Company Name: St. Ives Holding Co.
Public Availability Date: July 22, 1987

INQUIRY LETTER

ADAMS, DUQUE & HAZELTINE

523 WEST SIXTH STREET

LOS ANGELES, CALIFORNIA 90014

(213) 620-1240

April 13, 1987

William E. Morley, Esq.

Chief Counsel

Division of Corporation Finance

Securities & Exchange Commission

450 5th Street N.W.

Judiciary Plaza

Washington, D.C. 20549

Dear Mr. Morley:

This letter is submitted pursuant to the policies and procedures set forth in Commission Releases 33-6253 and 33-6269.

1. Introduction

We represent two closely-held California corporations, St. Ives Laboratories, Inc. ("St. Ives") and Cosmetic Laboratories, Inc. ("Cosmetic"), which together have a total of seven individual shareholders. St. Ives and Cosmetic intend to effect a merger reorganization whereby each of St. Ives and Cosmetic will become wholly-owned subsidiaries of St. Ives Holding Company ("St. Ives Holding") with St. Ives Holding owning no assets other than all of the shares of St. Ives and Cosmetic. In the reorganization, all of the shareholders of St. Ives and Cosmetic will have all their St. Ives and Cosmetic shares converted into St. Ives Holding common stock and thus become holders of all of St. Ives Holding common stock.

2. Reorganization to be Effected in Reliance on Section 3(a)(10) Exemption

The conversion of St. Ives and Cosmetic shares into St. Ives Holding shares will be exempt from the registration provisions of the Securities Act of 1933 (the "Act") in reliance on Section 3(a)(10) of the Act. Specifically, an application will be filed with the Department of Corporations of the State of California, and that Department will hold a hearing to determine the fairness of the ratio of conversion in the merger reorganization pursuant to the provisions of Section 25142 of the California General Corporation Law.

3. Subsequent Public Offering

Assuming a favorable fairness determination relating to the merger reorganization is reached by the Department of Corporations, following the hearing and the consummation of the merger reorganization, St. Ives Holding corporation intends to make a registered public offering consisting of (1) a yet undetermined number of authorized but unissued primary St. Ives Holding shares and 2) a secondary offering of a yet undetermined number of the St. Ives Holding shares received by former St. Ives and Cosmetic shareholders in the merger reorganization. The former St. Ives and Cosmetic shareholders who will become shareholders of St. Ives Holding have requested advice concerning the sale of their restricted unregistered St. Ives Holding stock not included in the public offering.

4. Manner of Acquisition St. Ives Shares, Cosmetic Shares and St. Ives Holding Shares

The persons who are proposed to become the shareholders of St. Ives Holding will have acquired and held their St. Ives, Cosmetic and St. Ives Holding shares as follows.

The two founders of St. Ives and Cosmetic corporations will have owned their restricted St. Ives and Cosmetic shares, along with three minority shareholders of Cosmetic, for in excess of five years before the merger reorganization pursuant to which they will become St. Ives Holding shareholders. They will hold their restricted St. Ives Holding stock for a short period of time before the public offering of St. Ives Holding stock, and they will hold unregistered St. Ives Holding stock after the offering.

Two key employees have recently purchased restricted St. Ives shares, in an exempt transaction, in exchange for notes in amounts equal to the appraised fair market value of such shares which shares will be converted into restricted St. Ives Holding stock in the merger reorganization. The notes are payable out of the proceeds of their participation in the secondary offering. They will hold their restricted St. Ives Holding stock for a short period of time before the public offering of St. Ives Holding stock, and they will hold unregistered St. Ives Holding shares after the offering.

All of the shareholders of St. Ives Holding will sell some but not all of their St. Ives Holding shares in the secondary portion of the registered public offering of St. Ives Holding stock; thus all shareholders, as previously stated, will retain amounts of restricted unregistered St. Ives Holding stock after the offering. It is the resale restrictions on this remaining St. Ives Holding stock to which this letter relates.

