Company Name: Petersen Co., Inc.
Public Availability Date: July 16, 1998 

[LETTER OF INQUIRY 1]

January 15, 1998

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

Re: The Petersen Companies, Inc.--
Rule 144(d) tacking of holding period of securities.

Gentlemen and Ladies:

On behalf of our client, Stuart Karu, a shareholder in The Petersen Companies, Inc. (the "Company"), a Delaware corporation, we respectfully request that the Staff of the Securities and Exchange Commission (the "Staff") concur in our view that Mr. Karu, who received his shares of common stock in the Company in exchange for all of his former equity holdings in the Company and all of his equity interests in Petersen Holdings, L.L.C. ("Petersen") be permitted, for purposes of Rule 144 of the Securities Act of 1933 ("Rule 144"), to "tack" to the holding period for the common stock his earlier ownership interests in the Company and Petersen.

FACTUAL BACKGROUND:

Petersen was formed as a Delaware limited liability company in order to acquire substantially all of the publishing assets and assume certain liabilities of Petersen Publishing Company, an established publisher, on September 30, 1996. The operations of Petersen are conducted by its operating subsidiary, Petersen Publishing Company, L.L.C. ("Publishing"). Petersen is the managing member of Publishing. The outstanding securities of Petersen consisted of one class of preferred units (the "Preferred Units") and two classes of common units (the "Common Units"). At the time the Company was formed, the interest holders in the Company (the "Interest Holders"), including Karu, contemplated a future public offering of shares in the publishing entity, and understood that such a public offering would require that the form of the business entity be a corporation.

The Company was incorporated in Delaware in August, 1996. ¹ The principal purpose of the Company was investing in and managing Petersen and Publishing. It was the managing member of Petersen, and therefore controls the operations of Publishing. It had no business operations, and its entire holdings consisted of a 1% investment in Petersen and a .1% investment in Publishing. The Company was designed to mirror Petersen in terms of equity and management, in part because the Interest Holders contemplated a future aggregation of their interests in the Company with their interests in Petersen. The Companys authorized capital included two classes of common stock; these securities were held by the Interest Holders in almost the same relative proportions as their investments in Petersen. ²

The Company made a public offering (the "Offering") of its shares on October 1, 1997. Immediately prior to the Offering, the Interest Holders exchanged all of their existing shares of common stock of the Company and all of their Preferred Units and Common Units of Petersen to the Company for newly-issued shares of common stock of the Company pursuant to a Recapitalization and Contribution Agreement (the "Reorganization"). As a consequence of the Reorganization, Petersen became a wholly-owned subsidiary of the Company. The exchange of securities was effected for no consideration other than the securities exchanged. All of the securities of Petersen and the Company were exchanged by the Interest Holders on a strictly proportionate basis. Thus the Recapitalization did not effect a change of economic substance in the Interest Holders investment because they maintained the same investment in the same business enterprise.

Prior to the Recapitalization, Mr. Karus holdings in the Company consisted of .59% of the common stock. His holdings in Petersen consisted of .59% of the Preferred Units and 2.28% of the Common Units. Applying the conversion factor for preferred interests used in the Recapitalization, he held 1.62% of the total equity in Petersen. After the Recapitalization (and prior to the public offering), he held 1.61% of the outstanding stock in the Company. The slight difference in his ownership percentages before and after the Recapitalization are due to the additional management units he held in Petersen, not to any change in the economic risk of his investment.

The Reorganization did not result in any change in the operations, business or management of the Company. The equity holders are the same, except for the public ownership due to the Offering. Petersen is now operated as a wholly-owned subsidiary of the Company and in turn continues to be a holding company for Publishing, the operating entity. The Company continues to be the managing member of Petersen. Throughout the Reorganization, the economic interests of the Interest Holders remained the same. While the governance documents of the two entities differ, mostly because of the technical organizational differences between a corporation and a limited liability company, these differences have not affected the overall business or management of the Company or its operating subsidiary. In sum, the reorganization has not affected the economic risk of investment Mr. Karu took upon his initial purchase of interests.

DISCUSSION

The purpose of the Rule 144 holding period is to ensure that investors have assumed the economic risks of their investments. Restricted securities may be sold only after at least one year from the date of acquisition of the securities from the issuer. However, the holder of the securities may "tack" holding periods of certain securities together. Under Rule 144(d) the holding period of securities acquired from the issuer pursuant to certain types of reorganizations or in a transaction effected solely for the purpose of forming a holding company may be tacked to the holding period of the securities exchanged in such a transaction. We believe that Mr. Karus interests should be permitted to be tacked under a holding company theory, a reorganization theory, or a recapitalization theory. Permitting tacking in this instance meets the policy goal of Rule 144 because Mr. Karus economic risks did not change when he received his shares in the Company.

