Original Notice.

Preproposal statement of inquiry was filed as WSR 98-09-003.

Title of Rule: Small offering exemption (SOE).

Purpose: Amend WAC 460-44A-504 to increase the aggregate offering amount to $1,000,000 and to include information on the suggested contents for disclosure documents for offerings made pursuant to this section. Minor amendments to WAC 460-44A-500 clarify the relationship between this chapter and the preemption provisions of section 18 (b)(4)(C) of the federal Securities Act of 1933.

Other Identifying Information: WAC 460-44A-500 and 460-44A-504.

Statutory Authority for Adoption: RCW 21.20.450, 21.20.320(9).

Statute Being Implemented: Chapter 21.20 RCW.

Summary: Amend WAC 460-44A-504 to increase the aggregate offering amount to $1,000,000 and to include information on the suggested contents for disclosure documents for offerings made pursuant to this section. Minor amendments to WAC 460-44A-500 clarify the relationship between this chapter and the preemption provisions of section 18 (b)(4)(C) of the federal Securities Act of 1933.

Reasons Supporting Proposal: Increasing the offering amount to $1,000,000 with foster greater uniformity with federal law. Providing a list of suggested topics for disclosure will assist issuers in creating an appropriate disclosure document. The amendments to WAC 460-44A-500 correct previously adopted language concerning federal preemption under section 18 (b)4(c) of the Securities Act of 1933.

Name of Agency Personnel Responsible for Drafting: William M. Beatty, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; Implementation: John L. Bley, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; and Enforcement: Deborah R. Bortner, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760.

Name of Proponent: Department of Financial Institutions, Securities Division, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: Amend WAC 460-44A-504 to increase the aggregate offering amount to $1,000,000 and to include information on the suggested contents for disclosure documents for offerings made pursuant to this section. Minor amendments to WAC 460-44A-500 clarify the relationship between this chapter and the preemption provisions of section 18 (b)(4)(C) of the federal Securities Act of 1933.

Increasing the offering amount to $1,000,000 with foster greater uniformity with federal law. Providing a list of suggested topics for disclosure will assist issuers in creating an appropriate disclosure document.

Proposal Changes the Following Existing Rules: Amend WAC 460-44A-504 to increase the aggregate offering amount to $1,000,000 and to include information on the suggested contents for disclosure documents for offerings made pursuant to this section. The amendments to WAC 460-44A-500 correct previously adopted language concerning federal preemption under section 18 (b)4(c) of the Securities Act of 1933.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposal does not impose additional costs on business.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. The Department of Financial Institutions is not one of the agencies listed in section 201.

Hearing Location: Department of Financial Institutions, Securities Division, Executive Conference Room, 210 11th Avenue S.W., Suite 300, Olympia, WA 98504, on January 6, 2000, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Darlene Christianson by January 3, 2000, TDD (360) 664-8126, or (360) 902-8760.

Submit Written Comments to: William M. Beatty, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, fax (360) 704-6923, e-mail bbeatty@dfi.wa.gov, by January 5, 2000.

Date of Intended Adoption: January 7, 2000.

November 22, 1999

John L. Bley

Director

(1) The rules of WAC 460-44A-501 through 460-44A-508 relate to transactions exempted ((or preempted)) from the registration requirements of the Federal Securities Act of 1933 ((and)) that are also exempted or preempted from RCW 21.20.140.  WAC 460-44A-504 is an exemption from registration for offerings exempted under Securities and Exchange Commission Rule 504 or Rule 147.  WAC 460-44A-505 is an exemption from registration for offerings exempted under Securities and Exchange Commission Rule 505.  WAC 460-44A-506 establishes certain conditions for offerings exempted under Securities and Exchange Commission Rule 506.  ((Such)) Unless expressly provided otherwise, such transactions are not exempt from anti-fraud, civil liability, or other provisions of the federal and state securities laws.  Issuers are reminded of their obligation to provide such further material information, if any, as may be necessary to make the information required under these rules, in light of the circumstances under which it is furnished, not misleading.

(2) Attempted compliance with the exemption of WAC 460-44A-504, 460-44A-505, or 460-44A-506 does not act as an exclusive election; the issuer can also claim the availability of any other applicable exemption.

(3) These rules are available only to the issuer of the securities and not to any affiliate of that issuer or to any other person for resale of the issuer's securities.  The rules provide an exemption only for the transactions in which the securities are offered or sold by the issuer, not for the securities themselves.

