[Federal Register Volume 60, Number 131 (Monday, July 10, 1995)]
[Proposed Rules]
[Pages 35638-35642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16387]



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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 230

[Release No. 33-7185; File No. S7-15-95]
RIN 3235-AG51


Exemption for Certain California Limited Issues

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: In order to reduce regulatory burdens associated with certain 
offers and sales of securities, the Commission today is proposing a new 
exemption from its registration requirements for limited offerings of 
up to $5 million that are exempt from qualification under recently 
enacted California state securities law. In addition, public comment is 
solicited on whether the prohibition against general solicitation in 
certain Regulation D offerings should be reconsidered.


[[Page 35639]]

DATES: Comments should be submitted to the Commission on or before 
September 8, 1995.

ADDRESSES: All comments concerning the proposed rules should be 
submitted in triplicate to Jonathan G. Katz, Secretary, U.S. Securities 
and Exchange Commission, Mail Stop 6-9, 450 Fifth Street, N.W., 
Washington D.C. 20549 and should refer to File Number S7-15-95. Comment 
letters will be available for inspection and copying in the 
Commission's public reference room at the same address.

FOR FURTHER INFORMATION CONTACT: Richard K. Wulff, Office of Small 
Business Policy, Division of Corporation Finance, at (202) 942-2950 or 
James R. Budge, Office of Disclosure Policy, Division of Corporation 
Finance, at (202) 942-2910.

SUPPLEMENTARY INFORMATION: The Commission today is proposing a new Rule 
1001 1 under Section 3(b) 2 of the Securities Act of 1933 
(the ``Securities Act'').3 The new rule would exempt from the 
registration requirements of the Securities Act offers and sales up to 
$5 million that are exempt from state qualification under paragraph (n) 
of Section 25102 of the California Corporations Code.4 Rule 144 
5 also would be amended to include securities issued in reliance 
upon Rule 1001 in the definition of ``restricted securities.''

    \1\ The proposed rule would be added as Regulation CA, 17 CFR 
230.1001.
    \2\ 15 U.S.C. 77c(b).
    \3\ 15 U.S.C. 77a et seq.
    \4\ Cal. Corporations Code Sec. 25102(n).
    \5\ 17 CFR 230.144.
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I. Introduction

    Since the inception of the Securities Act, Congress has delegated 
to the Commission the authority to exempt small issues from Securities 
Act registration provisions when such action is consistent with the 
public interest and the protection of investors. Soon after its 
creation, the Commission exercised this authority to provide an 
exemption for small offerings,6 and since then, has adopted other 
rules from time to time, including exemptive rules under Section 3(b), 
to assist small businesses' capital raising ability, where consistent 
with investor protection.7

    \6\ See Release Nos. 33-158, 159 (April 27, 1934).
    \7\ See, e.g., Regulation A [17 CFR 230.251-230.263] and Rule 
504 [17 CFR 230.504] in Regulation D [17 CFR 230.501-230.508].
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    Today's proposal would provide a federal exemption for offerings of 
up to $5 million 8 that meet the qualifications of a new 
California exemption designed to assist small business capital 
formation.9 The new California law provides an exemption from 
state law registration for offerings made to specified classes of 
qualified purchasers that are similar, but not the same as, accredited 
investors under Regulation D. Unlike Regulation D, various methods of 
general solicitations are permitted under the California law. The 
Commission believes that the California exemption facilitates small 
business capital raising with adequate protections to investors and 
therefore proposes to exercise its exemptive authority in Section 3(b) 
to provide a parallel federal exemption.

    \8\ This is the maximum dollar amount permitted under the 
Commission's Section 3(b) exemptive authority.
    \9\ The Commission has established the Advisory Committee on the 
Capital Formation and Regulatory Processes (``the Advisory 
Committee''), chaired by Commissioner Steven M.H. Wallman. The 
Advisory Committee is considering fundamental issues relating to the 
regulatory framework governing the capital formation process, 
including whether the current system of registering securities 
offerings should be replaced with a company registration system. The 
Advisory Committee may make recommendations that, if endorsed by the 
Commission, may result in rule proposals or legislative 
recommendations that could address the matters discussed in this 
release.
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II. The California Exemption

    On September 26, 1994, a new exemption from the issuer transactions 
qualification provisions of the California Corporations Code became 
effective.10 The provision was specifically designed ``to 
facilitate the ability of small companies to raise capital to finance 
their growth.'' 11

