Company Name: Hellman, Gal Investment Assocs.
Public Availability Date: Jan. 19, 1981
INQUIRY LETTER
TESTA, HURWITZ & THIBEAULT
SIXTY STATE STREET
BOSTON, MASSACHUSETTS 02109
TELEPHONE (617) 367-7500
November 07, 1980
1933 Act/Rule 144(d)(1)
Division of Corporation Finance
Securities and Exchange Commission
500 North Capitol Street, N.W.
Washington, D.C. 20549
Re: Hellman, Gal Investment Associates
Dear Sirs:
We are counsel for Hellman, Gal Investment Associates, a Massachusetts
limited partnership ("HGIA"). As such, we would appreciate being advised whether
the staff of the Division of Corporation Finance would interpret paragraph
(d)(1) of Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
("1933 Act") to permit HGIA to tack the holding periods of its wholly-owned
subsidiary Hellman, Gal Capital Corporation, a Massachusetts corporation
("Capital"), for shares of restricted stock of unaffiliated issuers held by
Capital which HGIA is acquiring from Capital upon Capitals liquidation.
HGIA,
organized in July, 1977, is engaged in the business of venture capital
investing. In 1979 it formed Capital for the purpose of operating under the
Small Business Investment Company ("SBIC"). Shortly after Capital received its
license to operate as an SBIC in August, 1979, HGIA transferred to Capital, at
cost, securities in five companies which had been acquired by HGIA between
September, 1978 and July, 1979. Since its formation Capital has purchased
securities in four additional companies. All of the securities in Capitals
portfolio (the "Securities") are restricted securities for purposes of Rule 144.
For various reasons, HGIA, as the sole stockholder of Capital, has initiated the
dissolution of Capital and the distribution of its assets to HGIA in
liquidation. HGIA has asked us whether, upon the dissolution of Capital and the
distribution of its assets to HGIA, HGIA can, for purposes of Rule 144, (i) tack
Capitals holding period for the Securities, and (ii), in the case of the
Securities originally transferred from HGIA to Capital, tack the combined
holding periods of both HGIA and Capital.
For the
reasons set forth below, it is our opinion that HGIA can compute its holding
period under Rule 144 by including the holding period of its dissolved
subsidiary (which, with respect to the Securities transferred by the parent to
the subsidiary, would include HGIAs holding period). We feel that this position
is justified by the language and intent of paragraph (d)(1) of Rule 144, as well
as the position taken by the Division of Corporation Finance in the following
letters: American Diversified Enterprises, Inc., available March 28, 1974 ("ADE");
The Black and Decker Manufacturing Company, available June 13, 1976 ("Black
and Decker"); General Energy Corporation, available April 29, 1976 ("General
Energy"); Bay Equities, Inc., available October 25, 1976 ("Bay Equities");
The Harbel Corporation, available September 19, 1979 ("Harbel"); and J.H.
Foster & Company Limited Partnership, available March 17, 1980 ("Foster").
We believe
that the facts presented in this situation are directly analogous to those in
ADE. In ADE, the parent company, a privately held investment company,
followed a pattern of forming wholly-owned subsidiaries which would make
particular investments in restricted securities. In question was the
applicability of Rule 144(d)(1) to the parent companys liquidation of the
subsidiaries and subsequent distribution of their assets. The Division of
Corporation Finance concluded that the parent could tack the holding periods of
the subsidiaries upon the liquidating distribution of restricted securities. The
instant case presents a situation similar to that in ADE as the parent
investment partnership, HGIA, wishes to tack the holding periods of its
wholly-owned subsidiary, Capital (which was formed as an investment vehicle for
the parent), upon the liquidating distribution of the subsidiary.
The
rationale underlying ADE is equally applicable to the present fact
situation. Rule 144(d)(1) requires, with respect to holding period for
restricted securities to be sold thereunder, that the person for whose account
the securities are sold shall have been the beneficial owner of the securities
for a period of at least two years prior to the sale. In this regard, the staff
has interpreted the rule to allow partners receiving restricted securities upon
dissolution of their partnership and distribution of assets to tack the
partnership holding period to their own, provided that the restricted stock sold
by all of the partners be aggregated. SEC Securities Act Release No. 5306 (Sept.
26, 1972) at VII. The partners are considered to be, in substance, the
beneficial owners of their pro rata shares of partnership assets. In ADE,
this reasoning was extended to apply to the investment companys acquisition of
the restricted securities of its wholly-owned subsidiaries upon liquidation.
