June
24, 1996
Barry Reder, Esq.
Coblentz, Cahen, McCabe
& Breyer, LLP
222 Kearny Street
San Francisco, CA 94108-4510
Re: Real Goods Trading
Corporation
Dear Mr. Reder:
Based on the facts
presented in your letter dated June 21, 1996 ("Letter"), it is the view of: (i)
the Division of Corporation Finance that the activities of Real Goods Trading Corporation ("RGTC")
in connection with the establishment and maintenance of the System would not
require that offers or sales made through the System be registered under the
Securities Act of 1933; and (ii) the Division of Investment Management that RGTC
may engage in the activities described in your letter without registering under
the Investment Advisers Act of 1940.
On the basis of the facts presented
in your Letter, the Division of Market Regulation will not recommend an
enforcement action to the Commission under Section 5, 6, or 15 of the Securities
Exchange Act of 1934 ("Exchange Act") if RGTC operates the System in the manner
described in that Letter without registration as a national securities exchange
under Section 6 or as a brokerdealer [*2] under
Section 15 of the Exchange Act. This is a position of the Division of Market
Regulation regarding enforcement action under Sections 5, 6, and 15 of the
Exchange Act only, and does not express any legal conclusions regarding the
applicability of Sections 5, 6, or 15 of the Exchange Act or other statutory or
regulatory provisions of the federal securities laws. This no-action position is
subject to changes in current law, regulation, and interpretations governing
issuer-based bulletin boards; any change may require the Division of Market
Regulation to reevaluate and revoke or modify this no-action position.
In reaching these positions, the Divisions note the following: (1) RGTC
will provide the described notices regarding operation of and participation on
the System that will be set forth or contained on the screens and/or hard copy
by which System information is provided; (2) RGTC is a Section 12 registrant and
will retain that status or, if it should cease to be a Section 12 registrant,
otherwise undertake to make publicly available the information required by
Section 13(a) of the Exchange Act in the same manner that Participants will
obtain access to the System (e.g., electronic [*3] mail, facsimile, mail, RGTC's World-Wide
Web site, etc.); (3) RGTC will keep records of all quotes entered into the
system and make those records available to the Commission and the Pacific Stock
Exchange (or any other regulated market on which RGTC securities are listed)
upon reasonable request; (4) RGTC's advertising will comply with the
representations set forth in your letter; (5) neither RGTC nor any affiliate of
RGTC will use the System, directly or indirectly, to offer to buy or sell
securities, except in compliance with the securities laws, including any
applicable registration requirements (absent an available exemption therefrom);
and (6) neither RGTC nor any affiliate of RGTC will (i) receive any compensation
for creating or maintaining the System; (ii) receive any compensation for the
use of the System; (iii) be involved in any purchase or sale negotiations
arising from the System; (iv) provide information regarding the advisability of
buying or selling Common Stock or any other securities; or (v) receive,
transfer, or hold funds or securities as an incident of operating the System.
Because these positions are based on the representations made to the
Divisions, any different [*4] facts or
conditions might require different conclusions.
Sincerely,
Catherine McGuire
Associate Director (Chief Counsel)
Division of Market Regulation
Jack W. Murphy
Associate
Director (Chief Counsel)
Division of Investment Management
Martin P. Dunn
Chief Counsel
Division of Corporation Finance
INQUIRY-1: COBLENTZ,
CAHEN, McCABE & BREYER, LLP
ATTORNEYS AT LAW
222 KEARNY
STREET, 7TH FLOOR
SAN FRANCISCO, CALIFORNIA 94108-4510
TELEPHONE: (415) 391-4800
FACSIMILE: (415) 989-1663
June
21, 1996
VIA FEDERAL EXPRESS
Catherine McGuire
Associate Director/Chief Counsel
Division of Market Regulation
Securities and Exchange Commission
450 Fifth Street, NW, Mail Stop 5-10
Washington, D.C. 20549
VIA FEDERAL EXPRESS
Martin P. Dunn
Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW, Mail Stop 3-3
Washington, D.C. 20549
VIA FEDERAL EXPRESS
Jack W. Murphy
Associate Director/Chief Counsel
Division of
Investment Management
Securities and Exchange Commission
450 Fifth
Street, NW, Mail Stop 10-6
Washington, D.C. 20549
Re: Real
Goods Trading Corporation
Securities Exchange Act of 1934 (Sections
5, 6 and 15);
Investment Advisers Act of 1940 (Section [*5] 203(a));
Securities Act of 1933
(Section 5)
Dear Ms. McGuire, Mr. Murphy and Mr. Dunn:
We are counsel to Real Goods Trading Corporation
("RGTC"), a California corporation. Its stock is traded on the Pacific Stock
Exchange and registered under Section 12 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). RGTC sells alternative energy and conservation
products primarily through mail order. As part of its mission, RGTC encourages
the use of solar power devices permitting its customers to live "off the grid,"
i.e., without traditional power sources.
