[Federal Register Volume 63, Number 37 (Wednesday, February 25, 1998)]
[Proposed Rules]
[Pages 9648-9661]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4459]
Federal Register / Vol. 63, No. 37 / Wednesday, February 25, 1998 /
Proposed Rules
[[Page 9648]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 228, 229, 230 and 239
[Release No. 33-7506, 34-39669; File No S7-2-98]
RIN 3235-AG94
Registration of Securities on Form S-8
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
publishing for comment proposed amendments to Form S-8 and related
rules under the Securities Act and Regulations S-K and S-B to restrict
the use of the form for the sale of securities to consultants and
advisors, and to allow the use of the form for the exercise of stock
options by family members of employee optionees. The first set of
proposals is intended to eliminate the abuse of Form S-8 purportedly to
register offerings to consultants and advisors who then act as
statutory underwriters to sell the securities to the general public,
and to register securities issued as compensation to consultants who
promote the registrant's securities. The second set of proposals is
intended to facilitate legitimate employee estate planning transactions
and other intra-family transfers.
DATES: Comments should be submitted on or before April 27, 1998.
ADDRESSES: All comments concerning the proposed amendments should be
submitted in triplicate to Jonathan G. Katz, Secretary, U.S. Securities
and Exchange Commission, Mail Stop 6-9, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Comments also may be submitted electronically
at the following e-mail address: rule-comments@sec.gov. All comment
letters should refer to File Number S7-2-98; this file number should be
included on the subject line if e-mail is used. Comment letters will be
available for inspection and copying in the public reference room at
the same address. Electronically submitted comment letters will be
posted on the Commission's Internet Web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Anne M. Krauskopf, Special Counsel,
Office of Chief Counsel, Division of Corporation Finance, at (202) 942-
2900.
SUPPLEMENTARY INFORMATION: The Commission today proposes amendments to
Rules 401 \1\ and 405 \2\ under the Securities Act of 1933
(``Securities Act''),\3\ Item 402 \4\ of Regulations S-B and S-K, and
Securities Act Forms S-3 \5\ and S-8.\6\
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\1\ 17 CFR 230.401.
\2\ 17 CFR 230.405.
\3\ 15 U.S.C. 77a et seq.
\4\ 17 CFR 228.402 and 17 CFR 229.402.
\5\ 17 CFR 239.13.
\6\ 17 CFR 239.16b.
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I. Executive Summary and Background
The Commission today proposes rule amendments to address two
separate problems associated with the use of Form S-8 to register
employee benefit plan securities. First, the Commission proposes to
restrict the availability of streamlined registration on Form S-8 to
deter abuse of the form to make sales to the general public through so-
called ``consultants and advisors,'' and to eliminate registration on
the form of securities issued to stock promoters. These amendments are
proposed as part of the Commission's comprehensive agenda to deter
registration and trading abuses, particularly by small capitalization
issuers.\7\ Second, the Commission proposes to expand Form S-8 to
facilitate option exercises by employees' family members, so that the
rules governing use of the form do not impede legitimate intra-family
transfers by employees, such as transfers for estate planning purposes
or transfers pursuant to domestic relations orders.
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\7\ See Securities Act Release No. 7505, adopting amendments to
Regulation S [17 CFR 230.901 et seq.], and Release No. 39670 under
the Securities Exchange Act of 1934 (``Exchange Act'') [15 U.S.C.
78a et seq.], proposing amendments to Exchange Act Rule 15c2-11 [17
CFR 240.15c2-11].
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Form S-8 is used to register securities for offer and sale to
employees \8\ of the issuer in a compensatory or incentive context. In
1990, the Commission adopted substantial revisions to Form S-8,
including an abbreviated disclosure format that eliminated the need to
file a separate prospectus that duplicated information otherwise
provided to plan participants.\9\ The delivery of regularly prepared
materials to advise employees about benefit plans was permitted to
satisfy prospectus delivery requirements. This revision reflected a
distinction the Commission traditionally has recognized between
offerings made to employees primarily for compensatory and incentive
purposes and offerings made by registrants for capital-raising
purposes. Specifically, employees' familiarity with the business of the
issuer through the employment relationship and the compensatory purpose
of the offering justify the use of abbreviated disclosure that would
not be adequate in the context of a capital-raising offer of securities
to the non-employee public.\10\
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\8\ For this purpose, ``employees'' includes also the employees
of the issuer's subsidiaries or parents. See General Instruction
A.1(a) to Form S-8.
\9\ Securities Act Release No. 6867 (June 6, 1990) [55 FR
23909].
