SEC Company Response from LOUDEYE CORP (CIK 0001064648) — Feb 2, 2005
LOUDEYE CORP (CIK 0001064648)
Date: Feb. 2, 2005 · CIK: 0001064648 · Accession: 0000891020-05-000027
AI Filing Summary & Sentiment
File numbers found in text: 333-120700
Letter
February 2, 2005 VIA EDGAR AND FACSIMILE Mark P. Shuman, Esq. Branch Chief - Legal Securities and Exchange Commission Division of Corporate Finance 450 Fifth Street, N.W. Washington, D.C. 20549
Re: Loudeye Corp. Amendment No. 1 to Registration Statement on Form S-1 (SEC File No. 333-120700) filed January 13, 2005 and Forms 10-Q/A filed October 17, 2004 and November 23, 2004 (SEC File No. 0-29582)
Dear Mr. Shuman:
We are writing to respond to comments contained in the letter, dated January 31, 2005 (the "Comment Letter"), from the staff of the Securities and Exchange Commission (the "Staff") concerning the above-referenced registration statement on Form S-1 (the "Registration Statement"). The numbered responses below correspond to the numbered paragraphs of the Comment Letter. As John Huber and I discussed with the Staff on February 1, 2005, the Company is responding to the Comment Letter prior to filing an amendment to the Registration Statement. The Company will file an amendment to the Registration Statement to reflect the revisions requested in comments 2 and 3 of the Comment Letter and other updated information.
Attachment A to this letter also contains proposed changes to the Company's quarterly report on Form 10-Q/A for the period ended September 30, 2004 previously filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") in response to comments 4 through 7 of the Comment Letter. The Company proposes to make any necessary changes to that filing (and to corresponding sections of the Registration Statement) through amendments to be filed via EDGAR promptly after clearing the proposed changes with the Staff.
GENERAL
1. We note sales of LOUDEYE's common stock and warrants on December 21, 2004, in reliance upon the registration exemption provided in Section 4(2) and Rule 506 of Regulation D. Please explain the basis for your apparent conclusion that the
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FEBRUARY 2, 2005 PAGE 2
LATHAM & WATKINS LLP
unregistered offering is separate from the offer of securities under the registration statement. Please tell us why LOUDEYE believes the unregistered offering did not involve a public offering, given the pendency of the registration statement when the unregistered offers and sales took place. For example, if you believe the Black Box line of letters is applicable to your circumstances, tell us the basis of this belief.
RESPONSE: The private placement of the Company's securities to a limited number of accredited investors on December 21, 2004 (the "Private Placement Offering") is separate from the offering of securities by the selling stockholders under the Registration Statement (the "OD2 Selling Stockholders Offering") and should not be integrated under the Commission's five factor integration test because three of the principal factors are not satisfied: (i) the two offerings are not part of the same plan of financing, (ii) the two offerings do not have the same general purpose and (iii) the consideration being received in each offering is being received by different persons. Moreover, none of the selling stockholders in the OD2 Selling Stockholders Offering were investors in or were offered securities in the Private Placement Offering.
The Private Placement Offering was a private placement by the Company of its equity securities to a limited number of accredited investors for the purpose of raising equity financing for the Company. In contrast, the Selling Stockholders Offering is being made by the selling stockholders named in the Registration Statement. All proceeds from the Selling Stockholders Offering will be received by the selling stockholders. Accordingly, since the Company is not receiving any proceeds or any other benefit from the Selling Stockholders Offering, it is not part of the same plan of financing as the Private Placement Offering. See Pacific Resources, Inc. [1976-1977 Transfer Binder] Fed. Sec. L. Rep. (CCH) (avail. August 13, 1976) (proposed registered secondary offering was not part of the same plan as financing with a concurrent private placement by the issuer because one offering was made by the issuer and the sales pursuant to the proposed registration statement were to be made solely by and for the account of the selling stockholders named therein).