(4) In any proceeding involving the rules in WAC 460-44A-501 through 460-44A-508, the burden of proving the exemption, an exception from a definition or condition, or preemption, is upon the person claiming it.

(5) For offerings commenced but not completed prior to the amendment of WAC 460-44A-501 through 460-44A-508, issuers may opt to follow the rules in effect at the date of filing notice of the offering.

(6) Securities offered and sold outside the United States in accordance with Securities and Exchange Commission Regulation S need not be registered under chapter 21.20 RCW.  Regulation S may be relied upon for such offers and sales even if coincident offers and sales are made in accordance with Regulation D and WAC 460-44A-501 through 460-44A-508 inside the United States.  Thus, for example, persons who are offered and sold securities in accordance with Regulation S would not be counted in the calculation of the number of purchasers under Regulation D and WAC 460-44A-501 through 460-44A-508.  Similarly proceeds from such sales would not be included in the aggregate offering price.  The provisions of this subsection, however, do not apply if the issuer elects to rely solely on Regulation D for offers or sales to persons made outside the United States.

[Statutory Authority: RCW 21.20.450, 21.20.320(9), 21.20.320(1) and 21.20.320(17).  98-11-014, § 460-44A-500, filed 5/12/98, effective 6/12/98.  Statutory Authority: RCW 21.20.450.  94-03-061, § 460-44A-500, filed 1/14/94, effective 2/14/94.  Statutory Authority: RCW 21.20.450, 21.20.320 (1), (9) and (17) and 21.20.340(11).  90-09-059, § 460-44A-500, filed 4/17/90, effective 5/18/90.  Statutory Authority: RCW 21.20.320 (1) and (16) and 21.20.450.  89-17-076 (Order SDO-122-89), § 460-44A-500, filed 8/17/89, effective 9/17/89; 88-15-024 (Order SDO-71-88), § 460-44A-500, filed 7/12/88.  Statutory Authority: RCW 21.20.320 (1) and (17).  86-15-003 (Order SDO-80-86), § 460-44A-500, filed 7/3/86.  Statutory Authority: RCW 21.20.320(1) and 21.20.450.  82-21-031 (Order SDO-98-82), § 460-44A-500, filed 10/15/82.]

(1) Exemption.  Offers and sales of securities by an issuer in compliance with the Securities Act of 1933, Regulation D, Rules 230.501 through 230.504 and 230.508 as made effective in Release No. 33-6389, and as amended in Release Nos. 33-6437, 33-6663, 33-6758, 33-6825, 33-6863, 33-6949, ((and)) 33-6996, 33-7300, and 33-7644 or in compliance with the Securities Act of 1933, Rule 230.147 as made effective in Release No. 33-5450 that satisfy the conditions in subsections (2) and (3) of this section shall be exempt under RCW 21.20.320(9).

(2) General conditions to be met.  To qualify for exemption under this section, offers and sales must satisfy all the terms and conditions of WAC 460-44A-501 through 460-44A-503 and 460-44A-508.

(3) Specific conditions to be met.

(a) Limitation on aggregate offering price.  The aggregate offering price for an offering of securities under this section, as defined in WAC 460-44A-501(3), shall not exceed (($500,000)) $1,000,000, within or without this state, less the aggregate offering price for all securities sold within the twelve months before the start of and during the offering of securities under this section in reliance on any exemption under RCW 21.20.320(9) or sections 3 (a)(11) or 3(b) of the Securities Act of 1933 or in violation of RCW 21.20.140 or section 5(a) of the Securities Act of 1933.

(b) No commissions.  No commission, fee, or other remuneration shall be paid or given, directly or indirectly, to any person for soliciting any prospective purchaser in the state of Washington.

(c) Limitation on number of purchasers.  There are no more than or the issuer reasonably believes that there are no more than twenty purchasers of securities in this state from the issuer in any offering in reliance on this section.

(d) In all sales to nonaccredited investors in this state under this section the issuer and any person acting on its behalf shall have reasonable grounds to believe and after making reasonable inquiry shall believe that, as to each purchaser, one of the following conditions, (i) or (ii) of this subsection, is satisfied:

(i) The investment is suitable for the purchaser upon the basis of the facts, if any, disclosed by the purchaser as to his other security holdings and as to his financial situation and needs.  For the purpose of this condition only, it may be presumed that if the investment does not exceed ten percent of the purchaser's net worth, it is suitable.  This presumption is rebuttable; or

(ii) The purchaser either alone or with his purchaser representative(s) has such knowledge and experience in financial and business matters that he is or they are capable of evaluating the merits and risks of the prospective investment.

