December 24, 1997
RESPONSE OF THE
OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE
DIVISION
OF MARKET REGULATION
Re: Internet Capital Corporation
Revision of Divisions' no-action response dated
December 18, 1997
Based on the facts
presented, but without necessarily agreeing with your analysis, the Division of
Corporate Finance will not recommend enforcement action to the Commission if ICC
provides for the electronic posting and delivery of prospectuses and other
offering materials for unaffiliated issuers as described in your letter. We
specifically express no view on whether ICC, in engaging in the activities you
have described, would be acting as an "underwriter" within the meaning of
Section 2(a)(11) of the Securities Act of 1933 ("Securities Act"), inasmuch as
such determinations are inherently fact-based and must be made on a case-by-case
basis. Nor are we expressing any view on whether the prospectus delivery
procedures described in your letter satisfy the standards articulated by the
Commission in Securities Act Release Nos. 7233 (October 6, 1995) and/or 7288
(May 9, 1996). [*2]
The Division of Market Regulation has asked that we also advise you that
it will not recommend enforcement action to the Commission under Section 15(a)
of the Securities Exchange Act of 1934 ("Exchange Act") if ICC establishes and
operates the Internet web site described in your letter without registering as a
broker-dealer pursuant to Section 15(b) of the Exchange Act.
These
positions are based on the representations made to the Divisions in your letter,
and on your oral representation that no affiliate of ICC will engage in any
business with any issuer, or assist any issuer in any respect, in connection
with the offering of such issuer's securities on ICC's web site as described in
your letter. Accordingly, any different facts or conditions might require one or
both of the Divisions to reach a different conclusion. Moreover, this response
expresses the Divisions' respective positions on enforcement action only, and
does not express any legal conclusion. Finally, because regulatory responses to
legal issues raised by ongoing technological developments may evolve, you should
be aware that these no-action positions maybe re-evaluated in the future.
Sincerely,
Mary Kosterlitz
Special [*3] Counsel
INQUIRY-1: WORKLAND & WITHERSPOON, PLLC
ATTORNEYS AT LAW
714 WASHINGTON MUTUAL FINANCIAL CENTER
601 WEST MAIN AVENUE
SPOKANE, WASHINGTON 99201-0677
Telephone: (509) 455-9077
Facsimile: (509) 624-6441
E-mail: workwith@workwith.com
December 18, 1997
Ms. Catherine Dixon
Chief Counsel
Division of Corporation Finance
Securities and
Exchange Commission
450 Fifth Street NW
Washington, D.C. 20549
Ms. Catherine McGuire
Chief Counsel
Division of Market
Regulation
Securities and Exchange Commission
450 Fifth Street NW
Washington, D.C. 20549
RE: THE INTERNET CAPITAL CORP.
Dear Ladies and Gentleman:
I am submitting this
request for a No-Action Letter pursuant to Release No. 33-6269. Accordingly,
enclosed are the original and six copies of this letter.
SUMMARY
OF REQUEST
The specific requests for no-action assurance are set
forth in detail later in this letter. As an introduction, The Internet Capital
Corp. ("ICC" or the "Company"), seeks assurance on the following issue:
In connection with an offering, ICC may provide for electronic delivery and presentation of offering materials for third-party issuers via electronic transmission provided the requirements of Rule 134(d) of the [*4] Securities Act of 1933, as amended (the "Act"), are otherwise met.
The Internet Capital Corp.
The
Company's founder and president, Dave Lenartz, is a 1982 graduate of Michigan
Technological University with a degree in electrical engineering. Mr. Lenartz is
also the founder and president of Byte Dynamics, Inc., a private company that
develops and implements software communication and database systems. Its primary
customers are Nynex, Kaiser Aluminum, and Itron, Inc.
The Company
was incorporated in April 1996, for the purpose of developing a bulletin board
system for small companies ("Issuers") to conduct securities offerings on the
Internet. The Company's target clients are those entities wishing to obtain
access to the capital markets but whose financial requirements ($ 100,000 to $
2,000,000) are too small to interest a conventional underwriter, or the
associated costs of an underwriting are too great.
The Company
has developed a proprietary, intuitive Web-trading environment, the "Internet
Capital Financial Forum," and intends to offer its services to potential Issuers
on a contractual basis as an internet service provider. ICC has established a
home page and other linked [*5] pages
(collectively, the "Web Site") on the World Wide Web at http://www.inetcapital.com. ICC's business
is to provide a software platform for those Issuers who wish to offer their
securities in an electronic medium. ICC will not engage in the business of
generating any reports, analysis or investment advice for potential investors.