For the same reason, the general purpose of the Private Placement Offering is significantly different from the general purpose of the OD2 Selling Stockholders Offering -- the purpose of the Private Placement Offering was for the Company to raise equity financing to be used for general corporate purposes, while the purpose of the Selling Stockholders Offering is to enable the selling stockholders named in the Registration Statement to sell the shares of common stock that they received in connection with the Company's acquisition of On Demand Distribution Limited. Similarly, the consideration to be received from the two offerings will be (or has been) received by different persons (solely by the Company in the case of the Private Placement Offering and will be received solely by the selling stockholders in the case of the Selling Stockholders Offering). See Pacific Resources, Inc. supra ("general purpose" and "type of consideration" factors inapplicable to concurrent private placement and registered
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FEBRUARY 2, 2005 PAGE 3
LATHAM & WATKINS LLP
secondary offering because the consideration given in the two sales would be received by different persons and for different purposes).
The Private Placement Offering was conducted in accordance with Section 4(2) under the Securities Act of 1933 and Rule 506 under Regulation D and did not involve a public offering because:
- Offers and sales of the securities issued in the Private Placement Offering were separate and apart from, and not integrated with, the Selling Stockholders Offering for the reasons set forth above;
- Only 14 investors purchased securities in the Private Placement Offering, all of whom are accredited investors (and none of whom are selling stockholders in the Selling Stockholders Offering);
- Neither the Company, nor the placement agent nor any other person acting on the Company's behalf engaged in a general solicitation in connection with the Private Placement Offering; and
- The Company complied with the limitation of resale provisions of Rule 506(d) to ensure that the investors in the Private Placement Offering were not underwriters within the meaning of Section 2(11) of the Securities Act.
Accordingly, the Private Placement Offering did not involve a public offering and was a valid private placement exempt from the registration requirements of the Securities Act of 1933 under the exemptions provided by Section 4(2) and Regulation D thereunder.
RISK FACTORS
2. In heading of the first risk factor on page 24, the risk to investors from the uncertainty regarding your internal controls is a "negative impact on our common stock price". Since this consequence is applicable to nearly all of the conditions and uncertainties addressed throughout the risk factor section, please revise to more specifically describe the immediate and specific risk that is a consequence of the uncertainty you identify. In particular, the potential impact of weaknesses in your internal controls would be better expressed if you disclose that as a consequence of the condition, there is more than a remote likelihood that a material misstatement in the financial statements will not be prevented.
RESPONSE: The Company will make the requested changes to the Registration Statement in Amendment No. 2 to the Registration Statement to be filed with the Commission.
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FEBRUARY 2, 2005 PAGE 4
LATHAM & WATKINS LLP
MANAGEMENT--COMPENSATION
3. We note that the "last fiscal year" within the meaning of Item 402 of Regulation S-K is the period ended December 31, 2004. Please update the executive compensation tables and textual information beginning on page 82 that is provided in response to Item 402.
RESPONSE: The Company will make the requested changes to the Registration Statement in Amendment No. 2 to the Registration Statement to be filed with the Commission.
FORMS 10-Q, CONTROLS AND PROCEDURES
4. The nature of the arrangements you entered into with your former accounts payable and payroll benefits manager and your former senior vice president of finance is unclear. We suggest that you review the first bullet-point on page A-7 and revise to describe the arrangements more clearly.
RESPONSE: In response to the Staff's comment, the Company has described these arrangements on pages A-7 and A-8 of Attachment A.
5. More clearly identify the functions that were not adequately segregated within your accounting and finance departments, in the opinion of the consulting firm that was advising you about internal controls over financial reporting. To what extent were changes in the segregation of these functions implemented during the quarterly period to which each filing relates, and at the conclusion of each period, what additional segregation of those functions was planned? Although we note the discussion of your implementation of a management review level for journal entries and the segregation of cash disbursement and bank reconciliation functions, are issues concerning the segregation of other accounting and finance functions material? What are the "numerous functions" to which you refer but do not explain? What were your known, specific plans to remediate control deficiencies, when you filed each of the quarterly reports?
