Company Name: IPONET
Public Availability Date: 07-26-1996
INQUIRY LETTERRADCLIFF, FRANDSEN, TRICKER & DONGELL
FORTIETH FLOOR
777 SOUTH FIGUEROA STREET
LOS ANGELES, CALIFORNIA 90017
TELEPHONE(213) 614-1990 July 23, 1996 Securities Act of 1933, as amended, Sections: 2(10), Rule 230.134
4(2)
Regulation D, Section 502(c) Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549 Re: IPONET Ladies and Gentlemen: I am submitting this request for a No Action Letter pursuant to Release No.
33-6269. Accordingly, please find enclosed seven copies of this letter, together
with the original. Summary of Request The specific requests for no action assurance are set forth in detail later in
this letter. As an introduction, IPONET seeks assurance on the following issues: 1. Indications of Interest may be Accepted Electronically. In connection with a
public offering, W.J. Gallagher & Company, Inc., may accept indications of
interest via electronic coupon or card as well as a paper coupon or card, if the
requirements of Rule 134(d) are otherwise met. 2. The Posting of a Notice of a Private Offering in a Password-protected Page of
IPONET Accessible Only to IPONET Members Who Have Previously Qualified as
Accredited Investors Does Not Involve Any Form of General Solicitation or
General Advertising Within the Meaning of Regulation D Section 502(c). W.J.
Gallagher & Company, Inc., through the IPONET web site, will solicit individuals
who meet the "accredited investor" or sophisticated investor standards of
Regulation D to register as "Accredited Investors" as a means of building a
customer base and data base of accredited and sophisticated investors for W.J.
Gallagher & Company, Inc. After an individual has been determined to meet the
requirements of an Accredited Investor, the Accredited Investor may review
offers for private offerings of securities from companies that have posted
private offerings with IPONET in accordance with the rules otherwise applying
under Regulation D. The solicitation for Accredited Investors will be
independent of and will not be linked to or made specifically with reference to
any pending private offering. Accredited Investors may not invest in private
offerings that were posted on IPONET before the Accredited Investor registered.
Under these circumstances, an offer of securities otherwise satisfying the
requirements of Regulation D to accredited or sophisticated investors who have
been independently and previously solicited as customers of W.J. Gallagher &
Company, Inc. will not constitute a general solicitation or general advertising
within the meaning of Regulation D Section 502(c). The Facts 1. IPONET is a sole proprietorship, wholly owned by Leo J. Feldman ("Feldman"),
an individual. W.J. Gallagher & company has established and will maintain a
system to supervise the activities of Feldman, including those pursued through
IPONET, that is reasonably designed to achieve compliance with all applicable
securities laws and regulations, and with the rules of the NASD and any other
applicable self-regulatory organization. 2. Feldman is a registered principal of W.J. Gallagher & Company, Inc. W.J.
Gallagher & Company, Inc., conducts a general securities business, including
participation in public offerings as a "selected dealer". 3. IPONET has established a home page and other linked pages (collectively
"Site") on the World Wide Web located at http://www.zanax.com/iponet. IPONET
intends to post on its 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 prospectuses
will set forth the names of the underwriters. In cases where W.J. Gallagher &
Co., Inc., will not act as an underwriter, the name of W.J. Gallagher & Company,
Inc., will not appear on the "tombstone" or on the red herring prospectus. The
distribution of the "tombstone" advertisement and the red herring prospectus by
the issuer and its underwriters through the Site will be in accordance with
Release No. 33-7233, dated October 6, 1995. The Site will also set forth a
separate statement substantially as follows: "The securities offered by Name of
Issuer pursuant to the Preliminary Prospectus dated insert date are available
through W.J. Gallagher & Company, Inc." In addition, in the case where W.J.
Gallagher & Company, Inc., will not act as an underwriter, the Site will contain
a statement substantially as follows: "W.J. Gallagher & Company, Inc., is not an
underwriter of the securities of Name of Issuer, but is authorized to accept
customer orders for the purchase of the securities." In such cases, W.J.