Similarly, HGIA should be deemed to be the beneficial owner of Capitals
Securities and allowed to tack the subsidiarys holding period.
Upon
liquidation of Capital and distribution of the Securities to HGIA, the
beneficial ownership of the Securities will not have changed. HGIA has, in
substance, been the beneficial owner of the Securities; Capital has been merely
an investment vehicle in the form required by statute. As sole owner of Capital,
HGIA has borne the full economic risk of all of the subsidiarys investments
See Black and Decker. HGIA has at all times maintained complete investment
authority and control over Capital with regard to the purchase, sale and voting
of all securities held by the SBIC. The general partners of HGIA have at all
times been the officers and directors of Capital. As in the situations presented
in Bay Equities and Harbel, the liquidation of Capital will not
alter the true beneficial ownership of the Securities, which has always rested
with HGIA. The shift of direct ownership of the Securities from Capital to HGIA
changes neither the ownership interest of HGIA nor the economic risk in the
investment in the portfolio of Securities. See Foster.
Furthermore, the present situation is easily distinguishable from that presented
in General Energy where the Division of Corporation Finance denied the
tacking of the holding period of an SBIC upon distribution of a portion of its
restricted securities to its shareholders. The proposed distribution to
General Energy would have constituted a partial liquidation to the
multiple shareholders of the SBIC. The rationale of the Divisions position
was that the SBICs interests were not identical to the individual interests of
the shareholders and, thus, the beneficial ownership of the securities in
question could not be deemed to have remained the same upon distribution. In
contrast, the identify of interests between HGIA and Capital is, as described
above, quite clear and the instant situation involving a complete liquidation
presents an obvious continuation of beneficial ownership of the Securities by
HGIA. As such, it is our opinion that HGIA may tack Capitals holding period
with respect to the Securities upon liquidation of Capital and distribution to
the parent limited partnership.
With
regard to those Securities originally transferred from HGIA to Capital, it is
also our opinion that the holding period should be computed from the date such
Securities were originally purchased by HGIA. That Capital would have been able
to tack HGIAs holding period upon transfer from the parent is consistent with
the position taken by the Commission in Item 33 of Release No. 33-6099 dated
August 2, 1979. HGIAs transfer of these Securities to Capital, at cost,
immediately after Capital had received its license to operate as an SBIC (and
HGIA had provided its initial capital), was, in substance, functionally
equivalent to a capital contribution by HGIA. HGIA retained complete control
over Capital and there occurred no shift in the economic risk of the investment
in the Securities. These factors were cited by the Commission in Item 33 of the
above-referenced Release. Upon transfer to Capital, Capital thus acquired HGIAs
holding period for the Securities and, for the reasons set forth above, upon
liquidation of Capital, HGIA should be able to tack the holding period which
first began to run when the parent limited partnership acquired the shares.
Again, this position is consistent with the economic reality of HGIAs
maintenance of beneficial ownership of the Securities regardless of whether the
Securities were held by the partnership itself or by its wholly-owned
subsidiary.
We look
forward to receiving your interpretive advice as soon as possible.
If you
require any further information concerning this matter, please call either
Howard Rosenblum or the undersigned.
Very truly yours,
Andrew E. Taylor, Jr.
STAFF REPLY LETTER
December 19, 1980
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE
Re: Hellman, Gal Investment Associates
Incoming letter dated November 7, 1980
Based upon the facts presented, this Division is of the view that, for
purposes of Rule 144(d) under the 1933 Act, Hellman, Gal Investment Associates
("HGIA") may tack to its own holding period the period during which its
wholly-owned subsidiary, Hellman, Gal Capital Corporation ("Capital") held the
respective restricted securities to be acquired by HGIA upon Capitals
liquidation. In addition, with respect to those securities which HGIA had
transferred to Capital in August 1979, it is our view that the holding period
would be computed from the date such securities were originally acquired by HGIA.
In arriving at the foregoing positions, we have noted particularly that HGIA has
been the sole security holder of Capital throughout its existence and therefore
may be deemed to have had uninterrupted beneficial ownership of the underlying
restricted securities which are the subject of this letter.
Because
these positions are based upon the representations made to the Division in your
letter, it should be noted that any different facts or conditions might require
a different conclusion.
Sincerely,
Peter J. Romeo
Chief Counsel
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