\10\ Form S-8 also provides for incorporation by reference of
the registrant's reports filed under the Exchange Act regardless of
the length of the registrant's reporting history or the size of its
public float. Incorporation by reference from Exchange Act reports
into a Securities Act registration statement is not otherwise
available unless the eligibility requirements for Form S-2 [17 CFR
239.12] or Form S-3 are satisfied.
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The 1990 revisions also made Form S-8 available for offers and
sales of securities to consultants and advisors who render bona fide
services to the registrant, provided that such services are not
rendered in connection with the offer or sale of securities in a
capital-raising transaction. Where securities are issued for
compensatory rather than capital-raising purposes, there appeared to be
no meaningful basis for distinguishing between transactions with
regular employees and those with consultants and advisors retained by
the registrant. As a result of the 1990 revisions, for example, a
physician on the faculty of a medical school who advises a company
regarding a pharmaceutical product in development could be compensated
for this service with company securities registered on Form S-8.
A. ``Consultant'' Abuses
Since the adoption of the 1990 revisions, some issuers have used
Form S-8 improperly as a means to distribute securities to the public
without the protections to investors of registration under Section 5 of
the Securities Act. In a typical pattern, an issuer registers on Form
S-8 securities underlying options issued nominally to so-called
``consultants'' where, by prearrangement, the issuer directs the
consultants' exercise of the options and resale of the underlying
securities by the consultants in the public markets. In some cases,
these consultants perform little or no other service for the issuer.
The consultants then either remit to the issuer the proceeds from the
sale of the underlying shares, or apply the proceeds to pay debts of
the issuer that are not related to any service provided by the
consultants.\11\
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\11\ See, e.g., In the Matter of Spectrum Information
Technologies, Inc. (``Spectrum''), Securities Act Release No. 7426,
Exchange Act Release No. 38774, Accounting and Auditing Enforcement
Release No. 930 (June 25, 1997). For additional discussion, see
Section II.A below.
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The registration of the underlying shares on Form S-8 does not
register these public sales under Section 5 of the
[[Page 9649]]
Securities Act. The transaction that actually takes place (a capital-
raising transaction with the public) is not the transaction that is
registered (a compensatory transaction with consultants). Form S-8 is
available solely to register compensatory sales of securities to
``employees,'' including certain consultants and advisors.\12\ While
the issuer purports to sell the securities to employees, the actual
public sale of securities is not made to employees. Instead, the
``employees'' act as conduits by selling the securities to the public
and remitting the proceeds (or their economic benefit) to the issuer.
This public sale of securities by the issuer has not been registered,
as is required by the Securities Act. Public investors accordingly are
deprived of the accountability and disclosure that the liability
provisions of the Securities Act and the opportunity for Commission
staff review of the registration statement provide in registered public
distributions.
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\12\ ``Employee'' is defined in General Instruction A.1.(a) of
the form to include consultants and advisors who render bona fide
services not in connection with the offer or sale of securities in a
capital-raising transaction, exclusive insurance agents of the
registrant and, in certain circumstances, former employees and the
estates of employees or former employees.
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The form also has been misused to register securities issued to
compensate ``consultants'' whose service to the issuer is the promotion
of the issuer's securities. This practice facilitates securities fraud
by providing inexpensive compensation to persons who hype the issuer's
stock, and expands the market for the issuer's securities through
resales by these persons.
The Commission seeks to prevent future abuse of Form S-8 while, to
the extent possible, preserving the original goal of making Form S-8
available for the registration of compensatory transactions between the
registrant and consultants and advisors who render bona fide services
outside the capital-raising context, as well as traditional employees.
To this end, the Commission today issues proposals that would:
Clarify that Form S-8 is not available for sales to
consultants and advisors who directly or indirectly promote or maintain
a market for the company's securities;
Exclude certain registration statements and post-effective
amendments that automatically become effective upon filing from the
general rule that a registration statement or amendment is deemed filed
on the proper form unless the Commission objects to the form before the
effective date; and
Require disclosure in Part II of Form S-8 of the names of
any consultants or advisors to whom the registrant will issue
securities under the registration statement, the number of securities
to be issued to each of these persons, and the specific services that
each will provide to the registrant.
In addition, the Commission solicits comment on a number of other
approaches to the problem, such as limiting the percentage of the total
number of the registrant's securities outstanding that may be
registered on Form S-8 for issuance to consultants and advisors. The
Commission also solicits comment as to whether specific certification
as to the bona fide nature of consultants' or advisors' services should
be required; whether each consulting or advisory agreement under which
securities are proposed to be issued should be filed as an exhibit to
the Form S-8; and whether disclosure of sales to consultants and
advisors should be required on Forms 8-K or 10-Q.