RESPONSE: The Company has revised the disclosure on pages A-6 and A-9 of Attachment A to respond to the Staff's comment, including identification of the accounting functions which the Company considered to be material in the context of the segregation of duties control deficiency. Please note that the disclosure on pages A-6 through A-10 of Attachment A identifies the Company's current known, specific plans to remediate control deficiencies described therein as of the current date. The Company believes that each of the quarterly reports on Form 10Q identified the Company's known, specific plans to remediate control deficiencies as of the date that each such report was filed.
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FEBRUARY 2, 2005 PAGE 5
LATHAM & WATKINS LLP
6. In the carryover paragraph on A-7 and A-8, please concisely explain what you mean by referring to: "control activities, control information, design effectiveness and operating effectiveness for all financially significant applications and systems."
RESPONSE: In response to the Staff's comment, the Company has expanded its discussion of its review of financially significant general computing controls on page A-9 of Attachment A.
7. With respect to prior comment 8, the last sentence of the carryover paragraph at pages A-9 and A-10 does not appear fully responsive. Specifically, this sentence refers to changes in disclosure controls and procedures during the period subsequent to the end of each quarter. While we will not object to the inclusion of information about such changes that occur subsequent to the quarter being reported upon, please clarify whether the changes you indicate took place in each quarter were all of the changes that materially affected or were reasonably likely to materially affect your disclosure controls and procedures during that quarter.
RESPONSE: In response to the Staff's comment, the Company has clarified what changes took place in each quarter on pages A-5 and A-6 of Attachment A.
* * * * * * *
As previously requested by the Staff, the Company confirms the following:
- The Company is responsible for the adequacy and accuracy of the disclosure in its filings with the Commission;
- Staff comments or changes to disclosure in response to Staff comments in the filings reviewed by the Staff do not foreclose the Commission from taking any action with respect to the filing; and
- The Company may not assert Staff comments as a defense in any
Show Raw Text
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Washington, D.C.
February 2, 2005
VIA EDGAR AND FACSIMILE
Mark P. Shuman, Esq.
Branch Chief - Legal
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Loudeye Corp. Amendment No. 1 to Registration Statement on Form S-1
(SEC File No. 333-120700) filed January 13, 2005 and Forms 10-Q/A filed
October 17, 2004 and November 23, 2004 (SEC File No. 0-29582)
Dear Mr. Shuman:
We are writing to respond to comments contained in the letter, dated
January 31, 2005 (the "Comment Letter"), from the staff of the Securities and
Exchange Commission (the "Staff") concerning the above-referenced registration
statement on Form S-1 (the "Registration Statement"). The numbered responses
below correspond to the numbered paragraphs of the Comment Letter. As John Huber
and I discussed with the Staff on February 1, 2005, the Company is responding to
the Comment Letter prior to filing an amendment to the Registration Statement.
The Company will file an amendment to the Registration Statement to reflect the
revisions requested in comments 2 and 3 of the Comment Letter and other updated
information.
Attachment A to this letter also contains proposed changes to the
Company's quarterly report on Form 10-Q/A for the period ended September 30,
2004 previously filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") in response to comments 4 through 7 of the Comment Letter. The
Company proposes to make any necessary changes to that filing (and to
corresponding sections of the Registration Statement) through amendments to be
filed via EDGAR promptly after clearing the proposed changes with the Staff.
GENERAL
1. We note sales of LOUDEYE's common stock and warrants on December 21,
2004, in reliance upon the registration exemption provided in Section
4(2) and Rule 506 of Regulation D. Please explain the basis for your
apparent conclusion that the
<PAGE>
FEBRUARY 2, 2005
PAGE 2
LATHAM & WATKINS LLP
unregistered offering is separate from the offer of securities under
the registration statement. Please tell us why LOUDEYE believes the
unregistered offering did not involve a public offering, given the
pendency of the registration statement when the unregistered offers and
sales took place. For example, if you believe the Black Box line of
letters is applicable to your circumstances, tell us the basis of this
belief.