I. BACKGROUND
On October 1, 1991, RGTC commenced its initial offering of 200,000
shares of common stock ("Common Stock") pursuant to Rule 504 under the
Securities Act of 1933, as amended (the "Securities Act"). The offering was
fully subscribed. On February 26, 1993, RGTC commenced an offering of up to
600,000 shares of Common Stock under Regulation A under the Securities Act. That
offering also was fully subscribed. Both offerings were made as direct offerings
with only limited use of selling agents. The shares of RGTC Common Stock became
registered under Section 12 of the Exchange Act on March 25, 1994, [*6] and have been traded on the Pacific Stock
Exchange since April 7, l994. n1 U.S. Stock Transfer Corporation is the transfer
agent of the Common Stock.
n1 RGTC may at some future time list
its shares on a different national securities exchange or on NASDAQ. In our
view, the same result obtains without regard to whether the Common Stock is
listed on the New York Stock Exchange, the American Stock Exchange, the Pacific
Stock Exchange, any other national securities exchange, or NASDAQ.
Trading in the Common Stock is extremely light and the market for it is
very illiquid. Assuming 21 trading days per month, its average daily trading
volume during 1995 was fewer than 850 shares. The share price for the Common
Stock was primarily in the $ 5.00 to $ 7.00 range in 1995. More than 17% of the
transactions were in odd lots. During 1995 there were approximately 3.25
transactions per day on average, including odd lot trades.
Consistent
with the mission of its business and its direct public offerings, RGTC proposes
to establish an "off the grid" trading system (the "System") for the Common
Stock. The System would function as a passive "bulletin board" providing
information to prospective [*7] sellers
and buyers of Common Stock ("Participants"). The information to be listed in the
System would include: (i) the names, addresses, and telephone numbers (or other
contact mechanisms, such as electronic mail addresses) of interested buyers and
sellers; (ii) the number of shares of Common Stock offered for sale or desired
to be purchased; (iii) the price at which the Common Stock is offered for sale
or desired to be purchased; and (iv) the date on which the information was
entered into the System. Participants would transmit the above information
either (i) by direct interface using RGTC's World wide Web site or (ii) by
telephone, facsimile, mail or electronic mail directed to RGTC, which would
enter the data into the System. The information would remain in the System until
such time as a Participant indicates that a transaction was completed or the
Participant no longer is interested in buying or selling, although RGTC also may
put a time limit on how long the information will be posted. RGTC anticipates
that Participants will obtain access to the System primarily by electronic mail,
although information may also be relayed by telephone, facsimile, mail or any
other method, including [*8] via
RGTC's World Wide Web site.
No transactions would be effected by the
System itself, and RGTC will have no role in effecting transactions between
Participants; rather all transactions would be effected only by direct contact
between the Participants. Although RGTC would have no transaction records, it
will retain records of the quotations listed for not less than three years and
make them available to the staff of the Securities and Exchange Commission (the
"Commission") and to the Pacific Stock Exchange (or any other regulated market
on which the shares are listed) on reasonable request therefor. Each Participant
would be required to rely on its own exemption under the Securities Act
including, without limitation, Section 4(1) thereof. Through its newsletters and
otherwise, RGTC proposes to advertise to shareholders and other members of the
public the availability and possible benefits of the System. The System may be
free standing or may be integrated into RGTC's World Wide Web site or both.