B. Option Exercises by Family Transferees; Executive Compensation
Disclosure
Currently, Form S-8 is available for the exercise of employee
benefit plan options only if the option is exercised by the employee/
optionee. The form is unavailable to non-employee option transferees,
such as an adult son or daughter of an employee. If a company wishes to
permit a family member transferee to exercise an employee benefit plan
option, it must register the sale of the underlying securities on a
separate, less streamlined registration statement.
In the 1996 amendments to the rules under Section 16 \13\ of the
Securities Exchange Act of 1934 (``Exchange Act''),\14\ the Commission
revised Rule 16b-3 \15\ to provide a broader, simplified exemption from
short-swing profit recovery for transactions between an issuer and its
directors or officers, whether or not in the context of an employee
benefit plan. Among other things, the amendments eliminated the
requirement of former Rule 16b-3 that a derivative security issued
under an employee benefit plan be non-transferable.\16\
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\13\ 15 U.S.C. 78p.
\14\ 15 U.S.C. 78a et seq.
\15\ 17 CFR 240.16b-3. See Exchange Act Release No. 37260 (May
31, 1996).
\16\ Former Rule 16b-3(a)(2) prohibited transfers except (i) by
will or the laws of descent and distribution, or (ii) pursuant to a
qualified domestic relations order as defined by the Internal
Revenue Code.
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Under current tax law, significant estate tax savings may be
obtained if an employee, during his or her lifetime, transfers a vested
option to a family member, who then exercises it. In comparison, the
exercise of the option by the employee with the underlying security
later passing to the family member through the employee's taxable
estate is more costly from a tax standpoint. The Rule 16b-3 revisions
simplified the transfer of options and other derivative securities by
employees to their immediate family members, and to trusts and
partnerships established for the benefit of immediate family members,
for estate planning purposes. Other aspects of the 1996 Amendments
facilitated the transfer of securities to a former spouse in divorce
proceedings.\17\ For the first time, many companies are issuing
transferable options to their officers and directors.
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\17\ Rule 16a-12 [17 CFR 240.16a-12] exempts from both the
reporting requirements of Section 16(a) and the short-swing profit
recovery requirements of Section 16(b) the acquisition or
disposition of equity securities pursuant to a domestic relations
order.
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The Commission believes that making Form S-8 available for
registration of employee benefit plan option exercises by an employee's
family members may be appropriate. Because of the family relationship
to an employee and the compensatory--rather than capital-raising--
character of the transaction, the abbreviated disclosure format of Form
S-8 may be suitable for these transactions. The fact that only
companies that are required to file Exchange Act reports are eligible
to use Form S-8 supports this approach.
The proposals issued today would:
Make Form S-8 available for the exercise of employee
benefit plan options by an employee's family member who has acquired
the options from the employee through a gift or domestic relations
order;
Make Form S-8 available to former employees for the
exercise of transferable, as well as non-transferable, options; and
Revise executive compensation disclosure requirements to
clarify how options and stock appreciation rights (``SARs'') that have
been transferred should be reported.
In addition, the Commission proposes to make Form S-3 equally
available for the offer and sale of securities underlying both warrants
and options, without regard to whether either class of securities is
transferable.
II. Consultant Abuses
A. Consultants and Advisors Eligible for Form S-8 Transactions
[[Page 9650]]
General Instruction A.1(a) to Form S-8 restricts the form's
availability to the offer and sale of the registrant's securities to
its employees, or employees of its subsidiaries or parents, pursuant to
any employee benefit plan. For this purpose, ``employee'' is defined to
include a consultant or advisor who provides bona fide services to the
registrant other than in connection with the offer or sale of
securities in a capital-raising transaction. Like a traditional
employee, a consultant or advisor must be a natural person, and privity
must exist between the registrant and the consultant or advisor both as
to the consulting contract and the issuance of the securities
registered on Form S-8.\18\ In response to telephone inquiries, the
Division of Corporation Finance staff has interpreted the phrase ``in
connection with the offer or sale of securities in a capital-raising
transaction'' to preclude the issuance of securities on Form S-8 to
consultants either (i) as compensation for any service that directly or
indirectly promotes or maintains a market for the registrant's
securities, or (ii) as conduits for a distribution to the general
public.
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\18\ See Image Entertainment (Mar. 6, 1992). However, where the
consultant or advisor performs services for the registrant through a
wholly-owned corporate alter ego, the registrant may contract with
and register securities on Form S-8 as compensation to that
corporate entity. See Aaron Spelling Productions, Inc. (July 1,
1987).
