Company Name: Juno Online Services, Inc
Public Availability Date: Nov. 17, 1999 

[LETTER OF INQUIRY]

August 27, 1999

VIA FEDERAL EXPRESS

Securities and Exchange Commission
Office of Chief Counsel
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Juno Online Services, Inc.--Tacking of Holding
Period of Securities pursuant to Rule 144(d)

Ladies and Gentlemen:

On behalf of our client, Juno Online Services, Inc., a Delaware corporation ("Juno"), we seek interpretive advice to confirm that the stockholders of Juno who received shares of common stock of Juno ("Juno Common Stock") in exchange for their partnership interests in Juno Online Services, L.P., a Delaware limited partnership (the "Partnership"), and stockholders of Juno who may receive shares of Juno Common Stock in a distribution from the former general partner or limited partners of the Partnership, should be permitted for the purposes of Rule 144 under the Securities Act of 1933, as amended (the "Act") to "tack" their holding periods of their earlier ownership interests in the Partnership to their holding periods of Juno Common Stock.

I. Factual Background

The Partnership was formed on June 30, 1995 by D. E. Shaw Development, L.P., as sole general partner (the "General Partner"), and D.E. Shaw & Co., Inc., as limited partner. Following the formation of the Partnership, seven additional investors contributed capital to the Partnership and were admitted to the Partnership as limited partners (the "Limited Partners") pursuant to a Limited Partnership Agreement dated as of June 30, 1995 (the "Partnership Agreement"). Their capital contributions were made on dates ranging from October 1995 to June 1998. (The Limited Partners and the General Partner are collectively referred to herein as the "Partners"). The Partners received Class A Units upon contributing capital to the Partnership. In addition, the Partnership established an option plan pursuant to which employees of the Partnership were granted options to purchase Class B Units.

At the time the Partnership was formed, the Partners contemplated a future public offering of shares in the business entity, and understood that the accomplishment of such a public offering would require that the form of the business entity be changed to a corporation. With this in mind, the Partnership Agreement specifically provided that the Partnership could be converted or reorganized into a corporation or other entity at any time, in the sole discretion of the General Partner and without the consent of any Limited Partner. Further, the Partnership Agreement provided the General Partner with the ability to take such actions and require the Limited Partners to enter into such documentation on behalf of the Partnership and the Limited Partners as the General Partner believed was necessary or appropriate to provide for the General Partners full control over the management, affairs and structure of the new business entity and exclusive authority to exercise all voting and consent rights with respect thereto. In addition, the Partnership Agreement provided that, in the event that the Partnership was converted or reorganized as discussed above, and the new entity was a corporation, the General Partner was to convert all Class A Units into shares of one or more series of preferred stock and all Class B Units into one or more series of common stock, in each case with such terms as the General Partner was to determine in its sole discretion.

In anticipation of a future initial public offering of the business (the "IPO") and at the discretion of the General Partner, on July 2, 1996, Juno was incorporated in the state of Delaware. Juno was formed solely as a vehicle through which to effect the anticipated IPO, and business continued to be conducted through the Partnership. In early 1999, the General Partner decided that the Partnerships business had reached the point in its development at which it would be appropriate to proceed with the IPO. Accordingly, on March 1, 1999, the Partnership was merged with and into Juno, with Juno being the surviving Delaware corporation (the "Merger"). In connection with the Merger, each of the former Limited Partners as well as the former General Partner exchanged his, her or its partnership interests for the equivalent number of shares of Series A Convertible Preferred Stock of Juno (the "Series A Preferred Stock"). Immediately following the Merger, each of the former Limited Partners and the former General Partner held an Interest in Juno which was identically proportionate to such Partners previous interest in the Partnership.

On March 1, 1999, immediately following the effectiveness of the Merger described above, Juno closed a private placement (the "Private Placement") of its Series B Convertible Preferred Stock (the "Series B Preferred Stock"). On March 5, 1999, Juno filed a Registration Statement on Form S-1 (File No. 333-73449) relating to the IPO (the "Registration Statement"). On May 25, 1999, the Registration Statement was declared effective by the Securities and Exchange Commission (the "SEC") and Juno commenced its public offering. The IPO closed on June 1, 1999. Upon the consummation of the IPO, the shares of Series A Preferred Stock held by the former Limited Partners and the former General Partner automatically converted into shares of Juno Common Stock on a one-for-one basis. Some of the shares of Juno Common Stock originally held by the Partners are now held through trusts or other vehicles, or by shareholders of the former Partners.