Gallagher & Company, Inc., will not purchase any of the securities from the
Issuer for resale, will not participate in any such undertaking directly or
indirectly, will not participate in the management of the distribution of the
issue or any part of the issue, and will not perform any function normally
performed by an underwriter or underwriting syndicate. IPONET is not asking for
the Division's view on whether IPONET or W.J. Gallagher & Co., Inc., is acting
as an underwriter, since such determinations are made on a case by case basis. 4. The IPONET 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 to buy be accepted prior to the time
the registration statement becomes effective. This (communication) 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 such 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. As indication of interest in response to this advertisement will
involve no obligation or commitment of any kind." 5. The Site will also contain an electronic "coupon" or "card" linked to each
red herring prospectus. A visitor to the Site will be invited to complete and
send this electronic "coupon" or "card", via e-mail or communications link in
the Site itself or by printing the coupon or card and sending it by regular
carrier, indicating an interest in purchasing the security. 6. In cases where W.J. Gallagher & Company, Inc., will not act as an
underwriter, but the securities will be sold through W.J. Gallagher & Company,
Inc., as one of the "selected dealers", W.J. Gallagher & Company, Inc., will
receive a commission which will not exceed the usual and customary distributors'
or sellers' commission. 7. The Site contains a section entitled "Accredited Investors". Persons who have
previously registered as a member of IPONET are invited to request registration
with IPONET as an "Accredited Investor". These Accredited Investors will be
added to W.J. Gallagher & Company, Inc.'s customer and data base. In order to
register, the member must complete an on-line questionnaire substantially in the
form of Exhibit A, which is designed to allow W.J. Gallagher Company, Inc., and
any potential issuer to determine, or to have a basis for a reasonable belief,
that a member is an "accredited investor" within the meaning of Regulation D,
Rule 501(a) or a sophisticated investor under Rule 506. The questionnaire may be
completed on-line in a secured manner or printed out and returned in hard copy.
W.J. Gallagher & Company, Inc., will verify the information in the questionnaire
to determine that the member is an Accredited Investor. Once a Member is
qualified and registered as an "Accredited Investor", then the Accredited
Investor will be given a password which will allow the Accredited Investor to
access a password-protected page where private offerings will be posted and the
Accredited Investor may access further information. However, the IPONET site
will only allow an Accredited Investor access to those private offerings which
are posted subsequent in time to the Accredited Investors qualification with
IPONET. If the Accredited Investor has consented, then IPONET may contact the
Accredited Investor in the future about new private offerings that are posted on
IPONET. 8. The name of the Accredited Investor will be kept confidential by IPONET and
W.J. Gallagher & Company, Inc., and will not be released to the issuers making
the private offerings unless the Accredited Investor specifically consents to
such release to a particular issuer. This consent may be given on-line. 9. Private issuers may post their private offerings in the password-protected
section of IPONET. No mention or description of the issuer of any nature will be
available on IPONET to any person, other than those who have previously
qualified as Accredited Investors, who must use their password to enter the
password-protected part of IPONET. 10. In cases where W.J. Gallagher & Company, Inc., is not acting as a
broker-dealer, IPONET will charge a "listing fee" of a set amount. The listing
fee will cover such items as design and graphics work, technical consulting
regarding the listing, and historical popularity of the Site (analogous to the
circulation history of newspapers). The listing fee will be independent of the
size of the private offering, any investment made by Accredited Investors, and
the number of hits to the Site after listing. (In such cases, W.J. Gallagher &
Company, Inc., will be completely independent of the issuer and W.J. Gallagher &
Company, Inc., will receive no compensation of any nature.) In cases where W.J.
Gallagher & Company, Inc., is acting as a broker-dealer, IPONET will still
receive only the listing fee and nothing more. Neither W.J. Gallagher & Company,
Inc., nor IPONET will have an affiliation with or any interest of any kind in
the issuer prior to or at the time of the offering of the private offering. 11. An Accredited Investor may invest only in private offerings which are posted
on IPONET subsequent in time to the registration of the Accredited Investor with
IPONET, and then only after a sufficient time has elapsed between the IPONET
member's registration as an Accredited Investor and the inception of a private
offering so that the registration as an Accredited Investor is not deemed to be
a solicitation for a particular private offering. 12. Each issuer desiring to list a private offering with IPONET will covenant to
issues securities in a private offering in strict accordance with Regulation D.
