holding period of their limited partnership interests to the shares of the common stock of the successor corporation they received in a reorganization of the limited partnership into that successor corporation. The Staff noted that tacking was acceptable in that case particularly due to the nature of the agreements entered into at the time of the formation of the limited partnership. In Hygeia Sciences, Inc. and the line of no-action letters that followed, the Staff permitted tacking where the reorganization was expressly contemplated in the written agreements of the predecessor or entity. ³

The Staff recently extended the analysis of the Hygeia Sciences, Inc. line of no-action letters dealing with partnerships to limited liability companies. See Cravath, Swaine & Moore, 2000 WL 190027 (Feb. 11, 2000). In Cravath, Swaine & Moore, the Staff permitted a holder of limited liability company interests to tack the holding period of its limited liability company interests to the holding period of the shares of common stock it received in a reorganization of the limited liability company into the successor corporation.

From Hygeia Sciences, Inc. and its progeny, the Staff requires satisfaction of the five elements described above in order to permit tacking. First, the governing document must contemplate the reorganization into a corporation. Second, the equity holders of the predecessor entity seeking to tack may not have veto or meaningful decision-making authority with respect to the reorganization. Third, in the reorganization, the equity holders must receive a number of shares proportionate to the equity interest they held in the predecessor entity. Fourth, the successor corporation must carry on substantially the same business as the predecessor. Fifth, the equity holders must not have provided any additional consideration for the shares of common stock they receive in exchange for their equity interests in the predecessor entity.

In analyzing provisions of agreements contemplating reorganization, the Staff has found certain language acceptable to permit tacking and has found other language unacceptable. For example, where the language expressly provides for conversion from the present form of entity into a corporation, the Staff has deemed that acceptable to permit tacking. See e.g., Hygeia Sciences, Inc., at *5, Peapod, Inc., at *7 and Staff Leasing, Inc. at *2. However, the Staff has found unacceptable language that generically provides for conversion to another type of entity without reference to a corporation. See e.g., The Petersen Companies, Inc. 98 CCH Dec. 77,467 (July 16, 1998) and MarkWest HydroCarbon, Inc., 1997 WL 136525 (Mar. 25, 1997). In Juno Online Services, Inc., 1999 WL 1042178 (Nov. 17, 1999), the provision contemplating reorganization represented a hybrid version of the types noted above. In that case, the partnership agreement provided that the partnership "could be converted into a corporation or other entity" by the general partner. Juno Online Services, Inc. at *1. Although conversion to another form of entity, in addition to a corporation, was permitted under that partnership agreement, the Staff accepted that language and permitted tacking since, presumably, the form of entity succeeding to the partnership was in fact a corporation. Id. at *6.

As with the nature of the language in a governing document that the Staff has found acceptable, the Staff also has distinguished the nature of acceptable voting or veto rights. Where an equity holder in a predecessor corporation was vested with meaningful power or authority to initiate or determine the nature of the reorganization from the predecessor entity into a corporation, the Staff has denied tacking to that equity holder. In Juno Online Services, Inc., for example, the general partner of the limited partnership was vested with the ability to reorganize the limited partnership to a corporation or other form of entity, in its sole discretion without the further consent of the limited partners. The Staff did not permit the general partner to tack the holding period of its partnership interest to the holding period for the common stock it received in the reorganization, but permitted the limited partners to so tack. In its response letter, the Staff indicated that the limited partners had no authority to effect the reorganization, but that the general partner possessed such authority. Id. at *6. Thus, where the equity holders had no actual voice in the decision at the time the decision was made, the Staff appears to permit such equity holders to tack.

The absence of an actual or practical impact on the decision to reorganize is present in a number of no-action letters where an equity holder was permitted to tack. For example, in Hygeia Sciences, Inc., the Staff permitted tacking for the limited partners whose voting or veto rights with respect to the reorganization into a corporation expired immediately prior to the actual reorganization. Hygeia Science, Inc. at *6. There too, those limited partners had no effective voice in the conversion. Further, in a very recent no-action letter, Cravath, Swaine & Moore, the Staff permitted a 6% minority equity holder who also held one of five board seats to tack, despite the existence of having a vote on the reorganization (presumably because such vote, as a matter of fact in that case, had little or no effect on the decision to reorganize). There, similar to Juno Online Services, Inc., the Staff appears to have taken the position that that minority holder effectively ceded to others the authority to initiate and consummate the corporate reorganization. Cravath, Swaine & Moore at *4.

Underlying Policy

One of the purposes underlying Rule 144 is to prevent issuers from raising capital through the sale of securities absent compliance with the registration requirements of the Securities Act of 1933, as amended. This purpose is accomplished by the Rules imposition of a holding period on shares of stock received directly from an issuer (or its affiliate) which require the holders of such shares to remain at economic risk by denying liquidity for a period of time. The Staff has recognized that a holder can remain at economic risk notwithstanding certain changes in the securities held. Where a holder exchanges its securities without having made a new investment decision in that exchange, the Staff has found that the underlying purpose of the Rule is not defeated by permitting that holder to tack its holding period of the newly received securities to the exchanged securities.