Neither RGTC nor any affiliate of RGTC will (i) receive any compensation
for creating or maintaining the System; (ii) receive any compensation for the
use of the System; (iii) be involved [*9] in any
purchase or sale negotiations arising from the System: (iv) give advice
regarding the merits or shortcomings of any particular trade; (v) use the
System, directly or indirectly, to offer to buy or sell securities, except in
compliance with the securities laws, including any applicable registration
requirements (absent an available exemption therefrom) n2; or (vi) receive,
transfer or hold funds or securities as an incident of operating the System.
n2 Offers and sales of nonrestricted securities by persons other
than RGTC or affiliates of RGTC could be made in reliance upon the exemptions
from registration provided by Sections 4(1), 4(3) or 4(4), as appropriate.
Offers and sales of controlled or restricted securities may be made through a
registered offering or in reliance upon an exemption from registration, such as
the Section 4(1) exemption, if the requirements of Rule 144 are satisfied. In
this regard, it is recognized that the "manner of sale" requirements of Rule 144
would be applicable to such transactions. Offers or sales of securities by RGTC
may be made either in registered transactions or in accordance with an available
exemption, such as Regulation A or Rule 504 of Regulation D under the Securities
Act. [*10]
The screens and hard copy by which the System data is provided to
Participants will include the following information:
. Identification of the national securities exchange or other regulated securities market that lists RGTC Common Stock;
. RGTC is not a registered national securities exchange, securities information processor, broker, dealer or investment adviser;
. The information set forth on the System does not consist of firm quotes, but rather is merely a list of the names, addresses and telephone numbers of interested sellers and buyers, the number of shares of Common Stock offered or desired to be purchased, and the price at which the proposed transaction would occur. RGTC does not assure that any particular transaction will occur as to any particular number of shares or at any particular price. All transactions between Participants must be executed by the Participants independent of RGTC or any of its affiliates;
. All applicable state and federal securities laws (including the anti-fraud and anti-manipulation provisions) apply to any offer made or transaction consummated using the System;
. The name, address and telephone number of RGTC's transfer agent;
. [*11] Any person that is a broker-dealer, an associated person of a broker-dealer, or who has a state securities license is responsible for identifying that fact;
. "Two-sided quotes" in which a person indicates a bid to buy at one price and an offer to sell at a higher price are prohibited n3;
. The registration requirements of the federal securities laws apply to all offers and sales through the System, absent an available exemption. Offers and sales of controlled or restricted securities may be made in reliance upon the Section 4(1) exemption if the requirements of Rule 144, including the "manner of sale" requirements, are satisfied. Please note that the public information, volume, manner of sale and notification requirements of Rule 144 do not apply to transactions that satisfy the requirements of Rule 144(k).
n3 RGTC may in the future permit two-sided
quotes. If RGTC chooses to permit two-sided quotes, the screens and hard copy by
which the System data is provided to Participants will include a statement that:
Any person providing "two-sided quotes" in which a person indicates a bid to buy
at one price and an offer to sell at a higher price may, in certain
circumstances, be considered a dealer who is required to register with the SEC
and comply with applicable provisions of the federal securities laws. [*12]
RGTC may make announcements
relating to, and advertise or otherwise publicize, the existence and
availability of the System and provide information about the use and benefits of
the System, RGTC communicates with shareholders primarily through a quarterly
publication which is distributed to both its shareholders and certain customers
who pay a modest fee to receive both special publications and a discount on
purchases of goods sold by RGTC. Although RGTC would initially plan to make its
shareholders and other members of the public aware of the System through this
newsletter, RGTC may use any other mechanism for providing information about the
System. In its communications with the public, RGTC will not characterize itself
or the System as being a "broker," a "dealer," or an "exchange." To the same
extent as required of any company whose securities are traded on a national
securities exchange or NASDAQ, RGTC will be mindful of the statutory provisions
relating to solicitations of an offer to buy. If RGTC provides information about
RGTC or the System during an offering of its securities that is registered with
the Commission, RGTC also will be sensitive to and abide by the general [*13] limitations of the federal Securities
laws regarding publicity by a company that is "in registration." Of course, all
information provided by RGTC regarding either the System or RGTC will be
consistent with the antifraud and antimanipulation requirements of the federal
securities laws.