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Despite express limitations set forth in Form S-8 and related staff
interpretations, some companies have taken advantage of the automatic
effectiveness--and resultant absence of staff review--applicable to
Form S-8 to register securities for issuance in capital-raising
transactions.\19\ In the typical fact pattern, a company issues shares
registered on Form S-8 to purported employees or other nominees
designated as ``consultants'' or ``advisors,'' who frequently do not
provide any bona fide services to the company. At the direction of the
company, these nominees then resell the shares on an unregistered basis
and remit all or part of the proceeds back to the company. These
distributions deprive the ultimate public purchasers of the disclosure
and liability benefits of Securities Act registration. In some cases, a
series of Forms S-8 is used to effect the distributions, so that the
aggregate number of shares distributed constitutes a significant
percentage--if not the preponderance--of the company's shares
outstanding.\20\
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\19\ Rule 462(a) provides that a registration statement on Form
S-8 becomes effective upon filing with the Commission. Rule 464(a)
provides that a post-effective amendment filed on Form S-8 also
becomes effective upon filing with the Commission.
\20\ See In the Matter of Sky Scientific, Inc. (``Sky
Scientific''), Securities Act Release No. 7372, Exchange Act Release
No. 38049, Accounting and Auditing Enforcement Release No. 863 (Dec.
16, 1996), in which the company conducted an unregistered
distribution to the public through 106 registration statements and
post-effective amendments filed on Form S-8, covering a total of
approximately 30 million shares of common stock.
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In distributing the shares to the public on behalf of the company,
these consultants or employees act as ``underwriters,'' as defined in
Section 2(a)(11) of the Securities Act.\21\ The company's registration
statement on Form S-8 registers only offers and sales of stock to
employees and consultants or advisors. However, the company's
distribution of securities does not come to rest with these persons.
Instead, the company uses these nominal ``consultants'' as conduits for
unregistered offers and sales of securities to the public for which no
exemption is available. In these circumstances, the Commission has
charged companies with violations of Sections 5(a) and 5(c) of the
Securities Act.\22\ Consultants acting as nominees have been charged
with violating Section 5 as underwriters.\23\
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\21\ 15 U.S.C. 77b(a)(11), which states, in pertinent part:
``The term `underwriter' means any person who has purchased from an
issuer with a view to, or offers or sells for an issuer in
connection with, the distribution of any security, or participates
or has a direct or indirect participation in any such undertaking,
or participates or has a participation in the direct or indirect
underwriting of any such undertaking [* * *].''
\22\ See, e.g., Spectrum, cited at n. 11 above.
\23\ In addition to Spectrum, see Sky Scientific, cited at n. 20
above.
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In other circumstances, companies have misused Form S-8 by using it
to register securities issued to consultants or advisors as
compensation for their services as stock promoters. Public investors
who repurchase these securities in effect pay the salaries of
individuals whose services for the issuer may result in the
dissemination of material fraudulent information. These transactions
are outside the scope of transactions that currently are permitted to
be registered on Form S-8, whether or not they result in unregistered
sales of securities to the public in violation of Section 5.
The Commission believes that one means to deter these abuses of
Form S-8 is to restrict further the definition of consultants and
advisors who may be compensated with securities registered on the form.
The Commission proposes to amend General Instruction A.1(a) to Form S-8
to clarify that the consultant or advisor must provide to the
registrant bona fide services that do not directly or indirectly
promote or maintain a market for the registrant's securities.
24 This limitation would be in addition to the existing
provision that these services may not be in connection with the offer
or sale of securities in a capital-raising transaction. The amended
instruction also would codify the existing requirement that the
consultant or advisor be a natural person who has contracted directly
with the registrant. The Commission proposes similarly to amend the
definition of ``employee benefit plan'' contained in Securities Act
Rule 405, so that a consultant or advisor may participate in an
employee benefit plan only if the same conditions are met.
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\24\ Whether activities that otherwise promote the registrant
would indirectly promote the registrant's securities would depend
upon the facts and circumstances.
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Under the proposed amendment to Form S-8, issuers could not use the
form to register securities as compensation for the services of
financial consultants who advise the company regarding a potential
capital restructuring because this service is a predicate to capital-
raising and market maintenance. In contrast, issuers would be able to
register on Form S-8 securities issued as compensation for the services
of financial consultants who assist the company in structuring its
compensation scheme, or attorneys who defend the company in litigation,
because these activities do not have a capital-raising connection.
Commenters are asked to address whether, in the context of the
other proposals set forth in this Release, the proposed restriction
regarding consultant promotional services effectively will deter or
prevent the use of ``consultants'' as underwriters. Commenters also
should address whether this proposed restriction would unduly hinder
the use of Form S-8 to register securities as compensation to
consultants for legitimate purposes. If so, how should the restriction
otherwise be crafted to distinguish activities that do not promote or
maintain securities markets--and thus assist capital-raising--from
those that do? Alternatively, should the Commission simply amend Form
S-8 so that it is no longer available at all for the issuance of
securities to consultants and advisors?