(e) Disqualifications.  No exemption under this section shall be available for the securities of any issuer if any of the parties described in the Securities Act of 1933, Regulation A, Rule 230.262 is disqualified for any of the reasons listed in WAC 460-44A-505 (2)(d) unless inapplicable or waived as set forth in WAC 460-44A-505 (2)(d)(vi) and (vii).

(f) Notice filing.  The issuer shall file a notice, with a consent to service of process, and pay a filing fee as set forth in WAC 460-44A-503.

(g) Advice about the limitations on resale.

The issuer, at a reasonable time prior to the sale of securities, shall advise each purchaser of the limitations on resale in the manner contained in WAC 460-44A-502 (4)(b).

(4) Transactions which are exempt under this section may not be combined with offers and sales exempt under any other rule or section of the Securities Act of Washington, however, nothing in this limitation shall act as an election.  Should for any reason the offer and sale fail to comply with all of the conditions for the exemption of this section, the issuer may claim the availability of any other applicable exemption.

((Note 1:)) (5) WAC 460-44A-504 is not the exclusive method by which issuers may make offerings under Securities and Exchange Commission Rules 504 and 147. For example, offers and sales of an issuer in compliance with Securities and Exchange Commission Rule 504 or Rule 147 may also be registered by qualification under chapter 21.20 RCW. An issuer that qualifies may elect to register an offering pursuant to ((the Uniform Limited Offering Registration)) Small Company Offering Registration (SCOR) as set out in chapter 460-17A WAC. ((An issuer may also elect to claim the corporate limited offering exemption as set out in chapter 460-46A WAC.))

((Note 2: Issuers are reminded that nothing)) (6) Nothing in these rules alters ((their)) the obligation of issuers under RCW 21.20.010. RCW 21.20.010(2) renders it unlawful "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading..." In addition, issuers must otherwise comply with the anti-fraud provisions of the federal and state securities laws. ((No)) While no specific format ((for disclosure)) is prescribed, the disclosure should, at a minimum, normally include a discussion of the following topics((.)):

(a) A description of the Issuer; its business, products or services, and competitors; its marketing strategies and competitors; its employees; and principal properties;

(b) Risk factors, including those pertaining to the offering, the issuer, and the industry in which it operates;

(c) Use of offering proceeds;

(d) Capitalization;

(e) Description of securities;

(f) Plan of distribution;

(g) Officers, key personnel, and directors;

(h) Principal stockholders;

(i) Management relationships, transactions with affiliates, and remuneration to officers, directors and key personnel;

(j) Past, pending, or threatened material litigation; and

(k) Financial statements

((However, issuers may wish to consider the)) The SCOR Form question and answer disclosure format ((of the SCOR Form)) of chapter 460-17A WAC((, or the corporate limited offering exemption of chapter 460-46A WAC, in determining)) may be used to present the disclosure ((they make)) required by this subsection. If the SCOR Form is used, the issuer should indicate that the disclosure form is being used for an exempt offering under this section rather than in ((an)) a registered offering under ((the chapters under which the form was adopted)) chapter 21.20 RCW and chapter 460-17A WAC.

[Statutory Authority: RCW 21.20.450, 21.20.320(9), 21.20.320(1) and 21.20.320(17).  98-11-014, § 460-44A-504, filed 5/12/98, effective 6/12/98.  Statutory Authority: RCW 21.20.450.  94-03-061, § 460-44A-504, filed 1/14/94, effective 2/14/94.  Statutory Authority: RCW 21.20.450, 21.20.320 (1), (9) and (17) and 21.20.340(11).  90-09-059, § 460-44A-504, filed 4/17/90, effective 5/18/90.]

Reviser's note: The typographical errors in the above section occurred in the copy filed by the agency and appear in the Register pursuant to the requirements of RCW 34.08.040.

Reviser's note: RCW 34.05.395 requires the use of underlining and deletion marks to indicate amendments to existing rules. The rule published above varies from its predecessor in certain respects not indicated by the use of these markings.

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