II. Issue Presented

The issue presented is whether the former Partners of the Partnership may "tack" their respective holding periods for their Partnership interests (which periods would begin on the date each of them made their investments in the Partnership) on to their holding periods for the shares of Series A Preferred Stock they received in connection with the Private Placement and the shares of Juno Common Stock they received in the automatic conversion of such Series A Preferred Stock into Common Stock upon the consummation of the IPO.

III. Analysis

We respectfully request that you concur with our opinion that, for purposes of Rule 144 under the Act, the former Partners (and therefore the shareholders and/or distributees and/or donees of the Partners) may "tack" their respective holding periods for their Partnership interests onto their holding periods for the shares of Series A Preferred Stock and Juno Common Stock they have held and now hold.

The staff of the SEC has in several similar situations allowed the partners of a partnership to "tack" the holding periods of their partnership interests to the securities of a successor corporation. ¹ The policy question underlying the holding period requirements (including the tacking provisions) is whether persons holding restricted securities have assumed (and retained for specified periods of time) the economic risks of investment in a security, and are therefore not merely acting as conduits for the sale of unregistered securities to the public. In the case of tacking of partnership interest holding periods, the staff of the SEC has addressed this policy concern by considering specific factors. In each of the situations in which the staff permitted tacking, the partnership agreement expressly contemplated the conversion of the partnership into a corporation, the successor corporation carried on the same business and had substantially the same management as its predecessor, and the proportionate interests of the former partners in the successor corporation were substantially similar to their interests in the predecessor partnership.

With respect to the policy concerns underlying the holding period requirements of Rule 144, we believe that each of the former Partners has been at the same degree of economic risk with respect to his, her or its investment from the date that such former Partner made his, her or its investment in the Partnership, and did not make a new investment decision when such former Partner received his, her or its shares of Series A Preferred Stock.

Specifically, we believe that the corporate reorganizational situation here closely resembles those in Hygeia Sciences, Inc. ("Hygeia") and Peapod, Inc. ("Peapod"), and that the conversion of the Partners interests into the Series A Preferred Stock, and then into Juno Common Stock, meets the criteria set forth in those two no-action letters.

First, consistent with the Hygeia line of letters, the Partnership Agreement expressly contemplates the conversion of the Partnership into a different entity in contemplation of a public offering, and specifically mentions a corporation. In the case of limited partnership reorganizations, the staff has permitted tacking in cases where the partnership agreement expressly contemplated the possibility of such reorganization ² and has not allowed tacking where the partnership agreement did not contemplate such reorganization. ³ In previous no-action letters, it appears that one of the factors considered by the staff may have been whether the Partners have the right to vote on or veto the proposed conversion of the Partnership. As in the case of Peapod, the Limited Partners of the Partnership had no right to vote on or veto a conversion pursuant to the Partnership Agreement. While we acknowledge that the Partnership Agreement did provide the General Partner itself with sole discretion regarding when to convert the Partnership, we nevertheless believe that the analysis of the General Partners economic risk should be no different from that of the Limited Partners, as the risk of the investment in the Partnership by the General Partner is not alleviated or changed in any way by the conversion into a corporation or by its discretion to decide the terms and timing of such a conversion. The General Partners investment in the business entity was equally at risk no matter what form the business entity took or under what terms stock in the entity was issued.

Also as in the cases of Hygeia and Peapod, Juno continues to conduct the business (Internet services) previously conducted by the Partnership without any changes besides those usually effected during and after an initial public offering. While certain management titles have changed, the persons in management positions of Juno and their functions have remained substantially the same as those of the Partnership.

Finally, as in the Hygeia line of letters, the interests of the former Partners in Juno are directly based on their former interests in the Partnership, as converted into shares of the Series A Preferred Stock. Each Partner received one share of Series A Preferred Stock for each Class A Unit of the Partnership, and then at the time of the closing of the IPO (following a 1-for-4.5 reverse stock split applicable to all classes of outstanding securities) one share of Juno Common Stock for each share of Series A Preferred Stock owned by such former Partner. Prior to the dilution of their holdings upon the issuance of Series B Preferred Stock in the Private Placement and Juno Common Stock in the IPO, each Partner also held an interest in Juno which was identically proportionate to such Partners previous interest in the Partnership. Following the conversion from a partnership to a corporation, the former General Partner of the Partnership held a controlling interest in the voting securities of Juno and, as was the case prior to the conversion, the former General Partner therefore had the ability to control all matters brought before the owners of the entity for a vote.

