Company Name: Reeves Teletape Corp.
Public Availability Date: Aug. 6, 1979

INQUIRY LETTER

DEWEY, BALLANTINE, BUSHBY, PALMER & WOOD

140 Broadway

New York 10005

(212) 344-8000

May 18, 1979

May 18, 1979

1933 Act/4(1)

1933 Act Rule 144(d)(3)(A)

Securities and Exchange Commission,

Washington, D.C. 20549.

Attention: Peter J. Romeo, Esq.

Chief Interpretive Counsel for Forms, Rules, Regulations and Legislative Matters

Division of Corporate Finance

Re: Euclid Partners

Dear Sirs:

Our client, Euclid Partners, requests the views of the Staff of the Commission regarding the application of paragraph (d)(3)(A) of Rule 144 under the Securities Act of 1933. That paragraph provides that in computing the minimum two-year holding period for restricted equity securities "there shall be excluded any period during which the person for whose account they are sold had a short position is, or any Original Text Illegible or other option to dispose of, any equity securities of the same class or any securities convertible into securities of such classes. . ."

On July 6, 1977 Reeves Teletape Corporation acquired assets of Playback Associates, Inc. partially in exchange for the issuance to Playback of 75,000 shares of Reeves common stock. These shares were issued without registration under the 1933 Act in reliance upon the exemption provided in Section 4(2) for "transactions by an issuer not involving any public offering" and, accordingly, the shares were "restricted securities" within the meaning of paragraph (a)(3) of Rule 144. On December 30, 1977 Playback distributed the Reeves shares to the ten Playback stockholders in partial liquidation of Playback. Euclid, as a Playback stockholder, received 16,065 of the Reeves shares.

The 75,000 Reeves shares issued to Playback were not accompanied by the grant of any rights to registrations under 1933 Act covering possible future resales to the public. However, the Reeves shares were subject to an agreement (the "Agreement") that for a period commencing four months after the date of sale and terminating three years after the date of sale, Reeves would upon notice from Playback repurchase the 75,000 shares at a price equal to the average closing bid price for Reeves common stock for the preceding ten trading days. Reeves, however, was not required to expend more than $200,000 in any six-month period for such repurchases and Reeves could defer the payment of the amount in excess of $200,000 for six months or one year, depending on the excess amount. Any deferred payments would not bear interest.

The Agreement was interpreted by Reeves as requiring Reeves to purchase shares only if all 75,000 shares were tendered to it. Thus, after those shares were distributed to the Playback stockholders, Reeves took the position that no Playback stockholder could require Reeves to purchase shares unless all other Playback stockholders also tendered all of their Reeves shares. The Playback stockholders disputed Reeves interpretation, contending that each stockholder could, acting without the others, require Reeves to purchase all or any of his shares. The dispute was resolved on May 10, 1979 when Reeves purchased all of the shares, except those held by Euclid, at a price less than the 10-day average bid price specified in the Agreement, and concurrently the Agreement was amended to provide that thereafter Euclid could, until the expiration of the Agreement in July 1980, require Reeves to purchase all, but not less than all, its Reeves shares, but the price to be paid by Reeves would be the lesser of (1) the average closing bid price for the preceding ten trading days or Original Text Illegible $6.25 per share. This price provision thus put an upper limit ($6.25 per share) on the repurchase price, but left Euclid subject to the full risk of market declines.

At the end of 1979 Euclid will have held its Reeves shares for two years. Euclid wishes to be able to sell its Reeves shares thereafter in the open market pursuant to Rule 144.

Reeves is a Delaware corporation that is registered under Section 12(g) of the Securities Exchange Act of 1934. Its common stock is traded in the over-the-counter market. When the 75,000 shares were issued to Playback in July 1977, there were approximately 2,100,000 shares of Reeves common stock outstanding, so that the 75,000 shares constituted about 3.4% of the outstanding Reeves shares. Reeves currently has about 2,200,000 shares outstanding. Trading volume during 1979 has ranged from 2,400 to 29,600 shares per week, with the average weekly volume being about 11,000 shares.

Question Presented

Euclid wishes to know, whether, in the view of the Staff, the existence of Euclids right to sell its Reeves shares under the Agreement constitutes a "put or other option to dispose of" those shares that tolls the running of the two-year holding period required to permit its Reeves shares to be sold pursuant to Rule 144.