5. Analysis of Resale Restrictions

Based upon conversations with the Staff of the Commission, our review of Sections 2(11), 4(1) and 3(a)(10) of the Act, Rule 145 (c), (d)(i) (in addition to certain Releases and a no action letter cited infra.) and considering that the merger reorganization in which St. Ives and Cosmetic corporations will become subsidiaries of St. Ives Holding corporation is effectuated in reliance on Section 3(a) (10) of the Act, it is our view that the shareholders of St. Ives Holding may sell their restricted St. Ives Holding corporation unregistered stock after the public offering pursuant to Rule 145 (d)(1), which incorporates paragraph (c), (e), (f) and (g) of Rule 144, but excludes paragraph (d) relating to holding periods. Thus all St. Ives Holding shareholders would be able to utilize the provisions of Rule 144 90 days after the public information requirements of such Rule were met if, of course, the volume and nature of sale limitations of the Rule were observed. In addition to our analysis of Sections 2(11), 3(a)(10) and 4(1) of the Act, we have reviewed Commission Releases 33-6508 (at footnote 1) and 33-6099 (Interpretative Question No. 87), which state that resales by shareholders who are affiliates before and after a Rule 145 transaction effected in reliance on Section 3(a)(10) may sell their restricted unregistered shares pursuant to Rule 145 (d)(1). Interpretative Question No. 87 seems squarely to resolve the issue since the St. Ives Holding shares will be issued relying on the Section 3(a)(10). Release 33-6508, in footnote 1, states the applicability of Rule 145(d)(1) to persons who are affiliates before and after a Rule 145 transaction. As additional analytical support for the position stated, we draw your attention to the letter from the Division of Corporation Finance dated November 17, 1977 (Ward Foods, Inc., avail. 12/19/79) treating what appears to be a similar factual situation and reaching the same conclusion.

We respectfully request the Staff of the Commission to advise that, on the basis of the facts stated herein, it will not recommend to the Commission that enforcement action be taken if shares of the restricted unregistered common stock of St. Ives Holding corporation received upon conversion in the merger reorganization effectuated pursuant to Section 3(a)(10) are sold in reliance upon Rule 145(d)(1) and Rule 144(c)(e),(f) and (g), after the public offering of St. Ives Holding shares.

It is expected that the proposed exchange reorganization will be completed in mid May, 1987. Accordingly, we would greatly appreciate a timely reply to this letter. If the staff desires additional information please contact the undersigned or Chris A. Christopher, Jr. of this office by telephone. If an unfavorable reply on any of the matters discussed herein is being considered, we would request the opportunity for a prior conference with the Staff.

Very truly yours,

FREDERICK W. LAMBERT

STAFF REPLY LETTER

July 22, 1987

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

St. Ives Holding Company, Inc. (the "Company") Incoming letter dated April 13, 1987

You have requested that the Division take a no-action position with respect to the resale of the Companys shares in conformity with your opinion. While the Division does not normally issue no-action letters with respect to transactions under Rules 144 and 145 under the Securities Act of 1933 (the "1933 Act"), your letter presents interpretative issues to which we will respond.

The Division is of the view that the Company stock received by affiliates of St. Ives Laboratories, Inc. ("St. Ives") and Cosmetic Laboratories, Inc. ("Cosmetic") in exchange for their shares of St. Ives and Cosmetic stock may be resold in the manner permitted by Rule 145. The Company stock received in the exchange will not be deemed "restricted" pursuant to Rule 144(a)(3). Accordingly, such affiliates, who are persons described in Rule 145(c), may resell the shares received in the exchange in the manner permitted by Rule 145(d)(1) without regard to the holding period required by Rule 144(d). In computing the holding period of Company stock for purposes of Rule 145(d)(2) or (3), however, such persons may not "tack" the holding period of their St. Ives or Cosmetic stock.

Because these positions are based on the representations contained in your letter, particularly your representations that the merger of St. Ives and Cosmetic into the Company is exempt from 1933 Act registration under Section 3(a)(10), it should be noted that different facts and conditions might necessitate a different conclusion.

Sincerely,

Kenneth L. Wagner

Special Counsel