Company Name: Internet Capital Corp.
Public Availability Date: 12-24-1997[INQUIRY LETTER]
KIRKLAND & WITHERSPOON, PLLC
714 WASHINGTON MUTUAL FINANCIAL CENTER
601 WEST MAIN AVENUE
SPOKANE, WASHINGTON 99201-0677
TELEPHONE(509) 455-9077 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 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 found 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 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 online 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 followsfor
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
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 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 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 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 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 if first
required to go through a registration process. This registration process
involves the disclosure of key information such as the individual's name and
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 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 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 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 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. cj
[STAFF REPLY LETTER]
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). 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 Counsel
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