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SECURITIES ACT OF 1933

REGISTRATIONEXEMPTIONS



EXEMPTIONSSection 5 of the Securities Act of 1933 provides that allsecurities must be registered unless there exists an exemptionfor the securities issued.Section 5 of the 1933 Act contains basic prohibitions on

applies to all offers and all sales of any security.The 1933 Act exempts certain classes of securities,transactions by certain individhuals not involved in thedistribution process, and transactions not involving any publicoffering.

However, the 1933 Act exemptions provide only exemptionsfrom the Act`s registration requirements and thus do not affectthe 1933 Act`s antifraud provisions.Exemptions from registration generally come in two forms --either the securities themselves are exempt or the transactionis exempt.



Three statutory bases for exemption from theSecurities Act`s registration provisions.

Section 3 of the 1933 Act lists various categories of securitiesthat are exempt from registration. Because these exemptive

provisions apply to securities not to transactions, they provide a permanent exemption from registration requirements of the Act.

Section 4 of the 1933 Act describes a variety of transactions thatqualify for an exemption for registration.

Section 28 of the Act gives the SEC broad exemptiverulemaking power beyond that granted by the statutoryexemptions that are found in sections 3 and 4 of the 1933 Act. Anew section 28 of the 1933 Act provided that the Commissionmay exempt transactions, securities, and persons if in the publicinterest and consistent with investor protection.



Exempt SecuritiesThey are not subject to the registration requirements of the1933 Act.Securities of governments, banks, insurance companies,and qualified pension plans- Section 3(a)(2)

Certain Short term commercial paper- Section 3(a)(3)Securities issued by nonprofit, religious, educational,charitable organizations- Section 3(a)(4)Securities of Building and Loan Associations, Farmers`Cooperatives and Like- Section 3(a)(5)Certain Securities Issued by Federally Regulated CommonCarriers ± Section 3(a)(6)Certificates Issued Under the Bankruptcy Act by Receiversand Trustees- Section 3(a)(7)

Insurance Policies and Annuity Contracts- Section 3(a)(8)



Transaction ExemptionsSection 4 of the Act contains number of exemptions that applyto specific transactions. In working with transaction exemptions,it must be remembered that the exemption extends to thetransaction, not to individuals.Section 3(b) authorizes the SEC, by means of rules and

regulations, to add any class of securities to the securitiesexempted as provided in the 33 Act if the SEC finds that theenforcement of the 33 Act is not necessary in the public interestand for the protection of investors by reason of the small amountinvolved or the limited character of the public offering, subject

to the limitation that the aggregate amount at which the issue isoffered to the public can not exceed $5,000,000.Exemption relates only to the requirement to register under the33 Act. Such transactions are not exempt from the anti-fraud,civil liability or other provisions of the federal securities laws.



INTEGRATION:If a series of transactions are similar andlook like they are really part of one publicoffering, the SEC will integrate theofferings so that even if the transactionswere exempt from registration individually,

they will violate the Act unless there is anexemption that covers the AGGREGATE.



Preliminary notes to rule 147 has the five factors of integration

1. Are the offerings part of a single plan of financing?2. Do the offerings involve issuance of the same class of securities?3. Are the offerings made at or about the same time?4. Are the same types of consideration involved?5. Are the offerings made for the same general purpose?

Most important factors are 1(single plan of financing) and5 (same general purpose).



Section 4(2) of the 33 Act - Private

PlacementsSection 4(2) of the Securities Act of 1933 exempts fromthe registration requirements ³transaction by an issuer notinvolving any public offering.´Determination that a transaction is a private placementmust be made under releases issued by the SEC and courtcases. The statute and regulations do not define"transactions by an issuer not involving a public offering."

The SEC has adopted Regulation D which, if followed,creates a "safe harbor" for private placement transactions;however, an issue can rely directly upon Section 4(2) if, indoing so, the issuer engages in a genuine "private

placement" as recognized by the SEC and the courts.



Section 4(6) of the 33 Act -Accredited Investor Exemption

Provides an exemption for offers or sales by an issuer solely to one or more accredited investors which does notexceed $5,000,000no advertising or public solicitation is permitted inconnection with the transaction.Issuers required to file notice-of-sales form with SEC.Form D serves as the notice-of-sales form under Section

4(6).