RESPONSE: The private placement of the Company's securities to
a limited number of accredited investors on December 21, 2004
(the "Private Placement Offering") is separate from the
offering of securities by the selling stockholders under the
Registration Statement (the "OD2 Selling Stockholders
Offering") and should not be integrated under the Commission's
five factor integration test because three of the principal
factors are not satisfied: (i) the two offerings are not part
of the same plan of financing, (ii) the two offerings do not
have the same general purpose and (iii) the consideration
being received in each offering is being received by different
persons. Moreover, none of the selling stockholders in the OD2
Selling Stockholders Offering were investors in or were
offered securities in the Private Placement Offering.
The Private Placement Offering was a private placement by the
Company of its equity securities to a limited number of
accredited investors for the purpose of raising equity
financing for the Company. In contrast, the Selling
Stockholders Offering is being made by the selling
stockholders named in the Registration Statement. All proceeds
from the Selling Stockholders Offering will be received by the
selling stockholders. Accordingly, since the Company is not
receiving any proceeds or any other benefit from the Selling
Stockholders Offering, it is not part of the same plan of
financing as the Private Placement Offering. See Pacific
Resources, Inc. [1976-1977 Transfer Binder] Fed. Sec. L. Rep.
(CCH) (avail. August 13, 1976) (proposed registered secondary
offering was not part of the same plan as financing with a
concurrent private placement by the issuer because one
offering was made by the issuer and the sales pursuant to the
proposed registration statement were to be made solely by and
for the account of the selling stockholders named therein).
For the same reason, the general purpose of the Private
Placement Offering is significantly different from the general
purpose of the OD2 Selling Stockholders Offering -- the
purpose of the Private Placement Offering was for the Company
to raise equity financing to be used for general corporate
purposes, while the purpose of the Selling Stockholders
Offering is to enable the selling stockholders named in the
Registration Statement to sell the shares of common stock that
they received in connection with the Company's acquisition of
On Demand Distribution Limited. Similarly, the consideration
to be received from the two offerings will be (or has been)
received by different persons (solely by the Company in the
case of the Private Placement Offering and will be received
solely by the selling stockholders in the case of the Selling
Stockholders Offering). See Pacific Resources, Inc. supra
("general purpose" and "type of consideration" factors
inapplicable to concurrent private placement and registered
<PAGE>
FEBRUARY 2, 2005
PAGE 3
LATHAM & WATKINS LLP
secondary offering because the consideration given in the two
sales would be received by different persons and for different
purposes).
The Private Placement Offering was conducted in accordance
with Section 4(2) under the Securities Act of 1933 and Rule
506 under Regulation D and did not involve a public offering
because:
- Offers and sales of the securities issued in the
Private Placement Offering were separate and apart
from, and not integrated with, the Selling
Stockholders Offering for the reasons set forth
above;
- Only 14 investors purchased securities in the Private
Placement Offering, all of whom are accredited
investors (and none of whom are selling stockholders
in the Selling Stockholders Offering);
- Neither the Company, nor the placement agent nor any
other person acting on the Company's behalf engaged
in a general solicitation in connection with the
Private Placement Offering; and
- The Company complied with the limitation of resale
provisions of Rule 506(d) to ensure that the
investors in the Private Placement Offering were not
underwriters within the meaning of Section 2(11) of
the Securities Act.
Accordingly, the Private Placement Offering did not involve a
public offering and was a valid private placement exempt from
the registration requirements of the Securities Act of 1933
under the exemptions provided by Section 4(2) and Regulation D
thereunder.
RISK FACTORS
2. In heading of the first risk factor on page 24, the risk to investors
from the uncertainty regarding your internal controls is a "negative
impact on our common stock price". Since this consequence is applicable
to nearly all of the conditions and uncertainties addressed throughout
the risk factor section, please revise to more specifically describe
the immediate and specific risk that is a consequence of the
uncertainty you identify. In particular, the potential impact of
weaknesses in your internal controls would be better expressed if you
disclose that as a consequence of the condition, there is more than a
remote likelihood that a material misstatement in the financial
statements will not be prevented.
