Company Name: Real Goods Trading Corp.
Public Availability Date: June 24, 1996
INQUIRY LETTERCOBLENTZ, CAHEN, MCCABE & BREYER, LLP
222 KEARNY STREET, 7TH FLOOR
SAN FRANCISCO, CALIFORNIA 94108-4510
TELEPHONE(415) 391-4800 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 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, and have been traded on the
Pacific Stock Exchange since April 7, 1994. 1 U.S. Stock Transfer Corporation is
the transfer agent of the Common Stock. 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 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
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 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)
2; or (vi) receive, transfer or hold funds or securities as an incident of
operating the System. 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; 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 3; 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). 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 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 business of buying or 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 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 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 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 the 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) 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 BR/pjw
cc: John Schaeffer Dictated but not read.
Signed in Mr. Reder's
absence to avoid delay. STAFF REPLY LETTERJune 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
broker-dealer 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 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 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 Attachment CM/dn 1 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. 2 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. 3 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.
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