For each of these reasons, the former Partners (including the former General Partner) should be allowed to tack their respective holding periods for their Partnership interests onto their holding periods for the shares of Series A Preferred Stock they received following the Merger and for the shares of Juno Common Stock they received upon the closing of the IPO. The Partners did not make a new investment decision at the time of the conversion from partnership to corporate status, and continued to bear the economic risk of their investments despite the change in form of the business entity. This is true even of the former General Partner, despite the fact that it had sole discretion to decide whether and how to convert the Partnership, because its ownership interests remained substantially the same and retained the same degree of economic risk regardless of the form of the corporate entity.

In summary, we respectfully request that the staff concur that each of the former Partners of the Partnership (and therefore any of their shareholders and/or distributees and/or donees) may tack their respective holding periods for their Partnership interests onto their holding periods for the shares of Series A Preferred Stock they received following the Merger and for the shares of Juno Common Stock they received upon the closing of the IPO.

Attached as Exhibit A is a copy of Section 3.5 of the Partnership Agreement which provides for the conversion of the Partnership into a different business entity.

Pursuant to Release No. 33-6269 (December 5, 1980), we are enclosing seven additional copies of this letter. If you have any questions or require additional information, please do not hesitate to contact me at (212) 237-2579 or, in my absence, Alan N. Shapiro of this firm at (212) 237-2530. We would appreciate the opportunity to speak with a member of the Staff by telephone if you do not concur with our conclusion set forth above.

Very truly yours,

BROBECK, PHLEGER & HARRISON LLP

Brian B. Margolis

Attachment

cc: Richard Buchband, Esq. (Juno Online Services, Inc.)

Alexander D. Lynch, Esq. (Brobeck, Phleger & Harrison LLP)

Alan N. Shapiro, Esq. (Brobeck, Phleger & Harrison LLP)

[APPENDIX]

Exhibit A

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of JUNO ONLINE SERVICES, L.P.

3.5 Successor Entities. The Partners agree and acknowledge that the Partnership may be converted or reorganized into a corporation or other entity (the "New Entity") in accordance with applicable law at any time, in the sole discretion of the General Partner and without the consent of any Limited Partner. The General Partner (or its successors following such conversion or reorganization) may, at any time, take such actions and require the Limited Partners to enter into such documentation on behalf of the Partnership and the Limited Partners, in each case without the necessity of obtaining the consent of the Limited Partners, as the General Partner believes are necessary or appropriate in its sole discretion to provide for the General Partners (or its designees) full control over the management, affairs, and structure of the New Entity and exclusive authority to exercise all voting and consent rights with respect thereto, including without limitation all elections of directors or other managers; any merger, consolidation, or other combination involving the New Entity; any sale of the New Entitys assets; any issuance and terms of ownership interests in the New Entity; and the terms of any public offering of any new or existing ownership interest in the New Entity. Such actions may include, without limitation, the establishment of multiple classes of common or preferred stock with differing or no voting privileges (including, without limitation, with respect to the election of directors) and the requirement that the Limited Partners enter into documentation that may include, without limitation, voting trust agreements, shareholder agreements, powers of attorney, or such other documentation as may be necessary or appropriate in the sole discretion of the General Partner, provided that, in the event that the Partnership is so converted or reorganized and that the New Entity is a corporation, the General Partner shall convert all Class A Units into shares of one or more series of preferred stock and all Class B Units into shares of one or more series of common stock, in each case having such terms as the General Partner may determine in its sole discretion. The Partners acknowledge and agree that it is possible that any such conversion or reorganization could have adverse tax consequences for some or all of the Partners.

[STAFF REPLY LETTER]

November 17, 1999

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: Juno Online Services, Inc. ("Juno")

Incoming letter dated August 27, 1999

Based on the facts presented, the Division agrees that the holding period under rule 144(d) for shares of Juno common stock received by a former limited partner of Juno Online Services, L.P., in exchange for Juno preferred securities, which themselves had been exchanged for interests in the limited partnership, should be determined by the date of acquisition in the limited partnership. We take this view because the limited partners had ceded to the general partner any right to change the partnerships form of organization to a corporation through the terms of the partnership agreement. This letter does not address the holding period results that would have followed if the general partner had reconstituted the partnership in a form of organization not specified in the partnership agreement. The Division does not agree that the former general partners holding period may be determined in reference to any interest it held in the limited partnership.

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

SEC_CODE_REF_0090001192884