In light of the proposal to deter the Form S-8 abuse described
above, and consistent with the Commission's broader goal of harmonizing
its regulations, the Commission is considering whether to limit the
categories of people who are permitted to participate, as ``consultants
and
[[Page 9651]]
advisors,'' in private companies' compensatory transactions exempted
from Securities Act registration under Rule 701. 25
Specifically, the Commission is considering interpreting ``consultants
and advisors'' for Rule 701 purposes in the narrower manner it has
interpreted these terms for Form S-8 eligibility purposes.
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\25\ 17 CFR 230.701.
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Under current staff interpretation of Rule 701, ``consultants and
advisors'' is construed more broadly than under Form S-8. For example,
staff interpretive letters have permitted Rule 701 offers and sales to
be made to:
Independent sales representatives who distribute the
company's products; 26
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\26\ Herff Jones, Inc. (Nov. 13, 1990), Microchip Technology,
Inc. (Nov. 4, 1992) and Optika Imaging Systems, Inc. (Oct. 1, 1996).
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Franchisees; 27
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\27\ USWeb Corporation (Nov. 7, 1996).
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Physicians who contract to provide medical services
pursuant to various managed care arrangements; 28 and
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\28\ The Morgan Health Group, Inc. (Dec. 18, 1995), Princeton
Medical Management Resources, Inc. (Sept. 12, 1997), PHM Management,
Inc. (Sept. 16, 1997) and Talbert Medical Management Corporation
(Sept. 16, 1997).
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Golf pros who serve as independent agents for the
distribution of golf products through their pro shops.29
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\29\ Golfpro, Inc. (Oct. 3, 1989).
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In contrast, companies are not currently permitted to register on Form
S-8 securities issued to compensate these persons, unless there is a de
facto employment relationship between the person and the company. Such
a relationship may exist where a person not employed by a company
provides services to the company that traditionally are performed by an
employee, and the compensation paid by the company for those services
is the primary source of the person's earned income. 30
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\30\ See Foundation Health Corporation (July 12, 1993), which
permitted registration on Form S-8 of stock underlying employee
benefit plan options granted to physicians employed by an affiliated
professional corporation to provide medical services at the
registrant's HMO, where the company had the right to require the
physicians to provide medical services exclusively at the HMO.
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These differences in interpretation have caused some confusion
because the terms ``consultants and advisors'' appear in both rules,
and both rules relate to compensation involving securities. It is not
clear why a broader interpretation should be appropriate for exempt
sales by a private company, as compared to registered sales by a public
company, although it should be noted that securities issued in a Rule
701 plan are ``restricted securities'' 31 for resale
purposes.
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\31\ As defined in Rule 144(a)(3)(ii) [17 CFR
230.144(a)(3)(ii)].
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Should the availability of Rule 701 to compensate consultants and
advisors be interpreted consistently with the availability of Form S-8?
Would a consistent interpretation further the Commission's goal of
preventing the use of ``consultants'' as underwriters in the Form S-8
context? On the other hand, is there good reason to interpret
``consultant or advisor'' more narrowly for purposes of Form S-8,
because it results in the issuance of freely-tradeable registered
securities, whereas Rule 701 results in the issuance of restricted
securities?
Alternatively, would it be more appropriate to change the
interpretations under Form S-8 to conform with the less restrictive
approach in Rule 701? If so, should Form S-8 be amended to remove the
specific requirement that insurance agents be ``exclusive,'' given that
independent insurance agents are eligible participants in a Rule 701
plan? 32 If this approach were adopted, should independent
insurance agents and other independent sales representatives be
required to derive a specified minimum percentage of income from the
company--such as 10, 20 or 50 percent--in order to qualify for both
Rule 701 and Form S-8?
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\32\ Agents who serve as independent sales representatives for
an affiliate of an insurance company are considered ``consultants or
advisors'' under Rule 701. See Exceptional Producers Holding Company
(Aug. 17, 1989). In contrast, General Instruction A.1(a) to Form S-8
currently requires an insurance agent to be an exclusive agent of
the registrant to be considered an ``employee.'' See First
Centennial Corporation (Feb. 25, 1992).
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Employee benefit plans also are addressed in Regulation S, the
exemptive rule for offshore offers and sales, using language similar to
the current wording of Form S-8 and Rule 405.33 No parallel
amendment to Regulation S is proposed in this Release, in light of the
other changes to the regulatory structure of Regulation S proposed
today in a companion release.34 However, the Commission is
considering whether such an amendment should be adopted, and solicits
comment on whether this would be necessary.
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\33\ Securities Act Rule 903(c)(1)(iv)(A) [17 CFR
230.903(c)(1)(iv)(A)], which requires securities offered and sold to
employees of the issuer or its affiliates pursuant to an employee
benefit plan administered under the laws of a foreign country to be
issued in compensation for bona fide services not rendered in
connection with the offer and sale of securities in a capital
raising transaction.
