Company Name: Wit Capital Corp.
Public Availability Date: July 20, 2000
Document Sections:LETTER OF INQUIRY
APPENDIX
APPENDIX
STAFF REPLY LETTER
[LETTER OF INQUIRY]
July 20, 2000 Michael Hyatte, Esq.
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549 Re: Request For Interpretive Guidance Regarding Registered Offerings That Will Be Distributed Using The VostockSM Auction Process Dear Mr. Hyatte: We are writing to seek interpretive guidance as to the proper method of
registration of offerings of securities conducted through the VostockSM auction
method of distribution. The Vostock auction method uses a transparenti.e.,
visible to those with Internet connectionsorder book. As an open auction each
customer, as well as the general public, regulators and anyone else with
Internet access will be able to see the aggregate demand in the auction,
including the aggregate demand for small bids and the aggregate demand for large
bids, at each price level. A Vostock auction will be conducted on an anonymous
basis. Each auction conducted through Vostock will have a maximum price and a
minimum price that bidders may bid. This means that the issuer and the
underwriters will not disclose the identity of bidders to any other participant
in the auction. The maximum price will be set at a price lower than the closing
price of the security in its primary market. This letter describes the Vostock
auction method of distribution, what we believe is a proper method for complying
with Sections 2(a)(3), 2(a)(10), 5 and 10 of the Securities Act and the rules
and regulations thereunder. The Vostock auction method will be used for registered follow-on, secondary and
combination offerings of stock. Auctions will only be conducted after the
registration statement for an offering has been declared effective.1 The
underwriters for an offering will conduct the auction after the close of trading
in the primary market session for the issuer's stock on a trading day. The
underwriters and dealers will notify their customers about the auction by
telephone, facsimile or e-mail, through a web site posting, in person or by
another means. The notices2 will specify the number of shares to be offered in
the auction, as well as the URL address3 for the auction, the minimum bid size,
the price increment for bids and the time the auction begins and ends. The
contents of the web site Wit Capital proposes to use for the auction are
described below. Briefly, the theory used in its development is that of a
cul-de-sac with two sets of contents: first, an electronic document that is a
Section 10 prospectus that includes the preliminary or final prospectus, as
appropriate along with navigation links to specific pages within that
prospectuse.g., the auction order book viewer; and second, the account access
link to the customer's account management pages that permits a customer that
wishes to place a bid to access the location that permits the customer to access
his or her account and place bids in the auction (the "Account Management
Pages"). When the auction commences, the minimum and maximum price per share for the
securities being auctioned will be displayed to all viewers of the auction. The
maximum price will be below the closing price/last sale in the primary market
session for the issuer's stock on a trading day. Views of the auction will
include the following information from the immediately preceding primary trading
session for the class of securities being auctioned: the day's high, low, open
and close and the day's volume. The auction will be accessible through the Internet at web sites maintained by
Wit Capital Corporation and ITG, Inc. ("ITG")4 or other participating
broker-dealers. Each person viewing the auction using the java applet for
viewing the auction order book will view the same information at the same time,
the only differences in timing will relate to the speed of the viewer's internet
connection. Similarly, each person viewing the auction utilizing the html viewer
will view the same information, the only timing differences will relate to the
frequency that such viewer chooses to update his or her view and the speed of
such viewer's internet connection. Prior to commencement of an auction, the underwriters and the issuer will
determine a minimum and maximum price for the auction and will post them on the
auction web sites. Prior to the time of the auction, the underwriters and the
issuer will enter into the underwriting agreement. All shares will be purchased
by the underwriters at the price determined in the auction, less the
underwriting discount, pursuant to typical firm commitment underwriting terms.