The obligation to assure compliance with Regulation D will rest upon the issuer. Legal Analysis 1. W.J. Gallagher & Company, Inc. May Accept Indications of Interest Via E-Mail Rule 134(d) provides as follows: (d) A communication sent or delivered to any person pursuant to this rule which
is accompanied or preceded by a prospectus which meets the requirements of
Section 10 of the Act at the date of such communication, may solicit from the
recipient of the communication an offer to buy the security or request the
recipient to indicate, upon an enclosed or attached coupon or card, or in some
other manner (emphasis added), whether he might be interested in the security,
if the communication contains substantially the following statement: "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." As described above in Facts, paragraphs 3 and 4, the Site will contain the
notices required by Rule 134(b)(1) and (d) linked to any tombstone advertisement
and red herring prospectus. Rule 134(d) specifically contemplated that indications of interest may be
accepted by a "coupon or card, or in some other manner". IPONET's electronic
"coupon" or "card" may be sent directly from the Site or independently via
e-mail, or printed in hard copy and sent via regular carrier. An electronic or
e-mail indication of interest as described should qualify as a card or coupon in
harmony with Release No. 33-7233, October 6, 1995, and certainly qualifies under
the phrase "some other manner" and is entirely consistent with the 1933 Act and
the Rules thereunder. See the excerpt from Release No. 33-7233 set forth below. 2. The Posting of a Notice of a Private Offering in a Password-protected Page of
IPONET Accessible Only to IPONET Members Who Have Previously Qualified as
Accredited Investors Does Not Involve Any Form of General Solicitation or
General Advertising Within the Meaning of Regulation D Section 502(c). In H.B. Shaine & Co., Inc., No Action Letter dated May 1, 1987, the staff
indicated that a distribution by Shaine of questionnaires to prospective
accredited and sophisticated investors to determine their suitability to
participate in private offerings would not be deemed a "general solicitation or
general advertisement". This view was premised upon several factors, including
the use of a generic questionnaire and upon the elapse of a sufficient period of
time between the completion of the questionnaire and the contemplation or
inception of any particular offering. As described above in Facts, paragraphs 7-11, W.J. Gallagher & Company, Inc.,
will follow substantially the same procedure as Shaine. The primary distinction
appears to be simply that the questionnaire will be distributed electronically
through the IPONET Site and the questionnaire may be returned either
electronically through a link in the Site, through e-mail, or by hard copy, and
one assumes that Shaine sent and received the questionnaires through traditional
means. Similarly, the documents relating to a private offering to the Accredited
Investors would be distributed electronically through the IPONET Site password
protected page available only to Accredited Investors. The No Action Letter did
not address the means of communication. In Release No. 33-7233, the Commission stated: The Commission appreciates the promise of electronic distribution of information
in enhancing investors' ability to access, research, and analyze information,
and in facilitating the provision of information by issuers and others. The
Commission believes that, given the numerous benefits of electronic distribution
of information and the facts that in many respects it may be more useful to
investors than paper, its use should not be disfavored.* * * Given the numerous
benefits of electronic media, the Commission encourages further technological
research, development and application. The Commission believes that the use of
electronic media should be at least an equal alternative to the use of
paper-based media. Accordingly, issuer or third party information that can be
delivered in paper under the federal securities laws may be delivered in
electronic format. (Emphasis added.) Accordingly, since W.J. Gallagher & Company, Inc., will be soliciting
questionnaires for Accredited Investors and will be distributing information on
private offerings electronically that it could otherwise properly do by paper,
the posting of private offerings in a password protected page of IPONET would
not involve general solicitation or general advertisement within the meaning of
Rule 502(c) under the circumstances discussed above. Conclusion. We request that you concur with the conclusions set forth above. If you have
questions or comments, please contact me directly. Very truly yours, Russell M. Frandsen, of
RADCLIFF, FRANDSEN, TRICKER
& DONGELL RMF:kn STAFF REPLY LETTERJuly 26, 1996 RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE Re: IPONET
Incoming letter dated July 23, 1996 Based on the facts presented, the Division's views are as follow: (1) The reference in Rule 134(d) to "an enclosed or attached coupon or card, or
in some other manner" would be equally applicable to the acceptance of
indications of interest via electronic coupon or card as well as paper coupon or
card by W.J. Gallagher & Company, Inc. ("Gallagher"). In this regard, we note
your representation that the other requirements of Rule 134(d) will be satisfied
in connection with the acceptance of such indications of interest. (2) The qualification of accredited or sophisticated investors in the manner
described and the posting of a notice of a private offering in a
password-protected page of IPONET accessible only to IPONET members who have
qualified as accredited investors would not involve any form of "general
solicitation" or "general advertising" within the meaning of Rule 502(c) of
Securities Act Regulation D. In reaching this conclusion, we note that (a) both
the invitation to complete the questionnaire used to determine whether an
investor is accredited or sophisticated and the questionnaire itself will be
generic in nature and will not reference any specific transactions posted or to
be posted on the password-protected page of IPONET; (b) the password-protected
page of IPONET will be available to a particular investor only after Gallagher
has made the determination that the particular potential investor is accredited
or sophisticated; and (c) a potential investor could purchase securities only in
transactions that are posted on the password-protected page of IPONET after that
investor's qualification with IPONET. In this regard, we take no position as to
whether the information obtained by Gallagher is sufficient to form a reasonable
basis for believing an investor to be accredited or sophisticated. Because these positions are based on the representations made to the Division in
your letter, it should be noted that any different facts might require a
different result. Sincerely, Joseph Babits
Special Counsel
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