\34\ Securities Act Release No. 7505.
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B. Requirement as to Proper Securities Act Form
Securities Act Rule 401(g) currently states that any registration
statement or amendment is deemed to be filed on the proper form unless
the Commission objects to the form before the effective date. This rule
requires the Commission and the registrant to resolve any dispute as to
whether a filing is on the appropriate form before effectiveness.
Because the disclosure requirements of different forms are tailored for
the transactions for which they are prescribed, in some cases
registration on a form other than the form prescribed for the specific
transaction may deprive public investors of the disclosure benefits of
Securities Act registration.
Of course, for registration statements filed on Form S-8 and other
forms that become effective immediately upon filing,35 the
Commission has no opportunity to object to the form in a timely manner.
The Commission proposes to remedy this situation by amending Rule
401(g) so that all registration statements and post-effective
amendments that become effective automatically upon filing under
Securities Act Rules 462 and 464 would be excluded from its
scope.36 Accordingly, there no longer would be a presumption
that any Securities Act filing that is automatically effective under
these rules is on the proper form.
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\35\ Securities Act Rule 462 [17 CFR 230.462] makes the
following registration statements effective immediately upon filing:
(a) Rule 462(a) covers Forms S-3 and F-3 for dividend and interest
reinvestment plans, and Form S-8; (b) Rule 462(b) covers
registration statements filed in specified limited circumstances to
increase by no more than 20% the number of shares of the same class
previously registered for the same offering, and post-effective
amendments to those registration statements; (c) Rule 462(c) covers
post-effective amendments filed in specified limited circumstances
to provide only price-related information omitted from the
registration statement in reliance on Rule 430A; and (d) 462(d)
covers post-effective amendments filed solely to add exhibits. Where
the issuer continues to meet the requirements for filing on the
appropriate form, Rule 464 [17 CFR 230.464] makes effective upon
filing post-effective amendments on Form S-8; Forms S-3, F-2 and F-3
relating to dividend or interest reinvestment plans; and Form S-4
[17 CFR 239.25] (if filed in reliance on General Instruction G to
that form).
\36\ Investment company registration statements and post-
effective amendments that become effective immediately upon filing
under Securities Act Rules 485(b) [17 CFR 230.485(b)] and 486(b) [17
CFR 230.486(b)] would not be affected by the amendment proposed
today.
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The proposed amendment would clarify that the Commission, by
failing to object in the absence of an opportunity for pre-effective
review, does not concede that the proper form has been used. Where a
form that is solely available for a specified purpose
[[Page 9652]]
is used for a different type of transaction, the registration may not
be valid. Where a registration statement is filed on a Securities Act
registration form available only for the offer and sale of securities
to a different class of persons than the persons to whom the securities
are in fact offered and/or sold, the Commission staff will, in
appropriate cases, assert that the securities are offered and sold in
violation of Section 5.
Although, to date, significant abuses in this area have been
limited primarily to Form S-8, the Commission proposes to exclude from
Rule 401(g) all registration statements and post-effective amendments
that become effective immediately upon filing under Rules 462 and 464
in order to preclude abuses involving the other automatically effective
forms. Commenters should address whether this approach is appropriate,
or, alternatively, whether the proposed amendment should be limited to
registration statements and post-effective amendments on Form S-8.
It is noted that Rule 464 requires the issuer to continue to meet
the requirements of the specified forms as a condition for automatic
effectiveness of post-effective amendments. In light of this specific
condition, should post-effective amendments to Forms S-4 filed pursuant
to General Instruction G (applicable to bank or savings and loan
holding company formations) and dividend reinvestment plan registration
statements on Forms S-3, F-2 and F-3 be excluded from the proposed
amendment to Rule 401(g)?
C. Information About Consultants and Advisors
Today's proposals would amend Part II of Form S-8 to require the
company to name any consultants or advisors to whom securities will be
sold under the registration statement, to specify the number of
securities to be issued to each of these persons, and to describe
specifically the services that each of these persons will provide to
the company. If this information is not available at the time the Form
S-8 is filed, the company would be required to file it by post-
effective amendment before the securities are sold to the consultants
or advisors. The failure to provide any part of this information in the
Form S-8 would result in a disclosure violation.
The requirement to name these persons in the registration statement
is designed to have a chilling effect on their use as conduits for
unregistered public offerings. Further, this requirement would
facilitate objective verification that the consultant or advisor is a
natural person. The requirement to specify the number of securities to
be issued to each person would discourage the use of Form S-8 as a
vehicle to distribute significant quantities of securities into the
public markets. Finally, the requirement to specify the services to be
provided by consultants and advisors would permit an objective
determination whether these services are bona fide, non-capital-raising
and non-promotional services that legitimately may be compensated with
securities registered on Form S-8. Generic disclosure, such as
``consulting services,'' would result in a disclosure violation.