Section 3(a)(11) of the 33 Act -Intrastate Offering Exemption

Rule 147 promulgated under the 33 Act, was adopted to provide clearer guidelines for the exemption provided by

Section 3(a)(11). To qualify for this exemption:the issuer must, at the time of any offers and sales, be a

person resident and doing business within the state.the offerees and purchasers be residents of the state of theoffering.No resales may be made outside the state for a period of 9months.



No filing with the SEC is required.While intrastate offerings are exempt from federal

regulation, such offerings are still subject to regulation bythe state in which the offering occurs.The federal intrastate offering exemption is primarilyrelied upon by issuers in large states in which the

populations are not particularly mobile. Great care must beexercised in utilizing this federal exemption as oneimproper offer or sale can taint the entire offering, therebydestroying the exemption.



Small Offering ExemptionsSection 3(b) authorizes the SEC, by means of rules and regulations, to add any class of securitiesto the securities exempted as provided in the 33Act if the SEC finds that the enforcement of the 33Act is not necessary in the public interest and for the protection of investors by reason of the smallamount involved or the limited character of the

public offering, subject to the limitation that the

aggregate amount at which the issue is offered tothe public can not exceed $5,000,000.Acting pursuant to its authority under Section

3(b), the SEC has adopted Rules 504 and 505

under Regulation D and Regulation A.



REGULATION DRule 501 DefinitionsRule 502 ConditionsRule 503 Filing Notices Of Sales (Form D)Rule 504 & 505 Small Issue Exempt ons

Rule 506 Nonexclusive Safe Harbor §4(2)Rule 507 Disqualification ProvisionsRule 508 Insignificant Deviations



Rule 504:Rule 504 permits any issuer, other than aninvestment company or Exchange Act reporting

company, to offer and sell maximum of $1 millionof its securities to an unlimited number of personsduring a 12-month period. The rule does not

prescribe specific disclosure requirements and

does not impose limitations on the manner of salesor on resales. Rule 504 requires a notice of sale to

be filed with the SEC.



Rule 505Rule 505 provides a registration exemption for any noninvestment company issuer, whether or

not it is a reporting company under the ExchangeAct. It allows an eligible issuer to offer and sell upto $5 million during a 12-month period withoutgeneral advertising and solitication. An offeringunder Rule 505 can be made to an unlimitednumber of accredited investors and to a maximumof 35 nonaccredited investors. Purchasers of securities in a Rule 505 offering acquire restrictedsecurities. The issuer must file a notice of sales

with the SEC.



Rule 506Rule 506 does not contain any limitation on the dollar amount of securities offered. It is avaliable to any issuer,whether or not it is a reporting company. A Rule 506 can

be made to an unlimited number of accredited investorsand to a maximum of 35 nonaccredited investors. Eachnonaccredited investor, either alone or with the purchaser representative, must understand the merits and risks of theoffering or the issuer must reasonably belive, prior to thesale, that each such investor is sophisticated. Specifiedinformation must be disclosed to nonaccredited investors.All purchasers, regardless of their status, acquire restrictedsecurities. The issuer must file a notice of sales with theSEC.



Regulation A -Small Public Offering

ExemptionLimits offerings under this exemption to $5million in a 12 month period,

To utilize this exemption, a company must be:a. Organized under the laws of the U.S. or Canada, with its principal place of business in theU.S. or Canada.

b. Not be a reporting company under the 34 Act.c. Not be an investment company, not adevelopment stage companyIssuers are required to file a offering statementwith the SEC



Regulation A offerings are unique in that theyallow a prospective issuer to "test the waters" of

the market to determine if there is sufficientinterest in the company's securities before the prospective issuer commits the time and resourcesto filing an offering statement with theCommission.There are virtually no restrictions on resale of securities and no special qualifications for initialinvestors to meet with respects to number or sophistication.