The offering process will commence upon the posting of a prospectus on web sites
maintained for the purpose by one or more of the underwriters or selected
dealers. The Wit Capital web site will use the "cul-de-sac" idea described in
the No-action letter dated July 14, 1999 addressed to Wit Capital and our
related request letter. A cul-de-sac will begin after gateway pages used to
validate the location of the person entering the web sites and obtain consent to
electronic receipt of documents. Once through the gateway pages, there is a menu
page that is part of the single electronic document that constitutes the
prospectus. On the menu page are links to (i) the most recent prospectus
generally circulated to customers by the underwriters, (ii) if desired by the
issuer, an electronic "management presentation", and (iii) pages that contain
views of the auction order book,5 all of which are filed as part of the
prospectus. The fourth menu item is a link to the Account Management Pages for
placing, changing or canceling orders that are communications facilities for the
customer to effect his or her desired action.6 A print out of the form of
webpage that contains the menu for these items is attached.7 The only hyperlinks
that are to be included within the site will be those that link to other pages
within the cul-de-sac, and to the page that permits a customer to access his or
her Account Management Pages. The web site through which the auction will be
conducted has been developed with a scalable infrastructure that can be expanded
above the system's rated capacity of approximately 40,000 simultaneous
connections. The only difference between the printed prospectus and those posted on web sites
will be (i) the prospectus used on web sites will have the changes required for
electronic presentation to comply with Regulation S-T, and (ii) the cul-de-sac
pages will include specific parts of the prospectus that can be accessed by
direct link. Thus, the cul-de-sac is designed to function as a single electronic
document with links only (a) to other specific sections within the prospectus,
for example, the "plan of distribution" or the "management presentation"
portions of the prospectus, and (b) to the Account Management Pages. The issuer
will include within the filed prospectus "screen shots" of the pages that
constitute the cul-de-sac. Shortly after 4:00 p.m. on any trading day during the offering period (the
period commencing on the date the registration statement is declared effective
and ending fifteen business days later8), the underwriters and the issuer may
announce the intention to conduct an auction later that day.9 The announcement
will specify (i) the times at which the auction will begin and end,10 (ii) the
URL locations through which the auction may be accessed, (iii) the number of
shares to be offered in the auction, (iv) the minimum number of shares for which
a bid may be placed, and (v) the price increment for bids. Customers of Wit Capital can submit bids directly to an auction through the
pages described above that are within the Wit Capital cul-de-sac. Customers of
ITG can submit bids directly to an auction through the pages described above
that are within the ITG cul-de-sac. In the future, other underwriters may offer
electronic access to Vostock auctions. Customers of one of the underwriters in
the syndicate that is not offering electronic access to auctions to its
customers can request that underwriter to submit a bid on its behalf.
Underwriters may not bid for their own account in the auction. Each customer will have the right to cancel or change his or her bid (price or
number of shares) at any time prior to termination of the auction. Any changed
bid will be treated as having been submitted at the time the change is made
purposes of the price and time priority allocation process described below. If a
bid price is less than the minimum price or above the maximum, the bid will be
rejected and not be included in the auction. The price for any auction will be determined as follows in the following three
situations: Bids are received for all shares at the maximum price If bidders have submitted, and not cancelled or changed, bids to buy all of the
shares being made available in the auction at the maximum price set for the
auction, the auction price will be the maximum price set for the auction. Bids are received for all shares above the minimum price, but below the maximum
price If there are not sufficient bids at the maximum price for all of the shares
being made available in the auction, the auction price will be the highest price
at which bids for all shares being made available in the auction can be
accepted. This auction price may be adjusted if the issuer and underwriters
decide to reallocate shares to small bids or large bids, as described below. Any
such adjustment will be downwards. No bidder will be requested or required to
pay a price that is higher than his or her bid. Bids are received for fewer shares than those being auctioned If there are not bids for all shares at the minimum price or above, the price
for the auction will be the minimum price. The issuer will sell, pursuant to
typical firm commitment underwriting terms, to the underwriters the shares at
the minimum price less the applicable underwriting discount. The underwriters will allocate shares based upon bid price, with a bidder who
submits a higher bid price having priority over a bidder who submits a lower bid
price. If two bidders submit bids in the auction with the same bid price, the
bidder who submitted the bid first will have priority in allocation of shares.
The allocation based upon strict price and time priority described above is
subject to the following two exceptions: If, as a result of the allocation of shares based upon strict price and time
priority, less than 25% of the shares in the auction would be allocated for
small bids11, the underwriters and the issuer may agree to give priority to
small bids over large bids, even if the large bids were at higher prices or
earlier in time, but only to the extent that it would allow for an allocation of
not more than 25% of the auction to small bids. If, as a result of the allocation of shares based upon strict price and time
priority, less than 25% of the shares in the auction would be allocated for
large bids, the underwriters and the issuer may agree to give priority to large
bids over small bids, even if the small bids were at higher prices or earlier in
time, but only to the extent that it would allow for an allocation of not more
than 25% of the auction to large bids. This reallocation of shares may cause the auction price to be lower than it
otherwise would be. In addition, as a result of the reallocation, small bidders
(or large bidders, as applicable) may lose priority to large bidders (or small
bidders, as applicable) who have submitted bids at a lower price or later in
time. However, within the group of small bidders, and within the group of large
bidders, allocations for shares will be determined based upon strict price and
time priority. If a customer changes his or her bid in the auction, the bid will receive
priority based upon the price and time of the last change submitted. Customers
of Wit Capital, may only have one valid bid in the auction at any time.
