Intuit Inc.,
Jan. 19, 2000
[LETTER OF INQUIRY]
November 30, 1999
VIA FEDERAL EXPRESS
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Intuit Inc.
Ladies/Gentlemen:
We are writing to request your confirmation of our opinion
described below regarding the effect of a proposed transfer of securities under
the holding period provisions of Rule 144 ("Rule 144") promulgated under
the Securities Act of 1933, as amended (the "Act").
Background
Our client Intuit Inc. ("Intuit") is a Delaware
corporation whose stock is publicly traded. In connection with its normal
business activities, Intuit from time to time acquires stock and other
securities of companies with whom it has business relationships. Intuit
typically acquires such securities through private purchases of restricted
securities from the issuer in connection with business transactions. Intuit has
also acquired registered securities of other companies in business combinations.
Intuit is currently considering transferring certain
securities it owns to a wholly-owned subsidiary corporation of Intuit ("Sub")
in private transfers. It is expected that such transfers of securities from
Intuit to Sub would be made (i) in consideration of Subs issuance of shares of
Subs capital stock to Intuit and/or (ii) as contributions by Intuit to the
capital of Sub, without the payment of any property or other consideration from
Sub to Intuit. The securities Intuit would transfer to Sub may be either
unregistered "restricted securities" (within the meaning of Rule 144) or
securities that have been registered under the Act and may be publicly sold
without further registration under the Act.
Question
In some cases, Intuit may be an "affiliate" (within the
meaning of Rule 144) of an issuer of securities that Intuit proposes to transfer
to Sub. It is our opinion that if Intuit transfers securities of an issuer of
which Intuit is an affiliate ("Affiliate Securities") to Sub at a time
when Sub is a wholly-owned subsidiary of Intuit, then Sub may "tack" on Intuits
accrued Rule 144 holding period in the transferred Affiliate Securities for
purposes of determining Subs holding period in those Affiliate Securities under
Rule 144(d). We respectfully request the Staffs confirmation that our opinion
is correct.
Analysis
Rule 144(d) provides that one must hold restricted
securities for a period of one year from the "later of the date of acquisition
of the securities from the issuer or an affiliate of the issuer" before the
restricted securities may be sold pursuant to Rule 144. Thus, in most cases, a
transferee of restricted securities who receives the securities from an
"affiliate" of the issuer is not permitted to tack the affiliates accrued Rule
144 holding period.
However, in Securities and Exchange Commission Release No.
6099 issued in 1979 (the "1979 Release"), the Commission stated that
"tacking" of holding periods under Rule 144(d) will be permitted:
"(a) when an individual transfers without consideration
restricted shares to a corporation solely in exchange for all of its outstanding
securities; or
(b) when a corporation transfers without consideration
restricted shares held in its investment portfolio to one of its wholly-owned
subsidiaries."
The 1979 Release explained that tacking of Rule 144 holding
periods was permitted in the above situations "because the transferor retained
complete control over the transferee and there was, therefore, no shift in the
economic risk of the investment in the restricted securities."
Accordingly we believe that the transfer of Affiliate
Securities by Intuit to Sub that occurs while Sub is a wholly-owned subsidiary
of Intuit should result in Sub being able to tack Intuits accrued Rule 144
holding period. We recognize that the current provisions of Rule 144(d) (which
permit a transferee of restricted securities to tack the holding period of
his/her transferor unless the transferor is an affiliate of the issuer) were
adopted in 1990 pursuant to Securities Act Release No. 6862 (the "1990
Release"), after the 1979 Release was issued. However we believe that the
reasoning of the 1979 Release was not altered by the changes to Rule 144 adopted
in the 1990 Release and that the reasoning of the 1979 Release continues to
apply to a transfer of securities by Intuit to a 100%-owned subsidiary of
Intuit.
As Intuit may wish to transfer restricted securities of an
potentially affiliated company soon, we respectfully request your prompt
consideration of this matter. If you have any questions, please feel free to
call the undersigned at (650) 858-7235.
Pursuant to Securities Act Release No. 33-6269, seven
copies of this letter are enclosed. We would appreciate it if you would please
acknowledge receipt of this letter by stamping the enclosed copy on the first
page and returning it to us in the self-addressed, stamped envelope we are
enclosing.
If for any reason you expect to provide a response that is
unable to confirm our interpretation of Rule 144(d) as set forth above, we would
appreciate the opportunity to discuss this matter with you prior to delivery of
your written response.
Sincerely,
Kenneth A. Linhares
[STAFF REPLY LETTER]
January 19, 2000
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE
Re: Intuit Inc.
Incoming letter dated November 30, 1999
Based on the facts presented, the Division agrees that
Intuits transfer to a wholly-owned subsidiary of restricted securities of an
affiliated third party, either in consideration of the subsidiarys common stock
or as a capital contribution without consideration, will not disturb the holding
period on the restricted securities. The amendment to rule 144(d)(1) adopted in
1990 had no effect on the interpretation you have quoted from item 33 in
Securities Act Release No. 6099 (1979).
This position is based on the representations made to the
Division in your letter. Different facts or conditions might require another
result.
Sincerely,
Michael Hyatte
Special Counsel
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