ELECTRONIC DELIVERY OF PROSPECTUS MATERIAL(S)
For a flat fee, not contingent upon the success of the offering,
the Company will provide the Web-trading environment via the Internet Capital
Financial Forum for facilitating an Issuer's on-line securities offering. The
service will be provided for Issuers of registered offerings as well as
Regulation A and SCOR offerings. The Company will not provide this service for
securities to be issued pursuant to Rule 505 or 506 of the Act. The process will
work as follows for registered offering. A similar process will be implemented
for Regulation A and SCOR offerings.
A. The Web Site will provide a means for the delivery of prospectus material(s) as a service function to its clients. This Web Site function is designed to achieve compliance with all applicable state and federal securities laws and [*6] regulations.
B. The Web Site is oriented to support a grouping of individual corporate bulletin board areas or "corporate listings." An individual who has logged on the Web Site may elect to visit any corporate bulletin board area where a tombstone, preliminary offering document, or final offering document can be viewed regarding a specific company. ICC will not alter the content of any preliminary or final offering document. Each corporate bulletin board area remains autonomous and is operated in a separate manner from all of the other corporate areas. Only offerings and information pertaining to that specific corporation are displayed in its bulletin board area. ICC intends to post on its Web Site "tombstone" advertisements meeting the requirements of Rule 134, together with the red herring prospectus meeting the requirements of Rule 430. Such "tombstone" advertisements and the red herring prospectus will set forth the names of the applicable Issuers. The distribution of the "tombstone" advertisement and the red herring prospectus will be in accordance with Release No. 33-7233, dated October 6, 1995. There will be no "hot links" between the Web Site and any other corporate marketing [*7] information or a corporation's home page.
C. The order in which a company's offering information will be displayed within the Web Site is determined by objective criteria (either alphabetical by name of Issuer, or sequential by date of listing). A disclaimer will state that the order of listing has been objectively determined and that the order of presentation in no way constitutes any judgment by ICC as to the merits of a particular offering. ICC's Web Site will also link to any "tombstone" advertisements or red herring prospectus the following statements from Rule 134(b)(1) and (d), respectively:
A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold, nor may offers be accepted, prior to the time the registration statement becomes effective This (communications) shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any state.
No offer to [*8] buy the securities can be accepted and no part of the purchase price can be received until the registration statement has become effective: and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time prior to notice of its acceptance given after the effective date. An indication of interest in response to this advertisement will involve no obligation or commitment of any kind.
D. Upon an Issuer's receipt of a notice of an effective date, ICC will post the final offering document on its Web Site. Only the final offering document will contain the subscription documents necessary to purchase the offered securities. In addition, ICC's Web Site will contain a disclosure statement as follows:
The Internet Capital Corp., is not an underwriter of the securities or functioning as a broker-dealer or agent of [Name of Issuer]. Customer orders for the purchase of the securities should be sent directly to [Issuer or Escrow Agent].
E. In no instance will ICC function as an underwriter of a security or as a broker/dealer of a security. ICC will merely function as the delivery mechanism for a client.
F. ICC will not receive any commissions [*9] nor take compensation of any kind based on the sale of any securities. ICC will charge each Issuer a one-time, flat fee (the "Listing Fee"). The Listing Fee will cover such items as development of the software, use of the software platform, design and graphics work, and technical consulting regarding the listing and access to the ICC system. The Listing Fee will be independent of the number of hits to the Web Site after listing, or success of the offering. In all cases, ICC will be completely independent of the Issuer. Neither ICC nor its directors, officers, or employees will have an interest in any Issuer to be listed or any agent of such Issuer. ICC will not receive, transfer, or hold funds or securities as a function of operating the system.
G. ICC will not provide information of any nature regarding the advisability of buying or selling securities. Individuals accessing a particular company's offering will be given the opportunity to download the prospectus electronically or request that the Issuer deliver a printed copy of the prospectus. ICC will not contract with an Issuer for ICC to assume liability for improper prospectus delivery. Instructions for sending the proper funds [*10] and subscription information to the Issuer or its agent will be provided within the prospectus. Subscription agreements will be included in the file delivered with a prospectus. Files must be delivered in their entirety, therefore, each person requesting electronic delivery of a prospectus is assured of receiving a subscription agreement. Conversely, no subscription agreements can be accessed without delivery of a prospectus.
H. Each Issuer desiring to list an offering with ICC will covenant to issue its securities in compliance with all applicable federal and State laws and regulations. The obligation to assure compliance with such laws and regulations will rest upon the Issuer.
I. After electronic delivery of a prospectus, ICC will have no further involvement in the transaction, including negotiations regarding prospective purchases, record keeping of completed transactions, or any reporting requirements of the Issuer.