Commenters are asked to address whether these proposals would
reduce the likelihood of securities being sold on Form S-8 to
``consultants'' who act as statutory underwriters, or otherwise promote
or maintain a market for the registrant's securities. Are there any
specific circumstances under which these disclosures would not be
warranted, or would create difficulty? For example, would these
amendments unduly burden companies in industries--such as computer
technology--that routinely conduct their businesses through numerous
consultants, who are compensated with securities registered on Form S-
8? If so, would any specific compensatory practices be impeded? How
should the proposal be tailored to alleviate any inappropriate burdens
while retaining its prophylactic effect?
Would other potential amendments to Form S-8--either in addition
to, or substitution for, those proposed today--more effectively promote
this goal? For example, in addition to the proposed amendments, should
the Form S-8 cover page include a box that a registrant would be
required to check if any of the securities registered are to be offered
and sold to consultants or advisors? If so, in order to facilitate the
location of this information in the EDGAR database, should filers also
be required to include an electronic ``tag'' in the header of their
EDGAR filings or other electronic means of identifying this
information? In addition to--or as an alternative to--the proposed Part
II disclosure of consultant services, should registrants be required to
file consulting and advisory contracts as exhibits to Form S-8?
37
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\37\ In the absence of an exhibit requirement, companies would
remain obligated to furnish these agreements, as supplemental
information, to the Commission staff promptly upon request under
Securities Act Rule 418 [17 CFR 230.418].
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The signature requirements to Form S-8 require the registrant to
certify ``that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8[.]'' 38 A
registrant cannot in good faith make this certification, in its current
form, for a Form S-8 under which securities are issued to consultants
and advisors who act as underwriters or otherwise promote the
registrant's securities. Should this certification be expanded to
require the registrant, or an officer of the registrant, to certify
specifically that any consultant or advisor who will receive securities
under the registration statement is not hired for capital-raising or
promotional activities?
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\38\ Similar registrant certification provisions are included in
the signature requirements to Securities Act Forms S-2, S-3, S-11
[17 CFR 239.18], S-20 [17 CFR 239.20], SB-1 [17 CFR 239.9], SB-2 [17
CFR 239.10], F-1 [17 CFR 239.31], F-2 [17 CFR 239.32], F-3 [17 CFR
239.33], F-6 [17 CFR 239.36], F-7 [17 CFR 239.37], F-8 [17 CFR
239.38], F-9 [17 CFR 239.39], F-10 [17 CFR 239.40], and F-80 [17 CFR
239.41].
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In addition to, or substitution for the proposed amendments to Part
II of Form S-8, should companies be required to disclose issuances of
securities to consultants and advisors that occurred during the most
recently completed fiscal quarter in their Exchange Act annual and
quarterly reports? If so, should the names of the recipients and
amounts of securities be included? Are these issuances of sufficient
market significance that their disclosure instead should be required in
a Form 8-K? Should either form of Exchange Act disclosure be mandated
only in particular circumstances, for example where the securities
issued equal or exceed one percent of the issuer's total securities
outstanding, or where the issuer's total market capitalization does not
exceed a specified dollar amount, such as $200 million, $250 million or
$300 million? Would it be appropriate to require Exchange Act
disclosure by registrants that do not satisfy the ``float test'' for
registrant eligibility to make a primary offering on Form S-3
(aggregate market value of voting and non-voting common equity held by
non-affiliates of $75 million or more)? 39 Alternatively,
should the proposed amendments to Part II of Form S-8 apply only to
issuers that meet one or more of these criteria?
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\39\ General Instruction I.B.1 to Form S-3.
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D. Percentage of Securities Registrable on Form S-8
As noted above, in some cases issuers have used Form S-8 to
distribute to the public a significant percentage of the total number
of securities outstanding.40 One means to eliminate this
abusive practice would be to limit the aggregate percentage of
securities that may be sold
[[Page 9653]]
to consultants or advisors pursuant to Form S-8 during the registrant's
fiscal year. For example, these securities could be limited to ten
percent of the number of securities of the same class outstanding,
computed based on the registrant's most recent balance sheet.
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\40\ See Sky Scientific, discussed at n. 20 above.
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While no specific rule proposal is included among the amendments
proposed today, the Commission is considering this approach. Comment is
solicited as to whether such an annual limitation is a necessary or
desirable means to prevent the abuse of Form S-8 to conduct
unregistered public offerings. If such a limitation were adopted,
should the annual percentage limit be set higher (for example, at 15
percent) or lower (such as at five percent) to achieve this goal? Would
a ten percent limitation leave an adequate pool of securities available
to compensate consultants for legitimate purposes? Finally, should a
different standard apply to companies in industries (such as computer
technology) that rely extensively on the services of consultants in the
ordinary conduct of their business?