    \10\ Chapter 828, Statutes of 1994 (Senate Bill 1951--Killea), 
adding subdivision (n) to Corporations Code Section 25102.
    \11\ Section 3, Senate Bill 1951.
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    The exemption generally is limited to issuers that are California 
corporations or any other form of business entity organized in that 
state, including partnerships and trusts. In addition, non-California 
organized businesses may use the exemption if they can attribute more 
than 50 percent of property, payroll and sales to California and if 
more than 50 percent of outstanding voting securities of the issuer are 
held of record by persons having addresses in California. It is not 
available for offerings relating to a rollup transaction, nor may it be 
used by ``blind pool'' issuers or investment companies subject to the 
Investment Company Act of 1940 (the ``Investment Company Act'').12

    \12\ 15 U.S.C. 80a-1 et seq.
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    Sales under the exemption must be effected only to qualified 
purchasers who buy for investment purposes and not for redistribution. 
A qualified purchaser is defined as:
     Designated professional or institutional purchasers or 
persons affiliated with the issuer;13

    \13\ Officers and directors of corporate issuers (or persons 
performing similar duties), general partners and trustees where the 
issuer is a partnership or a trust, small business investment 
companies, business development companies subject to the Investment 
Company Act, private venture capital companies exempted from the 
Investment Advisers Act of 1940 [15 U.S.C. 80b-1 et seq.], certain 
natural persons, entities comprised of accredited investors, banks, 
savings and loan associations, insurance companies, Investment 
Company Act companies, non-issuer pension or profit-sharing trusts, 
organizations described in Section 501(c)(3) of the Internal Revenue 
Code [26 U.S.C. 501(c)(3)], business entities (corporations, 
business trusts or partnerships) with assets of more than $5 
million. All these persons would qualify as ``accredited investors'' 
under Rule 501(a) [17 CFR 230.501(a)].
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     Certain relatives residing with qualified purchasers;
     Promoters;
     Any person purchasing more than $150,000 of securities in 
the offering; 14

    \14\ Under the California provision, $150,000 purchasers and 
natural persons meeting a $1 million net worth or $250,000 annual 
income test must also satisfy one of the following additional 
suitability standards: (1) they must have, alone or with the 
assistance of a professional advisor, the capacity to protect their 
own interests; (2) they must have the ability to bear the economic 
risk of the investment; or (3) the investment must not exceed 10 
percent of the person's net worth.
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     Entities whose equity owners are limited to officers, 
directors and any affiliate of the issuer;
     Reporting companies under the Securities Exchange Act of 
1934 (the ``Exchange Act''), 15 if the transaction involves the 
acquisition of all of an issuer's capital stock for investment;

    \15\ 15 U.S.C. 78a et seq.
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     A natural person whose net worth exceeds $500,000, or a 
natural person whose net worth exceeds $250,000 if such purchaser's 
annual income exceeds $100,000--in either case the transaction must 
involve
    (a) only a one-class voting stock (or preferred establishing the 
same voting rights),
    (b) an amount limited to no more than 10 percent of the purchaser's 
net worth, and
    (c) a purchaser able to protect his or her own interests (alone or 
with the help of a professional advisor);16

    \16\ This provision states that each such natural person, by 
reason of his or her business or financial experience, or the 
business or financial experience of his or her professional advisor 
(who is unaffiliated with and who is not compensated, directly or 
indirectly, by the issuer), can be reasonably assumed to have the 
capacity to protect his or her interests in connection with the 
transaction. The California Department of Corporations has indicated 
that qualified investors under this rubric must have business or 
financial experience or rely on a professional advisor. Release No. 
94-C (September 27, 1994).
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     Pension and profit sharing trusts, as well as 401(k) plans 
17 and Individual 

[[Page 35640]]
Retirement Accounts of individual qualified purchasers.

    \17\ 26 U.S.C. 401(k).
    Issuers must provide certain purchasers who are natural persons 
18 a disclosure document as specified in Rule 502 of Regulation D 
19 five days prior to any sale or commitment to purchase.

    \18\ This delivery requirement is limited to those natural 
persons designated as qualified purchasers because their net worth 
exceeds $500,000, or whose net worth exceeds $250,000 where there is 
an annual income of $100,000.
    \19\ See 17 CFR 230.502(b)(2).
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    Offers, oral or written, are generally limited to qualified 
purchasers. However, the law does permit general announcements of a 
proposed offering to be widely published and circulated, so long as 
they contain only specified information. 20 This general 
announcement process is modeled on the ``test the waters'' concept 
being used by several of the states 21 and by the Commission in 
connection with Regulation A.