RESPONSE: The Company will make the requested changes to the
Registration Statement in Amendment No. 2 to the Registration
Statement to be filed with the Commission.
<PAGE>
FEBRUARY 2, 2005
PAGE 4
LATHAM & WATKINS LLP
MANAGEMENT--COMPENSATION
3. We note that the "last fiscal year" within the meaning of Item 402 of
Regulation S-K is the period ended December 31, 2004. Please update the
executive compensation tables and textual information beginning on page
82 that is provided in response to Item 402.
RESPONSE: The Company will make the requested changes to the
Registration Statement in Amendment No. 2 to the Registration
Statement to be filed with the Commission.
FORMS 10-Q, CONTROLS AND PROCEDURES
4. The nature of the arrangements you entered into with your former
accounts payable and payroll benefits manager and your former senior
vice president of finance is unclear. We suggest that you review the
first bullet-point on page A-7 and revise to describe the arrangements
more clearly.
RESPONSE: In response to the Staff's comment, the Company has
described these arrangements on pages A-7 and A-8 of
Attachment A.
5. More clearly identify the functions that were not adequately segregated
within your accounting and finance departments, in the opinion of the
consulting firm that was advising you about internal controls over
financial reporting. To what extent were changes in the segregation of
these functions implemented during the quarterly period to which each
filing relates, and at the conclusion of each period, what additional
segregation of those functions was planned? Although we note the
discussion of your implementation of a management review level for
journal entries and the segregation of cash disbursement and bank
reconciliation functions, are issues concerning the segregation of
other accounting and finance functions material? What are the "numerous
functions" to which you refer but do not explain? What were your known,
specific plans to remediate control deficiencies, when you filed each
of the quarterly reports?
RESPONSE: The Company has revised the disclosure on pages A-6
and A-9 of Attachment A to respond to the Staff's comment,
including identification of the accounting functions which the
Company considered to be material in the context of the
segregation of duties control deficiency. Please note that the
disclosure on pages A-6 through A-10 of Attachment A
identifies the Company's current known, specific plans to
remediate control deficiencies described therein as of the
current date. The Company believes that each of the quarterly
reports on Form 10Q identified the Company's known, specific
plans to remediate control deficiencies as of the date that
each such report was filed.
<PAGE>
FEBRUARY 2, 2005
PAGE 5
LATHAM & WATKINS LLP
6. In the carryover paragraph on A-7 and A-8, please concisely explain
what you mean by referring to: "control activities, control
information, design effectiveness and operating effectiveness for all
financially significant applications and systems."
RESPONSE: In response to the Staff's comment, the Company has
expanded its discussion of its review of financially
significant general computing controls on page A-9 of
Attachment A.
7. With respect to prior comment 8, the last sentence of the carryover
paragraph at pages A-9 and A-10 does not appear fully responsive.
Specifically, this sentence refers to changes in disclosure controls
and procedures during the period subsequent to the end of each quarter.
While we will not object to the inclusion of information about such
changes that occur subsequent to the quarter being reported upon,
please clarify whether the changes you indicate took place in each
quarter were all of the changes that materially affected or were
reasonably likely to materially affect your disclosure controls and
procedures during that quarter.
RESPONSE: In response to the Staff's comment, the Company has
clarified what changes took place in each quarter on pages A-5
and A-6 of Attachment A.
* * * * * * *
As previously requested by the Staff, the Company confirms the
following:
- The Company is responsible for the adequacy and accuracy of
the disclosure in its filings with the Commission;
- Staff comments or changes to disclosure in response to Staff
comments in the filings reviewed by the Staff do not foreclose
the Commission from taking any action with respect to the
filing; and
- The Company may not assert Staff comments as a defense in any