Analysis

Three of the five required elements are readily apparent in our clients situation. First, it received precisely the number of shares in the Corporation that is proportionate to the Fractional Interest it held in the LLC. Second, it did not pay any additional consideration for such shares. Third, the Corporation carries on the same business of the LLC. The remaining two elements are discussed in turn below.

With respect to the issue of the agreement provisions contemplating reorganization, the Operating Agreement, as amended by the December Amendment (the "Amended Agreement"), specifically contemplates conversion to a corporation, including in connection with an initial public offering. Although the language in the Amended Agreement is not as precisely drafted as the language in some of the no-action letters cited above, the intent and understanding of the parties manifest. As described above, the December Amendment inserted the definition of the term "IPO." That definition includes an initial public offering by the LLC, a successor to the LLC or a company to which the LLC has transferred its assets. Each of those successors is further defined in the Amended Agreement as a "Successor Corporation." From this reference, it is clear that the parties contemplated a reorganization either by merger or asset transfer to a specific form of entity--a corporation. Thus, to the extent a new investment decision was made by the members of the LLC at the time of the contemplation in the LLCs Amended Agreement that the LLC reorganize into a corporation (whether in connection with an initial public offering or otherwise), such new investment decision was made at the time of the 1998 December Amendment.

Section 4.18 of the Amended Agreement also contemplates conversion to a corporation. This language is strikingly similar to the language in Juno Online Services, Inc. Section 4.18(b)(iv) of the Amended Agreement permits the LLC to merge, consolidate or reorganize into or with another corporation or entity and to sell or transfer substantially all of the LLCs assets to another corporation or entity. Through this provision, the parties further demonstrated they contemplated the reorganization of the LLC.

Further, the members of the LLC vested the LLCs board of managers, subject, in certain circumstances, to the approval of a requisite percentage of members, to accomplish such Reorganization. ⁴ The ninety percent (90%) LLC membership interest approval requirement set forth in the Amended Agreement may in fact have provided some members of the LLC meaningful voting rights with respect to the Recapitalization, ⁵ but, given the Fractional Interest of our client at that time of less than nineteen one-hundredths of one percent (.19%), this approval requirement did not give our client any meaningful veto or approval rights with respect to the Recapitalization. Surely, given the existence of what may have been a ninety percent (90%) approval requirement, any LLC member with a more-than ten percent (10%) membership interest likely would not be permitted to tack under this last of the Staffs five requirements, and it is arguable whether an LLC member with, for example, a two percent (2%) or three percent (3%) membership interest would be permitted to tack; however, we believe the Staff should concur in our conclusion that our client, who held less than a nineteen one-hundredths of one percent (.19%) interest in the LLC, did not possess meaningful veto or voting rights, and, therefore, should be permitted to tack. ⁶ Our clients facts on this point are similar to those in Cravath, Swaine & Moore, wherein the holder was found not to possess the disqualifying voting power despite having an equity interest larger than our clients Fractional Interest and one of five board seats. With a substantially smaller interest and no seat on the LLCs board of managers, our client cannot be said to have had any meaningful vote or decision making power with respect to the LLCs decision to effect the Recapitalization.

Conclusion

Based on the foregoing facts and analysis, it is apparent that our clients LLC investment decision, even if made anew at the time of the 1998 December Amendment, contemplated the receipt by it of shares of common stock of the Corporation. Since that time, our client remained at economic risk with respect to a security that it contemplated could ultimately, and did in fact, become shares of common stock of the Corporation without any action on its part. Thus, in our view, our client has satisfied the five factor test established by the existing interpretive authority from the Staff and the policy underlying Rule 144. Accordingly, our client should be entitled to tack its holding period for the shares of common stock of the Corporation received by it in the Recapitalization to the holding period for its Fractional Interest beginning December 1998.

We respectfully request that the Staff concur with this interpretation. Please contact the undersigned at 973.597.2424, or my colleague, Steven Siesser, at 973.597.2506, to discuss any questions or comments you may have with respect to this request. Thank you for your consideration.

Very truly yours,

Robert G. Minion

[STAFF REPLY LETTER]

July 20, 2000

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: Antigenics, Inc.

Incoming letter dated June 15, 2000

Based on the facts presented, the Divisions view is that the holding period under rule 144(d) for shares of Antigenics, Inc., issued to members of Antigenics, LLC, began not earlier than the date of the vote approving the merger of the limited liability company into the business corporation. Because the merger changing the form of business organization is a transaction described in rule 145(a)(2), the holding period calculation is governed by rule 144(d)(3)(viii). It is immaterial to this question that a single members vote decision could not have influenced the results of the vote of all members on the merger resolution or that any member refrained from voting.

This position is based on the representations made to the Division in your letter. Different facts or conditions might require a different result.

Sincerely,

Michael Hyatte

Special Counsel

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