Customers submitting bids through ITG, or an underwriter submitting bids on
behalf of customers, may have more than one valid bid in the auction at any
time. The underwriters will terminate the auction at the time specified in the
announcement. However, if bidders have submitted, and not cancelled or changed,
bids to buy all of the shares being made available in the auction at the maximum
price set for the auction, the auction will close before the scheduled
termination time. In this situation, the auction price will be the maximum price
set for the auction. When the auction has terminated, the underwriter or dealer through whom a bid is
submitted will notify its customers whether or not they have been allocated
shares in the auction. A customer that participates in the auction
electronically and that is allocated shares in the auction will receive a notice
of acceptance specifying the number of shares allocated, the purchase price per
share and payment instructions.12 We have analyzed the sections of the Securities Act we believe applicable to the
open auction process, in particular, sections 2(a)(3), 2(a)(10), 5 and 10, in
light of the principles enunciated in Securities Act Release No. 7233 (Oct. 6,
1995) (the "1995 Release"), and in Securities Act Release No. 7856 (May 4, 2000)
(the "2000 Release"), among other sources. The question that appears to require
analysis is whether the materials included within the cul-de-sac are illegal
free writings. We believe the correct answer is that these materials are not if
the cul-de-sac and auction bid site are constructed in the manner we have
described and if the filed prospectus includes screen shots (print outs) of
those materials present within the cul-de-sac or reached by hyperlinks within it
that are part of the prospectus or are the Account Management Pages that do no
more than facilitate the customer actually placing a bid (or modifying or
cancelling that bid). The inclusion within the prospectus that is used pre-auction of the indicated
web pages eliminates free-writing concerns with respect to those web pages as
they are part of a Section 10 prospectus. As stated in the 2000 Release,
"Information on a web site would be part of a Section 10 prospectus only if an
issuer (or person acting on behalf of an issuer...) acts to make it part of the
prospectus." In the case of Vostock auctions, the issuer and the underwriters
will have included the hyperlinked information that is "selling material" within
the prospectus. The only other pages within the cul-de-sac that an investor can
reach via hyperlink are pages that permit that investor to reach his or her
Account Management Pages and place, modify, cancel or review bids. These Account
Management screens are no more than a communications tool used by the customer
to implement his or her investment decision. Based upon the foregoing analysis, we believe that one proper method for
registering an offering in compliance with applicable filing requirements is as
follows:
A. Include within the filed preliminary prospectus, as applicable, screen shots
of the pages that will be included in each cul-de-sac. These will include
screenshots of the blank auction order books, i.e., the auction screens, as they
will appear before the auction commences.
B. File pursuant to Rule 424(b)(3) a summary of the auction including one or
more tables setting forth the following information at fifteen minute intervals
during the term of the auction: the number of shares bid for at each price in
the small order book, the large order book and the combined order book. The
summary would also include a statement of the final price and a summary of how
it was determined.13 The summary would include a statement that the summary is a
fair and accurate summary of the information presented through the order book
viewer at such times. Further, if any substantive change in the bidding occurred
inside the fifteen minute intervals, tables showing each substantive change
would be presented.
The auction order book viewer page (html or Java) is part of a single electronic
document that is a Section 10 prospectus. Because the auction order book viewer
is accessible only through the electronically delivered prospectus, hence only
as part of the prospectus, preliminary or final, then in use, we believe there
should be no violation of Section 5(b)(1). We seek your concurrence by way of interpretive guidance that the foregoing
description of the proposed filing procedures would be acceptable to the
Division of Corporation Finance. Very truly yours, Robert Mendelson
Co-General Counsel
Wit Capital Corporation cc: Timothy H. Hosking, Esq.
Stephen P. Farrell, Esq. -----FOOTNOTES----- 1 Accordingly, customers will be placing orders to purchase stock, not
conditional offers to purchase. 2 A copy of the proposed form of notice is attached. 3 Going to this URL address brings one to the gateway page to the cul-de-sac. 4 Wit Capital and ITG are broker-dealers registered with the SEC and members of
the NASD. 5 The cul-de-sac will not include rules and procedures, FAQs or a tutorial.
These will be outside the cul-de-sac, available for viewing at any time. These
do not, of course, refer to any particular offering, but are the "users manual"
for using the site that will be entered. 6 ITG utilizes a different menu arrangement, appropriate for its institutional
customers. The primary difference is that it will present a net roadshow as a
linked item rather than the management presentation. The net roadshow will be
provided to institutional investors in accordance with procedures addressed in
the Staff's prior no action letters for electronic delivery of roadshows to
institutional customers. We are not asking that you address ITG's arrangements
for presenting Vostock auctions to its customers in this letter as it is
believed that its procedures comply with prior Staff positions. 7 This page is reached through three click throughs: first, from a listing of
offerings by issuer, then a 134 notice for the offering, then a gateway page.