    \20\ The California provision limits the content of the general 
announcement to the following items: the issuer's identity; the full 
title of the securities being offered; the suitability standards of 
prospective investors; a statement that no money is being sought or 
will be accepted, that an indication of interest involves no 
commitment to purchase and that under certain circumstances a 
disclosure document will be provided prior to purchase; and the 
name, address and telephone number of a person who can provide 
further information about the offering. Only the following 
additional information may be included at the issuer's option: a 
brief description of the business, its geographical location and the 
offering price or method of determination.
    \21\ See CCH NASAA Reports para. 7036. Colorado, Kansas, 
Massachusetts, Oklahoma, Oregon, Pennsylvania, Vermont, Virginia and 
Washington are participating in a pilot program in this regard.
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    A notice must be filed with the California Corporations 
Commissioner at the initial offer of securities or with the publication 
of a general announcement of proposed offering, whichever comes first, 
accompanied by a $600 filing fee. A second filing is required within 10 
business days after the close or abandonment of the offering, and in no 
case later than 210 days after the filing of the initial notice.
    Because the new California exemption combines a form of general 
solicitation using a ``test the waters'' concept with a qualified 
purchaser concept in part derived from the Uniform Limited Offering 
Exemption (``ULOE''), 22 it does not fit well within any current 
federal exemption, other than Rule 504, 23 which is limited to $1 
million, or potentially the intrastate offering exemption. 24 
Rules 505 of 506 of Regulation D prohibit general solicitations; 
moreover, California's definition of qualified purchasers is broader 
than Regulation D's. The intrastate offering exemption is available 
only for those offerings by issuers incorporated and doing business in 
California.

    \22\ CCH NASAA Reports para. 6201.
    \23\ 17 CFR 230.504.
    \24\ Securities Act Section 3(a)(11) [15 U.S.C. 77c(a)(11)] and 
Rule 147 [17 CFR 230.147].
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    The Commission does not believe that these differences need to be 
an impediment to the ability of small businesses to take full advantage 
of the California exemption. While the qualified purchaser definition 
differs somewhat from the accredited investor definition for 
individuals, the California law includes additional suitability 
standards. Moreover, the general announcement of proposed offering is 
subject to significant limitation, thereby protecting against abuse of 
the procedure. The provisions of the California law are consistent with 
investor protection and the public interest, and therefore warrant the 
Commission's full exercise of its exemptive authority under Section 
3(b).
III. Proposed Regulation CA and Rule 1001

A. The Exemption

    Proposed Rule 1001 would provide that offers and sales of 
securities, in amounts of up to $5 million, that are exempt from 
registration under the California securities law pursuant to paragraph 
(n) of Sec. 25102 of the California Corporations Code are exempt from 
the registration requirements of Section 5 of the Securities Act, 
pursuant to Section 3(b) of that Act.\25\ The proposal would allow 
reliance on Rule 1001 by all issuers that qualify for the state 
exemption.\26\ Issuers would look to the state of California for 
interpretations relating to who qualifies for the exemption, since any 
person who lawfully relies on the state exemption also could rely on 
its federal counterpart. Comment is requested as to whether proposed 
Rule 1001 should include additional eligibility criteria, for example, 
non-reporting status under the Exchange Act or small business issuer 
status under federal securities laws, as defined in Securities Act Rule 
405.\27\

    \25\ Proposed Rule 1001(a). While the transactions would not be 
subject to registration under Section 5, the antifraud provisions of 
the federal securities laws would continue to be applicable to all 
exempt transactions. See preliminary note 1 to proposed Rule 1001.
    Proposed Rule 1001 would provide an exemption only for the 
transactions in which the securities are offered or sold by the 
issuer, not for the securities themselves.
    \26\ As noted above, California law precludes reliance on the 
exemption in connection with investment company, blind pool or roll-
up offerings; thus, the proposed Rule 1001 exemption also would be 
unavailable in those cases.
    \27\ 17 CFR 230.405.
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    As proposed, the rule would not require issuers to notify the 
Commission when they rely on the California exemption in view of the 
notification provisions of the California law. Comment is solicited as 
to whether a notice of reliance, similar to that used in connection 
with Regulation D offerings, should be required.