There is no substantive difference between what happened to Mr. Karus interests in Petersen and the Company in September, 1997 and the formation of a holding company, which is permitted under 144(d)(3)(viii). The exchange of ownership units in Petersen for shares in the Company, and the exchange of old shares in the Company for new shares added another level to the ownership interests in the publishing assets, but the interests received by the Mr. Karu and the other Interest Holders carry an identical economic risk to those that they offered for exchange.

The staff has followed a four-prong analysis when it has permitted tacking of interests during the formation of a holding company (See SEC Release No. 33-6806, note 209, October 25, 1988). These four prongs are set forth below and applied to the instant case:

1. The holding companys stock is issued solely in exchange for the operating company stock. The Interest Holders received no consideration for their interests in Petersen other than their new shares in the Company. Each Interest Holder exchanged all of his securities, so that all of the interests in Petersen are now owned by the Company.

2. Holders of the holding companys securities receive securities of the same class and in the same proportions as exchanged. Mr. Karu and the other Interest Holders received the same percentage ownership in the Company as they had in Petersen and the Company together before the reorganization. The exchange of preferred interests for common interests has been approved by the Staff (See, e.g., Ticketmaster Corporation, publicly available May 21, 1984; Turner Broadcasting System, Incorporated, publicly available June 24, 1991; Sports/Leisure, Inc., publicly available September 11, 1992). The exchange of Preferred Units for common shares was effected in part to simplify the Companys capital structure and did not substantively change the rights of the Interest Holders.

3. The holding company is newly formed and has no significant assets except operating company securities immediately after the transaction, and at that time, has substantially the same assets and liabilities, on a consolidated basis, as those of the operating company immediately prior to the transaction. While the Company was not newly formed at the time of the Reorganization, its only previous holdings were small investments in Petersen and Publishing. It has exactly the same assets and liabilities on a consolidated basis as the Company and Petersen jointly had before the Recapitalization. During the reorganization, there was no change in the totality of the assets or operations controlled by the Interest Holders.

4. The rights and interests of interest holders in the holding company are substantially the same as they had as holders of the operating companys interests. The rights and interests of the Interest Holders remained the same as they were when they owned securities in the Company and Petersen. Each Interest Holder holds the same interests in the same enterprise. Therefore tacking should be permitted under a holding company theory.

The SEC should also permit tacking under a recapitalization theory. Under Rule 144(d)(3)(1), securities acquired from the issuer pursuant to a recapitalization are deemed to have been acquired at the same time as the securities surrendered in the recapitalization. In several cases the Staff has permitted recapitalizations which effect transfers between classes of securities or between different companies (See Sports/Leisure; Turner Broadcasting Systems; Trenwick Group Incorporated, publicly available May 14, 1987). While the term "recapitalization" is not defined in Rule 144, the Staff has offered some guidance as to whether certain exchanges are considered recapitalizations (See Sports Leisure; Turner Broadcasting Systems). We believe that the Companys recapitalization meets all three of the significant factors:

1. Interest holders participating in the exchange pay no consideration for the securities received other than the exchange of the securities surrendered, and the rights attendant thereto. The Interest Holders paid no consideration other than their former interests in Petersen and the Company.

2. The exchange offer is extended to all interest holders or all holders of a class of the issuers securities. The recapitalization offer was extended pro rata to all of the Interest Holders, and was accepted by all of the Interest Holders.

3. The interest holders "economic risks" of investment continue after the completion of the exchange. As stated above, there was no significant shift in the economic risk of the investment, since the exchange concerned the same assets. While the exchange in securities was made from one entity to another, the economic effect is the same as if there was a recapitalization within one entity.

The Staff has also permitted tacking in more complex structural reorganizations, including changes from Canadian, Bermudan and British entities into Delaware corporations (See Agristar Incorporated; publicly available February 6, 1990; Trenwick; and Alliance Imaging, Incorporated, publicly available October 21, 1987). In each of those cases, owners of securities in one entity exchanged them for ownership in a Delaware corporation, sometimes through a two-tiered transaction. The Staff has permitted such reorganizations provided that "the substance of the corporation (viz., the nature of its business and management)...remains the same as before" (SEC Release No. 33-6099, August 2, 1979, Question and Answer 35). In more complex reorganizations, the Staff has considered three issues (See, e.g., Agristar, Alliance Imaging):

1. The management, the business and the assets remain the same. The board of directors and management of Petersen has remained the same except that an additional independent director may be elected following the public offering. While the corporation has a different set of governance documents from the LLC, the two effect the same purpose: to manage the publishing operations of Publishing. The assets of the Company are identical on a consolidated basis.

