Company Name: Familian Corp.
Public Availability Date: May 3, 1976

[INQUIRY LETTER]

WILLIAM HOLZMAN

[ Original Text Illegible ]

[ Original Text Illegible ]

March 26, 1976

To: William Toomey, Special Counsel

Office of Chief Counsel

From: William Holzman, Attorney

Division of Corporation Finance

Re: Familian Corp.

Familian Corp. ("Familian") recently requested the staff's views as to the applicability of Rule 144(d)(4)(C) as it relates to a guarantee agreement between Familian and the former partners of Kirkby Trailer Parts ("Kirkby"). Pursuant to an asset acquisition agreement dated May 30, 1973, the Kirkby partners exchanged the assets of Kirkby for shares of Familian common stock. As part of the consideration for the sale of assets, the parties entered into a guarantee agreement which provided that Familian would pay cash or issue additional shares to the partners if they received less than a specified price per share upon disposition of their Familian common stock. The guarantee period extends from April 1, 1975, to April 1, 1977. Familian has requested the staff's view as to the date(s) on which the holding period commences for the original shares and any additional shares issuable pursuant to the guarantee agreement.

Rule 144(d)(4)(C)

Section (d)(4)(C) of Rule 144 provides, in part, that the holding period for "securities acquired as a contingent payment of the purchase price of an equity interest in a business, or the assets of a business" commences "at the time of such sale." The staff has affirmed the applicability of (d)(4)(C) in at least three previous interpretative letters involving contingent earn-out arrangements, the terms of which provided for the issuance of additional shares on the basis of a formula geared to the market value of the issuer's securities at a future date.

In Rollins, Inc. ("Rollins"), available November 16, 1972; Transition Electronics Corporation ("Transition"), available April 12, 1972; and Vernitron Corporation ("Vernitron"), available May 7, 1973, the staff expressed the view that the holding period for additional shares issued pursuant to contingent payment agreements commenced on the sale date rather than on the date of their issuance.

The staff failed, however, to recognize in these letters that the effect of the described arrangements was to eliminate the shareholders' investment risk and thereby trigger the tolling provisions of Section (d)(3)(A).

In Computing & Software, available September 8, 1972, the staff ruled that additional shares issued pursuant to a contingent payment arrangement were deemed for the purposes of Rule 144 to have been acquired on the date of their issuance rather than at the time of the issuance of the original shares. The refusal of the staff to apply the back-dating provisions of (d)(4)(C) appears to have been based on the fact that the original agreement was subsequently amended by the parties to increase the number of additional shares issuable under the pay-out formula.

144(d)(3)(A)

Section (d)(3)(A) of Rule 144 provides that the holding period for restricted securities is "tolled" in situations where, as a result of short sales, puts or other options to dispose of securities, the shareholder has not assumed the economic risk of the investment.

The staff determined in Continental Western Industries, Inc. ("Continental"), available August 18, 1975, that a guarantee agreement which provided for the payment of additional cash, if the issuer's securities were sold below a specified price, constituted a put or other option to dispose of securities, and consequently ruled that the holding period was tolled pursuant to (d)(3)(A) during the period of the guarantee. The guarantee agreement in Familian differs from that in Continental only in that the issuer has the option of paying the price differential in cash or in additional securities. The staff's conclusion in Familian that the holding period for both the original and the additional shares will not begin to run until the expiration of the guarantee is, therefore, a logical extension of Continental and serves to correct earlier staff oversights in the Rollins, Transition, and Vernitron letters.

[STAFF REPLY LETTER]

Ronald P. Givner, Esquire

Rifkind & Sterling

9454 Wilshire Boulevard

Beverly Hills, California 90212

Re: Familian Corp.

Dear Mr. Givner:

This is in response to your letter of March 2, 1976 _{Not Available from SEC Public files}, requesting our views as to the applicability of Rule 144(d)(4)(C) under the Securities Act of 1933 (the "Act"), as it relates to a guarantee agreement between Familian Corp. ("Familian") and the former partners of Kirkby Trailer Parts ("Kirkby").

We understand the facts to be as follows. In May of 1973, pursuant to an asset acquisition agreement, the Kirkby partners exchanged the assets of Kirkby for 33,333 shares of Familian common stock. The shares were acquired in reliance upon the exemption from registration provided by Section 4(2) of the Act. As part of the consideration for the sale of assets, the partners and Familian entered into a guarantee agreement which provided that Familian would unconditionally guarantee that the price received by the partners upon the sale of their Familian shares, between April 1, 1975 and April 1, 1977, would be $15 per share. You indicate that the guarantee has since been reduced to $12 per share. The guarantee applies to sales by the former partners in Rule 144 transactions, or sales pursuant to a registration statement filed with the Commission.

Under the terms of the guarantee, if the former partners receive less than $12 per share, Familian is obligated to issue additional shares or cash, at its option, so that the former partners will ultimately receive $12 for each share sold. Each partner is required to notify Familian of any proposed sales, and Familian then has the option of purchasing each share at $12 per share.

It is your opinion that the guarantee is a contingent earnout arrangement which falls within the provisions of Rule 144(d)(4)(C). Accordingly, it is your view that the holding period for the additional shares commenced in May, 1973 when the sale of assets occurred. It is also your opinion that the guarantee is not a put or other option within the meaning of Rule 144(d)(3)(A), so that the holding period for the original shares also commenced in May, 1973.

Based on the facts presented, it is the Division's view that the additional shares would be deemed to have been acquired at the time of the sale of the assets and, accordingly, the holding period for such shares would have commenced in May of 1973. However, in our view, the guarantee arrangement constitutes a put or other option within the meaning of Rule 144(d)(3)(A), and therefore the holding period for both the original and the additional shares will not begin to run until the expiration of the guarantee.

Sincerely,

William E. Toomey

Assistant Chief Counsel