Each of these is substantially similar to those used by Wit Capital for
offerings generally. 8 See, Rule 430A, unless the offering is pursuant to Rule 415. 9 However, the anticipated date or range of dates may be communicated to
customers prior to official announcement of an auction. 10 We anticipate that ordinarily auctions will commence at approximately 5:00
p.m. New York time and end 90 minutes later. 11 Bids for 999 shares or fewer are treated as small bids; bids for 1,000 shares
or more are treated as large bids. 12 This notice of acceptance will be transmitted electronically and in
conformity with the procedures set forth in the No-Action Letter dated July 14,
1999 to Wit Capital and the related request letter 13 The summary will also include a statement of the number of shares bid for at
or above the market clearing price, what that price was and, if the issuer chose
to do so as described above, whether a lower price was selected so that shares
were reallocated from the large order book to the small order book or vice
versa, and what that lower price was. [APPENDIX]
Pre-Auction Commencement Announcement Subject: Auction for the [Type of Offering] of [Issuer] Wit Capital Corporation is pleased to invite you to participate in the [Type of
Offering] of [Issuer]. [Issuer][No. of shares][increments of x][Type of Security], [Type of Offering]We are offering shares through an auction between [beginning time] and [end
time] today. An auction will terminate at any time prior to the scheduled
termination if the issuer has received bids through the auction for a number of
shares equal to or greater than the offering size at the maximum price for that
auction. If you are interested in participating, please go to the Web site
below, where you will be able to review the preliminary prospectus, management
presentation, auction FAQs and participate in the auction. [Hyperlink to website]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 JURISDICTION IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF SUCH JURISDICTION. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN AND 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. Wit Capital Corporation is an affiliate of Wit SoundView. Wit Capital Corporation is a Member NASD/SIPC Contact information & a Remove Link: For QuestionsMailto:members@witcapital.com For Removalmailto:NewIssueAlert@witcapital.com?subject=UNSUBSCRIBE
[APPENDIX]
IF YOU ARE INTERESTED IN THIS OFFERING, READ THE PRELIMINARY PROSPECTUS BEFORE
PROCEEDING TO THE AUCTION Choose from the following: Download the preliminary prospectus: PDF prospectus (Requires Adobe Acrobat, click here to get it) HTML prospectus View the Management Presentation Place, Modify or Cancel an order for this Auction Launch Order Book Viewer HTML Version Java Version
[STAFF REPLY LETTER]
July 20, 2000 RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF CORPORATION FINANCE Re: Wit Capital Corporation Incoming letter dated July 20, 2000 Based on the facts presented, the Division's view is that Wit Capital
Corporation may conduct auctions of common equity securities by registrants
subject to the periodic reporting requirements of the Securities Exchange Act of
1934 through the Internet system described in your letter in compliance with
Section 5(b)(1) of the Securities Act of 1933. After the effectiveness of a
registration statement for the sales of securities using the auction system, Wit
Capital Corporation may comply with the requirements of Rules 424 and 430A by
filing
a final prospectus supplement that provides a fair and accurate description of
the information, including price information, as will have been presented
electronically in the Internet auction, by presenting
the final terms of the offering;
the summary of bidding activity described in your letter; and
any other interim screen shots that evidence a substantive change in the
information already filed with the Commission.
In reaching these positions, we note particularly
that the Internet auction screens will be a part of the prospectus permitted
by Section 10 of the Securities Act;
that, because they are part of the electronic prospectus permitted by Section
10 of the Securities Act, the Internet auction screens will be accessible only
through that electronic prospectus;
that, in your view, a complete presentation of all bidding and other auction
activity visible to participants on the Internet auction screens need not be
filed under Rule 424 because the filings that will be made under Rule 424 will
include all substantive changes from information already filed with the
Commission; and
that, because the Internet auction screens, as described in your letter, are
part of the prospectus, all bidding and other auction activity visible to
participants on the Internet auction screens are part of the prospectus.
The positions expressed above merely represent the Division's views regarding
compliance with Section 5(b)(1) of the Securities Act and the filing
requirements of Rule 424. Because the positions expressed above are limited to
the presentation and manner of conducting the Internet auction, we take no
position regarding whether any announcement of the Internet auction would
constitute a "prospectus," as defined in Section 2(a)(10) of the Securities Act.
Further, we are not prescribing the method for filing the Internet auction
screens on the EDGAR system. On this subject, you should consult Regulation S-T,
including Rule 304 thereof, and the Commission's interpretations regarding the
use of electronic media. These positions are based on the representations made to the Division in your
letter. Any different facts or conditions might require another conclusion. Sincerely, Michael Hyatte
Special Counsel
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