B. Computation of $5 Million Amount

    Proposed Rule 1001 exempts offerings up to $5 million, the maximum 
allowed under Section 3(b). The $5 million limit would apply on an 
offering by offering basis.\28\ This approach differs from that applied 
in other Section 3(b) rules, where an annual dollar limit for the 
aggregate of various Section 3(b) offers has been used.\29\ Rule 1001's 
offering by offering approach is proposed to more closely parallel the 
California exemptive provision. Comment is requested as to whether the 
proposed approach is appropriate, or whether the more traditional 
Section 3(b) annual aggregated offering approach should be used. If 
commenters prefer that the amount allowed be reduced by other Section 
3(b) offerings in the previous 12-month period, which offerings should 
reduce the amount? \30\

    \28\ Standard integration analysis concepts would apply. See 
Release No. 33-4552 (November 7, 1962) [27 FR 11316].
    \29\ See, e.g., Rule 251(b) [17 CFR 230.251(b)], Rule 504(b)(2) 
[17 CFR 230.504(b)(2)] and Rule 505(b)(2)(i) [17 CFR 
230.505(b)(2)(i)].
    \30\ Where a transaction involves non-cash consideration, the 
amount of the offering would be calculated as provided under 
California law.
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C. Resale Limitations

    The proposed exemption would provide that purchasers in the exempt 
transaction receive ``restricted securities.'' \31\ Consequently, 
purchasers would have to either register subsequent resales of the 
securities or have an exemption for such sales. Categorizing the 
securities offered and sold pursuant to the proposed exemption as 
``restricted'' is consistent with the California exemption, since it 
requires an investment intent on the part of purchasers in the 
offering, and such shares could not be resold under California law 
without qualification or some other exemption under such law. In 
addition, the treatment is consistent with other federal exemptions, 
the availability of which depends on the 

[[Page 35641]]
sophistication, wealth or institutional character of the investor.\32\

    \31\ Proposed Rule 1001(c) and proposed amendment to Rule 144.
    \32\ See, e.g., Section 4(6) of the Exchange Act [15 U.S.C. 
78d(6)], Securities Act Rule 506 [17 CFR 230.506], and Securities 
Act Rule 701 [17 CFR 230.701].
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IV. Similar Exemptions Adopted by Other States

    While the exemption being proposed today is based on a California 
statute, the Commission is proposing also to provide the same exemption 
for each state that enacts a transaction exemption incorporating the 
same standards used by California.\33\ This would be done either at 
such time as the Commission may determine to adopt Rule 1001, or if a 
state adopts such exemption later, the Commission will adopt a 
coordinated exemption upon notification by the state. The Commission 
requests comment on whether this proposed approach to adopting the Rule 
1001 exemption for any state exemptions with the same requirements as 
the California exemption is appropriate. Where states determine to 
provide comparable exemptions that vary from the specific details of 
the California law, the Commission would expect to propose for comment 
an exemption comparable to that provided in Rule 1001.

    \33\ Several states currently are considering enacting 
exemptions comparable to the California law, but the Commission is 
unaware of any that have been adopted as of the date of this 
release.
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V. General Solicitation Under Regulation D and ULOE

    The California exemption permits broad dissemination of information 
about a proposed offering--called the ``general announcement''--
including specific information about the offering, such as the price of 
the securities to be offered. This ability to reach out to a broad 
audience to find possible interest, while formally offering and selling 
only to qualified purchasers that may be found through that process, 
appears to have the potential to significantly enhance the usefulness 
of an exemption that limits sales to specified classes of purchasers.
    As noted, however, this public dissemination is one of the features 
of the California exemption that makes it difficult to fit within the 
Regulation D exemption, since Regulation D prohibits general 
solicitations, other than under the Rule 504 seed capital rule. 
Similarly, ULOE, an official policy guideline of the North American 
Securities Administrators Association, Inc. (``NASAA'') \34\ that was 
adopted in coordination with the Commission's adoption of Regulation D, 
also prohibits general solicitations in these offerings.\35\ The 
inability to reach out broadly to find possible qualified investors for 
Regulation D exempt offerings hampers the utility of the exemption and 
may raise the costs to companies of trying to do these exempt 
offerings; California's new exemption demonstrates the potential 
benefits of reexamining the costs and benefits of such prohibition.