We respectfully request that the staff (the "Staff") of
the Commission concur with our view that RGTC may establish and operate the
System as described herein without (i) RGTC registering as an "investment
adviser" under Section 203(a) of the Investment Advisers Act of 1940, as amended
(the "Advisers Act"); (ii) RGTC, or any of its personnel who will manage and
operate the System, registering as a "broker" and/or "dealer" under Section
15(a) of the Exchange Act; (iii) the registration of the System as a "national
securities exchange" under Section 6 of the Exchange Act; or (iv) the
registration of offers and sales made through the System under the Securities
Act.
II. REGISTRATION ISSUES
Broker and Dealer
Subject to certain exceptions, Section 15(a) of 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 [*14] 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. . .." RGTC will not be engaging in any activities requiring it to
register as a broker or dealer under Section 15(a). This conclusion is
consistent with the Staff's determination regarding a system similar to the
System in Farmland Industries, Inc. (August 26, 1991).
Requiring RGTC to register as a broker-dealer would not provide the
Participants with any additional protection. Because RGTC will not handle or
hold funds or shares of Common Stock of any Participant, a minimum capital
requirement is unnecessary. Any financial failure of RGTC would result only in
the loss of the Participants' access to the System, and not a loss of their
funds. Furthermore, the costs of compliance with the record keeping and periodic
reporting requirements would far outweigh any benefits.
National
Securities Exchange
Section 5 of the Exchange Act provides that it is
unlawful for an exchange to effect any transaction in a security unless such
exchange is registered as a national securities exchange [*15] under Section 6 of the Exchange Act or is
exempted from such a registration upon application to the Commission.
Section 3(a)(1) of the Exchange Act defines an "exchange" as:
any organization, association or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.
Based on the law and the foregoing facts, we are
of the opinion that the System would not be an "exchange" within the meaning of
the Exchange Act. In addition, RGTC notes that it is a Section 12 registrant and
will retain that status or, if it should cease to be a Section 12 registrant,
otherwise undertake to make publicly available the information required by
Section 13(a) of the Exchange Act in the same manner that Participants will
obtain access to the System (e.g., electronic mail, facsimile, mail,
RGTC's World-Wide Web site, etc.). Consequently, there [*16] are no issues raised regarding the
necessity of providing information to System Participants.
Investment
Adviser
Subject to certain exceptions, Section 203(a) of the Advisers
Act requires the registration of an investment adviser. Section 202(a)(11) of
the Advisers Act defines an "investment adviser" as:
any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities...
As indicated above, neither RGTC nor the System will
provide information regarding the advisability of buying or selling Common Stock
or any other securities. Similarly, RGTC will not receive any compensation for
operating the System. The System will merely provide a passive medium for
Participants to obtain information regarding other Participants who are
interested in buying or selling Common Stock. Thus, RGTC will not be engaging in
any activities requiring registration as an investment adviser under the
Advisers [*17] Act.
This conclusion is consistent with the Staff's determination regarding a system
similar to the System in Farmland Industries, Inc., supra.
Securities Act of 1933
Section 5 of the Securities Act makes it
unlawful for any person to offer, sell, or solicit an offer to purchase any
security unless a registration statement has been filed with respect to that
security, absent an available exemption. In view of the manner in which the
System will be established and operated, RGTC believes that the operation of the
System does not constitute an offer to sell or the solicitation of an offer to
buy RGTC Common Stock on the part of RGTC. As such, RGTC's activities in
connection with the establishment and maintenance of the System would not
require Securities Act registration of offers or sales made through the System.
III. CONCLUSION
For the foregoing reasons, we request
that the Staff concur with our view that RGTC may establish and operate the
System without (i) RGTC registering as an "investment adviser" under Section
203(a) of the Advisers Act; (ii) RGTC, or any of its personnel who will manage
and operate the System, registering as a "broker" and/or "dealer" under Section
15(a) [*18] of the
Exchange Act; (iii) the registration of the System as a "national securities
exchange" under Section 6 of the Exchange Act; or (iv) registering offers and
sales made through the System under the Securities Act.
In the event
that the Staff does not concur with any of our views, we kindly request an
opportunity to discuss the matter prior to any final decision thereon. If you
have any questions or wish to receive any further information, please contact me
at (415) 391-4800.
Very truly yours,
COBLENTZ,
CAHEN, MCCABE & BREYER, LLP
Barry Reder
Dictated but not
read.
Signed in Mr. Reder's
absence to avoid delay.