Discussion

Rule 144 requires a holding period of at least two years for restricted securities in order "to assure that those persons who buy under a claim of a Section 4(2) exemption have assumed the economic risks of investment, and therefore are not acting as conduits for sale to the public of unregistered securities. . . on behalf of an issuer." (Preliminary Note to Rule 144.)

The obvious purpose of the tolling provision of paragraph (d)(3)(A) of the Rule is to preclude holders of restricted securities from avoiding the economic risks of ownership during the holding period through use of a put or option that assures them of a minimum resale price and thus protects them against market price declines. In the present situation, however, the Agreement has neither the purpose nor effect of protecting Euclid against declines in the market price of Reeves shares. Euclid has, under the Agreement, only the right to sell all, but not less than all, its Reeves shares at the then prevailing market price, as measured by the 10-day average bid price in the over-the-counter market (subject, since May 10, 1979, to a ceiling of $6.25 per share). This right was also limited prior to May 10, 1979 by Reeves requirement that all Playback stockholders tender all of their shares to Reeves and by the possibility of deferred payment by Reeves for the tendered shares if the aggregate price exceeded $200,000. Accordingly, since Euclid acquired its Reeves shares in December 1977, Euclid has borne the economic risks of ownership of those shares. The Agreement does allow Euclid a method of selling its shares during the holding period, but since there is no assured minimum price, the economic effect of the Agreement is much the same as if Euclid held a right to register its shares for resale under the 1933 Act. The possession of such a registration right, of course, would not toll Euclids holding period for purposes of Rule 144.

If you have any questions or require any further information, please telephone me collect.

Very truly yours,

Bernard Kury

STAFF REPLY LETTER

Bernard Kury, Esq.

Dewey, Ballantine, Bushby, Palmer & Wood

140 Broadway

New York, NY 10005

Re: Euclid Partners

Dear Mr. Kury:

This is in response to your letter of May 18, 1979, requesting our views as to the applicability of Rule 144(d)(3)(A) under the Securities Act of 1933 (the "Act"), as it relates to an agreement between Reeves Teletape Corporation ("Reeves") and Playback Associates, Inc. ("Playback").

We understand the facts to be as follows. On July 6, 1977 Reeves acquired assets of Playback partially in exchange for 75,000 shares of Reeves common stock. The shares were issued without registration in reliance upon the exemption provided in Section 4(2) of the Act. On December 30, 1977 Playback distributed the Reeves shares to its stockholders in partial liquidation of Playback. Euclid Partners ("Euclid"), as a Playback stockholder, received approximately 16,000 of the Reeves shares.

The issuance of Reeves shares to Playback was subject to an agreement (the "Agreement") whereby for a period commencing four months from the date of sale and terminating three years after the date of sale, Reeves would repurchase the 75,000 shares at a price equal to the average closing bid price for Reeves common stock for the preceding ten trading days.

The Agreement was interpreted by Reeves as requiring Reeves to purchase shares only if all 75,000 shares were tendered to it. The Playback stockholders disputed Reeves interpretation, contending that each shareholder could acting without the others, require Reeves to purchase all or any of his shares. The dispute was resolved when Reeves purchased all of the shares, except those held by Euclid. The Agreement was amended to provide that until the expiration of the Agreement in July 1980 Euclid could require Reeves to purchase all, but not less than all of its Reeves shares at a price determined by the lesser of, the average closing bid price for the preceding ten trading days or $6.25 per share.

At the end of 1979 Euclid will have held its Reeves shares for two years. Euclid wishes to be able to sell the Reeves shares thereafter in the open market pursuant to Rule 144.

It is your opinion that the Agreement does not represent a "put or other option to dispose of" shares pursuant to Rule 144(d)(3)(A), and therefore, the holding period under Rule 144 will not be tolled while it is in existence.

After consideration of the facts presented, it is our view that the Agreement constitutes a put or other option to sell shares within the meaning of Rule 144(d)(3)(i). Accordingly, the period during which the Agreement may be exercised should be excluded by Euclid from the computation of its holding period under Rule 144. Of course, should Euclid voluntarily renounce its rights under the Agreement and thereby extinguish its option to sell thereunder, the holding period under Rule 144 could commence at the time the option no longer existed.

Sincerely,

John Heneghan

Chief Counsel