    \34\ NASAA is an association of securities commissioners from 
each of the 50 states, the District of Columbia, Puerto Rico, Mexico 
and several of the Canadian provinces.
    \35\ State statutes and rules based on NASAA's ULOE exempt 
offers or sales of securities made in compliance with Rules 501-503, 
505 and/or 506 of Regulation D [17 CFR 230.501-230.503, 230.505 and 
230.506 respectively], including the prohibition of general 
solicitations found in Rule 502(c).
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    Against the backdrop of this new approach in California, the 
Commission is considering whether amendments to Regulation D should be 
proposed that would similarly facilitate better use of the exemptions 
and lower the costs for companies by revising or eliminating the 
prohibition against general solicitation for Rule 505 and 506 
offerings.
    Comment is requested on whether the Commission should explore with 
NASAA the possibility of proposing such a change to Regulation D and 
ULOE. If NASAA will not follow this approach, would it still be 
worthwhile for the Commission to implement the change even if there 
were not significant state uniformity?
    If the Commission makes proposals to permit some form of general 
solicitation in Rule 505 and 506 exempt offerings, a number of 
approaches could be considered. For example, a limited approach similar 
to the one adopted in California could be implemented. This allows a 
written communication to be broadly disseminated, but specifically 
limits the information allowed to be included. Would this approach be 
sufficiently helpful in allowing companies to locate potential 
investors for a private offering, or are the limitations overly 
restrictive? Other approaches would permit more extensive 
communications to be disseminated, including more extensive written and 
oral communications,\36\ but could include some limitations, such as on 
the methods of dissemination or the classes of issuers entitled to use 
the provision. For example, would dissemination methods that are 
designed to reach only accredited investors be workable? Should any 
issuers be entitled to disseminate broadly to locate potential 
investors, or should this be limited to specific classes of companies, 
such as only non-reporting issuers, only small business issuers, or 
only reporting issuers? Are there other approaches that the Commission 
should consider?

    \36\ See, e.g., Release No. 33-7188, a companion release 
proposing to permit ``test the waters'' activity in anticipation of 
a registered initial public offering, and Rule 254 of Regulation A 
[17 CFR 230.254].
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    Comment generally is requested on whether the Commission should 
consider altering the general solicitation prohibition. Given that all 
purchasers must continue to meet the requirements of Regulation D, and 
all information required by the regulation must be provided prior to 
purchase, would the ability to broadly disseminate to locate potential 
investors compromise investor protection interests?
    Finally, the Commission requests comment as to whether the question 
of general solicitation in Regulation D or other private offerings 
should be addressed through legislative changes to the Securities Act 
rather than through Commission rulemaking. For example, should the 
Commission seek specific authority under the Securities Act to exempt 
private offerings that include general solicitations, provided that 
sales are made only to qualified purchasers? More generally, should the 
Commission recommend general exemptive legislation that would allow it 
greater flexibility to address these or even broader kinds of issues?

VI. General Request for Comment

    Any interested persons wishing to submit written comments on the 
proposed Section 3(b) exemption as explained in this release, or the 
questions regarding general solicitation, are invited to do so by 
submitting them in triplicate to Jonathan G. Katz, Secretary, U.S. 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Comment is requested from the point of view of the public 
interest, the states, and the companies that would be affected; 
comments should address any possible effects on investor protection 
resulting from the proposed exemption. The Commission further requests 
comment on any competitive burdens that might result from the adoption 
of the proposals. Comments on this inquiry will be considered by the 
Commission in complying with its responsibilities under Section 19(a) 
of the Securities Act \37\ and Section 23 of the Exchange Act.\38\ 
Comment letters should refer to File Number S7-15-95. All comments 
received will be available for public inspection and copying in the 

[[Page 35642]]
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, 
D.C. 20549.

    \37\ 15 U.S.C. 77s(a).
    \38\ 15 U.S.C. 78w(a).
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VII. Cost-Benefit Analysis

    To assist the Commission in its evaluation of the costs and 
benefits that may result from the proposed exemption discussed in this 
release, commenters are requested to provide views and data relating to 
any costs and benefits associated with these proposals. It is expected 
that compliance burdens will decrease with respect to issuers who 
qualify for the proposed exemption, inasmuch as they would be able to 
raise up to $5 million in capital without the burden and expense of 
compliance with the registration and reporting requirements of the 
federal securities laws.