2. There is substantial continuity of the business and economic risk to the interest holders in question. The business of Publishing has been continued and operates in the same manner it operated before the reorganization. There has been no change in day-to-day or long term operations.

3. No new consideration is given and therefore no additional investment decision was made. No Interest Holder received or gave any additional consideration beyond the securities exchanged. At the time they purchased their interests in Petersen, Mr. Karu and the other Interest Holders realized that the business might change its business form in order to make a future public offering, and therefore upon the Reorganization they made no new investment decision.

The change in legal but not beneficial ownership from Petersen to the Company meets the goals of each of the three above tests, and we believe that as a result the holding period of Petersen should be permitted to be tacked to that of the Company.

While the Staff denied tacking to the interest holders who transferred securities in a limited liability company to a corporation in Costilla Energy, Inc. (publicly available April 18, 1997), the facts of our case are sufficiently different to lead the Staff to a different result. In that case, the LLC was the operating entity, not a holding company. In the present situation, the owners have been removed from operations by two, and now three levels of entities. Neither Petersen nor the Company have any ongoing business beyond managing Publishing, which they have done since September 1996. A change in form of the holding company has no effect on the management, business or operations of the operating company, which is where the investment truly lies. Moreover, in Costilla, at the time of the reorganization into a corporation, other "affiliates and subsidiaries" were also merged into the new corporation, changing the economic bundle each shareholder owned. In the instant case, the Reorganization entailed only related interests in the assets of Publishing. Finally, and perhaps most importantly, the interest holders in Costilla received cash distributions in addition to their holdings in the corporation as part of the reorganization, which clearly changed their investment.

In two recent no-action letters, the Staff has taken the position that a change in the structure of an entity will not bar tacking if the interest holders have born the same economic risk for the entire period, they are making no new investment decision, and the change is made merely to better effectuate a public offering (See Peapod, Inc., publicly available November 10, 1997; MarkWest Hydrocarbon, Inc., publicly available March 25, 1997). We believe that these cases are more similar to the facts in the instant case than is Costilla. In Peapod and MarkWest Hydrocarbon, the Staff permitted tacking of partnership interests to corporate interests, which is a more radical change than from LLC to corporate interests due to differences in liability of the security holders. While there have been some changes in the corporate governance of the Company, these are merely organizational changes, and have no material bearing on the Companys business or on Mr. Karus investment risk.

CONCLUSION

For the reasons stated above, we believe that Mr. Karu should be permitted to tack the period of time he held interests in Petersen to the period of time he has held his shares of common stock in the Company for purposes of satisfying the one year holding period requirement of Rule 144(d).

Seven copies of this letter are enclosed pursuant to Rel. 33-6269. If you need any further information with respect to the question presented, please contact me or Eric F. Saunders, Esq. at (207) 774-1200.

Please acknowledge receipt of this letter by stamping the additional enclosed copy of the first page of this letter and returning it to me in the enclosed self-addressed stamped envelope.

Very truly yours,

Wendy J. Harlan

[LETTER OF INQUIRY 2]

May 1, 1998

VIA FEDEX

Securities and Exchange Commission

Office of Chief Counsel

Division of Corporation Finance

450 Fifth Street, N.W.

Washington, D.C. 20549

Attn: Ann Krauskopf, Special Counsel

Re: The Petersen Companies, Inc.--Rule 144(d) tacking of holding period of securities.

Dear Ms. Krauskopf:

Pursuant to our telephone conversation of April 13, 1998, we are submitting the following additional information with respect to our request, on behalf of our client, Stuart Karu, a shareholder in The Petersen Companies, Inc. (the "Company"), for interpretation of Rule 144(d) set forth in our letter dated January 15, 1998.

1. The Interest Holders expressly permitted the Manager of the LLC to change the entitys form as necessary to facilitate the initial public offering. At the time that Petersen Holdings, L.L.C. ("Petersen") was formed, on September 30, 1996, all of the interest holders in Petersen (the "Interest Holders"), including Mr. Karu, signed an agreement (the "Securityholders Agreement"), in which they granted to the Company, in its capacity as Petersens manager, the right to control all aspects of any initial public offering, including an offering of the Companys stock. In connection with an IPO, the manager was explicitly granted the right to formulate a plan to restructure or reorganize the relevant entities, including Petersen. Each Interest Holder agreed to take whatever action was required under such a plan to effect the transactions contemplated therein, so long as the plan did not affect his holdings in a manner which was materially adverse and disproportionate to the manner in which the plan affected other holders of securities of the same class. The Securityholders Agreement clearly anticipated the transfer of securities in Petersen for stock in the Company, and made clear that the decision to transfer securities from Petersen was to be made solely by the Manager. The Interest Holders did not retain any voting power with respect to such a transfer, and the period from the date of the Securityholders Agreement to the exchange of securities in Petersen for common shares in the Company should be permitted to be tacked under Rule 144 and the reasoning set forth in Peapod, Inc., publicly available March 25, 1997.