USING THE WEB SITE
Logging On
Each individual who wishes to access
the corporate listing areas is first required to go through a registration
process. This registration process involves the disclosure of key information
such as the individual's name and [*11]
address, the state of residence, and the individual's selected log-on name and
password. Further access to the Web Site by this individual can only be
accomplished by the use of the selected log-on name and password. Access to the
Web Site and the activity within will be strictly controlled by this method of
first determining who is logging on and if the individual should be allowed
access to the Web Site.
Validation Process
To enhance Web
Site security, ICC has implemented an additional user registration or validation
process, which ensures the proper identity of any individual wishing to access
the interactive Web Site. The registration process is designed to positively
validate that the individual entering the Web Site is using a true E-mail
address or identity that can be effectively traced within the World Wide Web.
Security within the interactive Web Site will be strictly
maintained, requiring prior registration and password protection for each
individual visiting the Web Site. The user registration process will encompass
three controlled steps that the individual must walk through in order to receive
a proper password for entrance into the registered or corporate listing [*12] area.
The first step for a
new user registration will require that an online user registration form be
filled out. Information entered will include the individual's name, address,
state of residence, etc. The user will also enter its E-mail address, which will
effectively become the user's log-on identification for entrance into the Web
Site.
In the second step, after the new user submits the
completed user registration form, the interactive Web Site will generate a
unique password for that individual and then automatically E-mail that password
to the user.
In the third and final step, the new user can gain
access to the corporate listings by returning to the Web Site and entering the
user's E-mail address and unique password in the log-on sequence.
If the user has misrepresented itself by giving an invalid or non-existent
E-mail address during the registration process, the user will not be able to
receive a password and will not be able to gain entrance to the registered area
of the Web Site. Only users that received their unique password identification
at their valid E-mail addresses can gain access.
ICC recognizes
the need to police the identity of the individuals to [*13] its Web Site and will make every attempt
to do so. The Web Site will also display disclaimers detailing the penalties for
fraud and misrepresentation.
Blue Sky Issues
ICC's
Web Site is able to preclude any solicitation or viewing of an offering document
by persons in non-registered state jurisdictions. An individual will only be
able to view offering documents, which have been approved for offering to
residents of his or her state.
REGISTRATION ISSUES
In its communications to the public and its clients, ICC will not
characterize itself as being a broker or dealer, but merely an Internet web site
provider for companies wishing to offer their securities on the Internet.
Broker and Dealer
Subject to certain exceptions,
Section 15(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires registration of any broker or dealer. Section 3(a)(5) of the
Exchange Act defines a "dealer" as "any person engaged in the business of buying
and selling securities for his own account." Section 3(a)(4) defines a "broker"
as "any person engaged in the business of effecting transactions in securities
for the account of others. . ." ICC will not engage in the business [*14] of effecting transactions in securities
for the account of others, nor in the business of buying and selling securities
for its own account.
No transactions or negotiations will occur
by or through ICC. In addition, neither ICC nor any of its officers, directors,
or employees will handle or have access to the funds, securities, or property of
any user of the Internet Capital Financial Forum. ICC will not receive any
commissions nor take compensation of any kind for the sale of any securities.
ICC will charge each Issuer a Listing Fee. No other fees, commissions, or
compensation will be paid by the investors or the listing companies. The Listing
Fee will not be contingent upon the outcome or completion of any securities
transaction resulting from a listing on the Internet Capital Financial Forum or
the number of hits to the Web Site.
Requiring ICC to register as
a broker-dealer would not provide the Issuers with any additional protection.
Because ICC will not handle or have access to funds, securities, or any other
property of any Issuer or any investor, a minimum capital requirement is
unnecessary. Any financial failure of ICC would result only in the loss of the
Issuer's and [*15]
investors' access to the Web Site and not a loss of funds, securities, or
property. Furthermore, the costs of compliance with the record keeping and
periodic reporting requirements far outweigh any benefits. Additionally, all
funds and securities will be handled either by the issuer or its agent.
CONCLUSION
For the foregoing reasons, ICC requests
that the Office of Chief Counsel concur that ICC may: (1) provide for the
electronic distribution and presentation of prospectus materials for third-party
Issuers; and (2) establish and operate the Web Site without registering it or
any of its personnel who will manage and operate the system as a "broker" or
"dealer" under Section 15(b) of the Exchange Act.
In the event
the Office of Chief Counsel does not concur with any of these views, ICC
respectfully requests an opportunity to discuss the matter prior to any final
decision thereon. If there are any questions or further information required,
please contact me at (509) 455-9077.
Very truly yours,
WORKLAND & WITHERSPOON, PLLC
Gregory B. Lipsker,
Counsel for The Internet Capital Corp.