VIII. Summary of Initial Regulatory Flexibility Analysis

    An initial regulatory flexibility analysis has been prepared in 
accordance with 5 U.S.C. 603 concerning the proposed Rule 1001 
exemption and the proposed amendment to Rule 144. The analysis notes 
that the purpose of the proposals is to relieve small businesses of 
federal registration requirements where the transaction is exempt from 
qualification under paragraph (n) of Section 25102 of the California 
Corporations Code.
    As discussed more fully in the analysis, the changes would affect 
persons that are small entities, as defined by the Commission's rules. 
It is anticipated that small businesses that qualify for the proposed 
exemption would experience a reduction in reporting, recordkeeping and 
compliance burdens. The analysis also indicates that there are no 
current rules that duplicate, overlap or conflict with the proposed 
exemption.
    As stated in the analysis, several possible significant 
alternatives to the proposals were considered, including, among others, 
establishing different compliance or reporting requirements for small 
entities or exempting them from all or part of the proposals. The 
Commission believes that there is no need for special small business 
alternatives, since the purpose of the proposed rulemaking is to reduce 
burdens for small business. The fact that larger entities also could 
take advantage of the rule should not detract from that purpose.
    Written comments are encouraged with respect to any aspect of the 
analysis. Such comments will be considered in the preparation of the 
Final Regulatory Flexibility Analysis if the proposals are adopted. A 
copy of the analysis may be obtained by contacting James R. Budge, 
Office of Disclosure Policy, Division of Corporation Finance, at (202) 
942-2910, U.S. Securities and Exchange Commission, 450 Fifth Street, 
N.W., Washington, D.C. 20549.

IX. Statutory Basis for the Proposal

    Regulation CA, Rule 1001 and the amendment to Rule 144 are proposed 
pursuant to Sections 3(b) and 19 of the Securities Act.

List of Subjects in 17 CFR Part 230

    Registration requirements, Securities.
Text of the Proposed Exemption

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The authority citation for Part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 89a-29, 80a-30, and 
89a-37, unless otherwise noted.
* * * * *
    2. By amending Sec. 230.144 by removing the period at the end of 
paragraph (a)(3)(iv) and adding ``; or'' in its place and by adding 
paragraph (a)(3)(v), to read as follows:


Sec. 230.144  Persons deemed not to be engaged in a distribution and 
therefore not underwriters.

* * * * *
    (a) * * *
    (3) * * *
    (v) Securities acquired from the issuer that are subject to the 
resale limitations of Regulation CA (Sec. 230.1001).
* * * * *
    3. By adding a new undesignated center heading and Sec. 230.1001, 
to read as follows:

Regulation CA--Exemption for Certain Issues of Securities Exempt Under 
State Law


Sec. 230.1001  Exemption for transactions exempt from qualification 
under Sec. 25102(n) of the California Corporations Code.

    Preliminary Notes: (1) Nothing in this section is intended to be 
or should be construed as in any way relieving issuers or persons 
acting on behalf of issuers from providing disclosure to prospective 
investors necessary to satisfy the antifraud provisions of the 
federal securities laws. This section only provides an exemption 
from the registration requirements of the Securities Act of 1933 
(``the Act'') [15 U.S.C. 77a et seq.].
    (2) Nothing in this section obviates the need to comply with any 
applicable state law relating to the offer and sales of securities.
    (3) Attempted compliance with this section does not act as an 
exclusive election; the issuer also can claim the availability of 
any other applicable exemption.
    (4) This exemption is not available to any issuer for any 
transaction which, while in technical compliance with the provision 
of this section, is part of a plan or scheme to evade the 
registration provisions of the Act. In such cases, registration 
under the Act is required.

    (a) Exemption. Offers and sales of securities that satisfy the 
conditions of paragraph (n) of Sec. 25102 of the California 
Corporations Code, and paragraph (b) of this section, shall be exempt 
from the provisions of Section 5 of the Securities Act of 1933 by 
virtue of Section 3(b) of that Act.
    (b) Limitation on and computation of offering price. The sum of all 
cash and other consideration to be received for the securities shall 
not exceed $5,000,000, less the aggregate offering price for all other 
securities sold in the same offering of securities, whether pursuant to 
this or another exemption.
    (c) Resale limitations. Securities issued pursuant to this 
Sec. 230.1001 are deemed to be ``restricted securities'' as defined in 
Securities Act Rule 144 [Sec. 230.144]. Resales of such securities must 
be made in compliance with the registration requirements of the Act or 
an exemption therefrom.

    Dated: June 27, 1995.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-16387 Filed 7-7-95; 8:45 am]
BILLING CODE 8010-01-P