2. All Interest Holders maintained a continuity of their economic interest in the enterprise. Every person or entity which held an interest in Petersen or the Company before the exchange of securities held an interest in the Company after such exchange. None of the Interest Holders were "cashed out" or otherwise exited the Petersen business enterprise as a result of the reorganization prior to the public offering. All of the securities of Petersen and the Company were exchanged on a strictly proportionate basis, and there was a congruity of economic interests maintained throughout the exchange.

3. Mr. Karus economic interest did not change before and after the Reorganization. The operations of the publishing business have at all times relevant to this matter been conducted by Petersen Publishing Company, L.L.C. ("Publishing") which prior to the Reorganization was owned 99.9% by Petersen and 0.1% by the Company. Mr. Karu beneficially owned a 1.61% interest in Publishing through his common shares in the Company and his common and preferred units in Petersen.

As part of the Reorganization, all of Karus interests in Petersen and the Company, and all of the interests of the other Interest Holders, were exchanged for newly issued common shares in the Company, which became the 100% beneficial owner of Publishing.

Immediately following the Reorganization and prior to the IPO, Karu still beneficially owned a 1.61% interest in Publishing through his common shares in the Company. Holders within each class of interests were treated equally, and no Interest Holders economic interests in the enterprise changed as a result of the Reorganization.

Mr. Karus holdings in the Company are derived directly from his earlier holdings in the Company and Petersen. The exchange of interests did not change Karus economic interest in the publishing business in which the Company is engaged and was not the result of a new investment decision. Neither the fact that preferred securities were traded for common securities, or the fact that securities in one entity were exchanged for securities in a holding company should bar tacking the holding periods of the securities, as we demonstrated in our earlier letter.

In summary, it is clear that Mr. Karus investment risk was not altered as a result of his exchange of Petersen interests for Company stock, and the change in form of securities did not require him to make a new investment decision. As a result, we therefore respectfully request that the Staff conclude that Mr. Karu may tack the period of time he held interests in Petersen to the period of time he has held his shares of common stock in the Company for purposes of satisfying the one year holding period requirement of Rule 144(d).

Attached as Exhibit A is a copy of Section 4.2 of the Securityholders Agreement dated as of September 30, 1996 which authorizes the Manager of Petersen to effect a reorganization of Petersen. Attached as Exhibit B is an excerpt from the Companys Prospectus dated October 1, 1997, which details the reorganization of the Company and Petersen prior to the IPO.

Seven copies of this letter are enclosed pursuant to Rel. 33-6269. Please acknowledge receipt of this letter by stamping the additional enclosed copy of the first page of this letter and returning it to me in the enclosed self-addressed stamped envelope.

Your assistance in acting as promptly as possible on this request would be greatly appreciated. If you have any further questions regarding this matter, please contact me or Eric F. Saunders, Esq. at (207) 774-1200. We also would appreciate the opportunity to speak with you further by telephone if the Staff does not concur with our conclusion that Mr. Karu should be permitted to tack holding periods.

Very truly yours,

Wendy J. Harlan

[STAFF REPLY LETTER]

July 16, 1998

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: The Petersen Companies, Inc. ("Company")

Incoming letters dated January 15, and May 1, 1998

Based on the facts presented, the Divisions view is that the Rule 144(d) holding period for Company common stock exchanged for limited liability company interests in Petersen Holdings, L.L.C. ("Petersen") began on October 1, 1997, the date of this exchange. To permit the holding period to tack to an earlier date, the Securityholders Agreement (as defined in your May 1, 1998 letter) would need to expressly contemplate conversion by Petersen from a limited liability company to corporate form in advance of a public offering of securities, with holders of units in Petersen retaining no veto power or other voting power with respect to the conversion. See Peapod, Inc. (Nov. 10, 1997). The staff notes that the Securityholders Agreement does not satisfy this standard.

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

Sincerely,

Anne M. Krauskopf

Special Counsel

SEC_CODE_REF_0090001192884