Diasonics, Inc. , (Dec. 29, 1982)

INQUIRY LETTER

DIASONICS, INC.

1545 BARBER LANE

MILPITAS, CA 95035

TELEPHONE(408) 946-9001

November 01, 1982

Office of the Chief Counsel

Division of Corporation Finance

Securities and Exchange Commission

500 North Capitol Street, N.W.

Washington, D.C. 20549

Dear Sirs:

Diasonics, Inc., a privately held California corporation whose principal executive offices are located at 1545 Barber Lane, Mulpitas, California ("Diasonics"), respectfully requests the Staff of the Securities and Exchange Commission (the "Staff") to recommend that the Commission will not take any enforcement action with respect to the following matters:

1. The "sale" of interests in the Diasonics, Inc. Qualified Stock Participation Plan (the "Plan"); and

2. The sale of Diasonics common stock to the Plan by Diasonics or Diasonics shareholders, some of whom may be affiliates.

A copy of the Plan and its related Trust Agreement are enclosed.

The Plan is a profit sharing intended to qualify under Section 401(k) and other related sections of the Internal Revenue Code. Section 401(k) relates to so-called "cash or deferred" arrangements. The salient terms of the Plan are as follows:

1. Participation. All employees of Diasonics and its subsidiaries (other than nonresident aliens) are eligible to participate in the Plan regardless of their age, years of service or full or part time status.

2. Contributions. Diasonics will make, as applicable, Part A, Part B or Part C Company Contributions on behalf of each Participant:

(a) The Part A Company Contribution equals 25% of the Part B Company Contribution;

(b) The Part B Company Contribution equals from the 2 to 6 percent of each Participants compensation; and

(c) The Part C Company Contribution equals from 1 to 6 percent of each Participants compensation (no Part C Company Contribution is made unless a maximum Part B Company Contribution has been made).

Part B and Part C Company Contributions reduce a Participants compensation, i.e., in electing to participate in the Plan the Participant chooses between current cash compensation and a Plan Contribution (this is the "cash or deferred" arrangement inherent in all Section 401(k) plans).

All Company Contributions are made by Diasonics and not the Participants. For Federal income tax purposes, such contributions are not taxed until distributed from the Plan. No contributions by the Participants are required or permitted.

3. Vesting. A Participant is always vested in his or her Part B and Part C Company Contributions but vests in the Part A Company Contribution only if still employed by Diasonics on the first day of the third year following the year with respect to which the contribution was made, i.e., vesting in the 1982 Part A Company Contribution will occur on January 1, 1985, vesting in the 1983 Part A Company Contribution will occur on January 1, 1986, etc.

4. Distributions. No distributions are permitted until a Participants employment terminates, i.e., there are no withdrawals or loans permitted while a Participant is employed by Diasonics. Upon termination of employment a Participant will receive a certificate for any whole shares of Diasonics stock credited to his or her Accounts and cash for the balance of his or her benefit.

5. Investments. All funds contributed under the Plan are held pursuant to a Trust Agreement. All such funds are to be invested as soon as reasonably practicable in common stock of Diasonics. Since Diasonics is a privately held company and there is no market for its stock, such purchases must be made from either Diasonics or a Diasonics shareholder. Pending receipt of a favorable no-action letter, all Plan funds are being invested in short term interest bearing securities and not in Diasonics stock. However, Diasonics has committed to the Participants that upon receipt of the no-action letter it will sell stock to the Plan with respect to all 1982 company contributions at the lesser of $7.20 per share (the price on July 1, 1982 when the Plan was implemented) or its actual fair market value on the date of sale.

The present trustees of the Plan are Walter Stafford, an officer and director of Diasonics and John Taylor, an officer of Diasonics. However, effective December 1, 1982, Bank of America NT&SA will become the trustee and we ask you to make your determination based on Bank of America being the trustee.

The trustee will have complete discretion as to the timing, price and method of purchase of Diasonics stock and will not be controlled by, under common control with or in control of Diasonics. Diasonics has agreed that to the extent stock is not available from the other sources it will sell stock to the Plan.

Release No. 33-6188, February 1, 1980, indicates that interests in a pension, profit sharing and similar plans are securities but that the sale of such securities is exempt under Section 3(a)(2) of the Securities Act of 1933 unless the "plan invests in employer securities an amount greater than that contributed to the plan by the employer." Release No. 33-6281, January 15, 1981, states with respect to Section 401(k) plans that:

"The Staffs view on the above question is that Section 401(k) plans are not contributory on the part of employees because they do not involve out-of-pocket investments by employees of their own funds. Such plans are funded entirely by employer contributions. Accordingly, in the Staffs view interests in Section 401(k) plans are not subject to the 1933 Act."

Release No. 33-6188 states with respect to a plans purchase of employer securities:

". . . There are three primary sources that a plan can draw upon to acquire employer securities: the employer, affiliates of the employer, and persons selling their securities in the open market. Generally, no matter from whom the securities are obtained, registration will not be necessary with respect to the acquisition transaction by the plan. The reasons for this result will vary, depending on the manner of acquisition. For instance, there may be no sale involved (as in the case of a contribution of stock or cash to the plan by the employer), or one of the several exemptions from registration provided by Section 4 of the Act may be available."

In my opinion, all sales to the Plan by Diasonics or any affiliate or stockholder will be exempt from registration pursuant to Section 4(2) or Section "4(1-1/2)".

On the basis of the foregoing, Diasonics, Inc. respectfully requests a determination by the Division of Corporation Finance not to recommend to the Commission any enforcement action against Diasonics if the Plan is operated and administered as set forth above without registration under the Securities Act of 1933 of either Plan interests or Diasonics common stock purchased by the Plan.

Seven copies of this letter and its exhibits are enclosed. Please telephone the undersigned at (408) 946-9001, Ext. 219 or 180, if further information is required.

Yours very truly,

Walter V. Stafford

Vice President, General

Counsel and Secretary

Encs.

STAFF REPLY LETTER

NOV 29 1982

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: Diasonics, Inc.

Incoming letter dated November 1, 1982

After consideration of the facts presented, we are unable to assure you that we will not recommend enforcement action to the Commission if the plan, is put into effect without compliance with the registration requirements of the Securities Act of 1933. In our view, the provision of the plan which permits employees to determine voluntarily whether or not to contribute to the plan a portion of the compensation to which they are entitled each year would have the effect of creating interests in the plan which are securities. Since you have not asserted that an exemption would be available for the offer and sale of such securities, we are unable to provide you with any assurances concerning non-registration of the plan.

We believe your reference to the staffs position in Release No. 33-6281 concerning the non-registration of interests in Section 401(k) plans is misplaced in these circumstances. It is our understanding that subsequent to the issuance of that release, Section 401(k) was, for all practical purposes, expanded to cover salary reduction plans of the type described in your letter. This type of plan was not contemplated by the staff at the time it formulated the position described in the release. The views expressed by the staff in the release are restricted solely to the type of Section 401(k) involving any out-of-pocket contribution by employees) and do not encompass salary reduction plans.

Sincerely,

Peter J. Romeo

Chief Counsel