Company Name: Lola M. Hale, Esq.
Public Availability Date: Aug. 02, 1982

INQUIRY LETTER 1

COLES & GRIFFIN, LTD.

THREE FIRST NATIONAL PLAZA, SUITE 3700

CHICAGO, ILLINOIS 60602

(312) 641-1600

May 28, 1982

Peter Romeo, Esq.

Chief Counsel,

Division of Corporation Finance

Securities and Exchange Commission

500 North Capitol Street

Washington, D.C. 20549

RE: Regulation D

Dear Mr. Romeo:

This letter is being written to request an interpretation of the term "total purchase price" in Rule 501(a)(5) of Regulation D. Can non-recourse debt be excluded in determining the total purchase price of the securities acquired by the Accredited Investor?

Rule 501(a)(5) provides that an Accredited Investor shall include a person who purchases at least $150,000 of the securities being offered, where the purchasers total purchase price does not exceed 20% of the purchasers net worth at the time of the sale, or joint net worth with that persons spouse. The $150,000 may be paid by any combination of the following:

1. Cash

2. Securities for which market quotations are readily available.

3. An unconditional obligation to pay cash or securities for which market quotations are readily available, which obligation is to be discharged within 5 years of the sale of securities to the purchaser.

The Rule therefore, requires that if debt is incurred in connection with the purchase it must be recourse debt in order to be counted towards $150,000. Consistent with that position, but not clear from the Rule or the Release adopting Regulation D, would be the position that non-recourse debt would not count in determining the total purchase price for purposes of the 20% net worth test set forth in that Rule.

There are still a number of tax shelter offerings which of their nature involve a combination of cash, recourse and non-recourse debt. A clarification is requested as to whether non-recourse debt can be excluded in computing "total purchase price" for purposes of Rule 501(a)(5) of Regulation D.

We have discussed this issue with David B. H. Martin, Jr. informally and he was of the view that the non-recourse debt would not be included in computing total purchase price for purposes of Rule 501(a)(5). We have also discussed telephonically with other members of the staff the possibility of your office issuing an interpretation on the question, and understand that your office would be so willing.

The resolution of this question would have a substantial impact on tax shelter offerings presently being structured, and we would appreciate your prompt consideration and resolution.

Sincerely yours,

Lola M. Hale

LMH/brj

INQUIRY LETTER 2

COLES & GRIFFIN, LTD.

THREE FIRST NATIONAL PLAZA, SUITE 3700

CHICAGO, ILLINOIS 60602

TELEPHONE(312) 641-1600

June 15, 1982

David Martin, Esq.

Division of Corporation Finance

Securities and Exchange Commission

500 North Capitol Street

Washington, D.C. 20549

RE: REGULATION D

Dear Mr. Martin:

Reference is made to my letter to Peter Romeo, Esq. dated May 28, 1982, and to our recent telephone conversation regarding my request for an interpretation of the term "total purchase price" in Rule 501(a)(5) of Regulation D promulgated under the Securities Act of 1933.

We requested clarification as to whether or not "non-recourse" debt may be excluded in determining the total purchase price of the securities acquired by an Accredited Investor. The context in which I referred to "non-recourse" debt includes only that type of debt where the source for payment is limited to the income, if any, to be generated by the security being purchased, the security itself or assets of the entity in which the securities are being purchased. For example, in a sale and leaseback transaction the investor purchases equipment and then leases it back to the issuer. The purchase price for the equipment may be paid partly in cash and partly by the delivery of a non-recourse note secured by the equipment purchased and/or rentals due under the lease. The governing documents would specify that the note (or other evidence of the debt) is payable only by recourse to the equipment or rentals generated thereunder. The investor would have no personal liability for the amounts on the note and no part of the investors other assets, (excluding the equipment and the investors interest in the lease), would be available as a source for the payment of the debt.

Should you require any additional clarification, please immediately contact the undersigned.

Sincerely yours,

Lola M. Hale

LMH/brj

STAFF REPLY LETTER

JUL 1 1982

Lola M. Hale, Esq.

Coles & Griffin, Ltd.

Three First National Plaza

Suite 3700

Chicago, Illinois 60602

Dear Ms. Hale:

This is in response to your letters of May 28 and June 15, 1982, in which you request interpretive advice as to the term "total purchase price" in Rule 501(a)(5) under the Securities Act of 1933. Specifically, you have asked if the delivery of certain "non-recourse" debt in connection with the purchase of certain securities may be excluded when calculating the total purchase price of the securities acquired.

Your inquiry derives from certain tax shelter offerings that involve the delivery of non-recourse debt by the investor to the issuer where the source of payment for the debt is limited exclusively to the income generated by the security being purchased or the assets of the entity in which the security is being purchased. Such offerings would include, for example, a sale and leaseback transaction where the investor purchases equipment, leases the equipment back to the issuer, and delivers a non-recourse note secured only by the equipment purchased and/or the rentals due under the lease. In these cases, the investor has no personal liability for the amount on the non-recourse note, and no part of the investors assets at the time of sale would be available as a source for payment of the debt.

As you know, Rule 501(a)(5) extends accredited investor status to any person who purchases at least $150,000 of the securities being offered by one or a combination of four specified methods where the total purchase price does not exceed 20 percent of the purchasers net worth. This Division is of the view that if an investor purchases at least $150,000 of the securities being offered through one or more of the four methods specified under Rule 501(a)(5) and, in addition, delivers a non-recourse note under which the investor has no personal liability and the payment for which may not come from any of the investors assets at the time of purchase, the non-recourse note may be excluded from the calculation of total purchase price for purposes of determining whether the total purchase price exceeds 20 percent of the investors net worth.

Sincerely,

David B.H. Martin, Jr.

Special Counsel