CASE: LUMION COMPANYLumion took advantage of the federal exemption (Rule 504), as well as theexemptions offered by Florida and New York, to raise $750,000 by sellingcommon stock at $1 per share to investors in those states only. (Lumion alsosold stock to foreign investors - sales that are also exempt from federalsecurities laws- Regulation S.)

Advantages they state;

They decreased the costs of raising money. Overall their audit and legalexpenses were $60,000 compare to the $500,000 they might have spent on afull-blown IPOThe due diligence conducted by his earlier venture capital investors was verytime onsumung and difficult compared to the due diligence associated withexempt stock offeringsInvestors are essentially passive and rely on management to build value. Onthe other hand, venture capital investors want to control the company'sfinancial management.One of the greatest challenges of raising capital has to do with liquidity. Someform of resale mechanism can increase the likelihood of successfully raisingmoney. Exempt public offerings can accommodate this need by trading on

Nasdaq's Bulletin Board stock market.



REGISTRATION EXEMPTIONS IN

TURKEYAccording to the Article 4 of the Turkish CapitalMarkets Law;

Capital market instruments to be issued or to beoffered to public are required to be registered withthe Board.

Article 11 clearly states that there is no exemptionfor registration of capital market instruments(exception government bonds).



According to the Article 11 of the Turkish Capital Markets Law;The shares of joint stock corporations having more than 250

stockholders shall be considered to have been offered to the publicand such companies shall be subject to the provisions applicable to

publicly held joint stock corporations. Issuers are required to informthe Capital Market Board within thirty days

Issuers, that are not joint stock companies, or that have not offered capital market instruments to the public, or whose total assets, grosssales revenues, or public offering totals are less than amountsspecified by the Board, or who are issuing or offering to the publicother capital market instruments may be partially or completelyexempted by the Board from the requirements of this Law. Theconditions of this exemption, the principles of issuers withdrawing

from the Board registry or being withdrawn and the conditions of partial exemption from public offering regulations shall bedetermined by communiqués .



As it is clearly stated in the Law, joint stock corporationscan not be exempted from public offering regulations.

But, it is not possible to offer shares for any forms of business organizations other than joint stock corporationsaccording to Turkish Commercial Code and CapitalMarkets Law.Therefore, capital raising registration exemptions don¶texist for corporations.Only issuing debt instruments by using exemptions is

possible according to the existing regulations in Turkey.



Additionally, Communique Serial:IV, No:9which is promulgated under Article 11 of the Turkish Capital Markets Law does notcontain any exemption for registration of

public offering and sales of equity shares.



Private placement regulation

Private placement regulation (the allotment sales)takes place in Article 11 of Communique Serial:I, No:26³Communique On Principles Regarding RegistrationWith The Capital Markets Board And Sale Of Shares´.

Registration with the Capital Market Board is required but there is no obligation to prepare prospectus for the

issuer.



Cost of IPO in USFor a typical IPO in US, total cost is estimated

between $400.000 and $500.000 for the necessary

services of attorneys, investment bankers,accountants, and printers. professional institutions.The costs associated with operating as a publiclytraded company can run between $20,000 and$100,000 per year for a newly public company.



Economies of scale make Securities Actregistration disproportionately burdensome for

smaller offerings and cost-effective only for larger public companies .

The economic rationale for the small offeringexemptions is based on economies of scale inregistration. Because of relatively large fixedcosts, the cost to register a small offering exceedsthe benefits associated with registration.



We especially need exemptions from theregistration process for many small offerings in

Turkey. Small companies can¶t raise additionalcapital they needed by using capital markets.Rule 504 is the least restrictive small offeringexemption while Regulation A is the most

burdensome.Regulation A and Rule 504 exemptions can bemodels for registration exemptions of smallofferings for Turkey.



Regulation A model can cut cost of offering to nearly half .This model may not be enough depending on TL limitswill be determined for isues. Furthermore, CMB of Turkeywill have to review offering circular which is like a shortform of prospectus if we use similar model of RegulationA. This may not be an effective solution to shortenregistration process.In Turkey, we don`t know the total cost of going public.When we determine the TL upper limits for theexemptions, this average should be carefully examined.We should make a carefull cost-benefit analysis and thendetermine reasonable limits for exemptions.

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