III. Transferable Options and Proxy Reporting
A. Form S-8 Availability for Family Member Transferees
The past decade has witnessed the increased use of options by
corporations as a component of the employee compensation package. As
executives and other employees receive an increasing proportion of
their compensation--and thereby accumulate an increasing proportion of
their wealth--in the form of options,41 these instruments
assume greater significance in the context of estate planning
transactions and other intra-family transfers, such as property
settlements in connection with divorce. Particularly in the estate
planning context, an option transfer to a family member during the
employee's lifetime can confer significant tax advantages.42
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\41\ The total value of shares set aside for option grants in
the United States during 1996 has been estimated as $600 billion, as
compared to approximately $59 billion in 1985. See estimates
calculated by Sanford C. Bernstein & Co., as cited in J. Fox, ``The
Next Best Thing to Free Money,'' Fortune (July 7, 1997).
\42\ For example, if an employee makes a lifetime gift of a
vested option to a family member, the gift will be subject to
federal gift tax at the time of the gift, based on the option's then
fair market value. If the employee instead exercises the option and
retains the underlying stock, the fair market value of that stock at
the date of the employee's death will be included in his or her
taxable estate. A donor is subject to gift taxes to the extent the
value of a gift exceeds the $10,000 annual exclusion and the
$600,000 unified estate and gift tax credit (as indexed for
inflation pursuant to Section 501 of the Taxpayer Relief Act of
1997). Assuming that the option's fair market value at the time of
gift is substantially lower than the fair market value of the
underlying stock at the time it would be transferred to the family
member from the employee's taxable estate, the earlier lifetime
transfer would exclude the difference from estate and gift taxation
(or from reducing any remaining available annual exclusion or
unified credit).
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Because Form S-8 is available only for the offer and sale of
employee benefit plan securities to employees (including consultants
and advisors) of the registrant and its subsidiaries or parents, family
member transferees have not been allowed to exercise options on Form S-
8.43 However, because of the family relationship to an
employee and the compensatory--rather than capital-raising--character
of the transaction, the abbreviated disclosure format of Form S-8 may
be suitable for these transactions, particularly in light of the fact
that companies eligible to use Form S-8 must file Exchange Act reports.
The theories of compensatory purpose and access to information about
the company/employer that justify streamlined registration on Form S-8
for transactions with employees also appear to encompass option
exercises by family members.
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\43\ Currently, shares underlying options transferred to certain
family members may be registered on Form S-3, in reliance on
Instruction I.B.4 to that form. See Use of Form S-3 for Transferred
Options (Aug. 7, 1997), discussed in Section III.C, below.
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Consistent with the 1996 amendments to the Section 16 rules that
facilitated intra-family option transfers, discussed
above,44 the Commission today proposes to amend Form S-8 so
that it is available for the exercise of employee benefit plan options
by an employee's family member who has acquired the options from the
employee through a gift or a domestic relations order.45 For
this purpose, ``family member'' would be defined as in the Exchange Act
Rule 16a-1(e) definition of ``immediate family'' to include any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships. In
addition, unlike Rule 16a-1(e), for Form S-8 purposes ``family member''
would include trusts for the exclusive benefit of these persons, and
any other entity owned solely by these persons.46
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\44\ See Section I.B above.
\45\ Of course, making Form S-8 available for these transactions
would not compel companies to permit employees to transfer options
to family members. The decision whether to allow this practice would
remain with the company.
\46\ Rule 16a-1(a)(2)(ii)(A) provides that a Section 16 insider
has an indirect pecuniary interest in securities held by members of
a person's immediate family (as defined in Rule 16a-1(e)) sharing
the same household. Whether an insider has a pecuniary interest in
securities held by a trust or other entity is determined by
reference to Rules 16a-8(b) and 16a-1(a)(2), respectively.
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Commenters are asked to address whether other relatives, such as
nieces and nephews, should be added to the Form S-8 definition of
``family member,'' particularly to facilitate estate planning transfers
to these people. In the interest of harmonizing regulations, should
these relatives also be added to the Rule 16a-1(e) definition of
``immediate family,'' so that a Section 16 insider would be deemed to
have an indirect pecuniary interest in securities that are held by
these persons if they share the insider's household? Or do the
differences in purposes between Form S-8 eligibility and pecuniary
interest under Section 16 justify different treatment of these or any
other people?
Assuming this amendment is adopted, it is contemplated that
``family members'' would be treated like employees for all purposes
under Form S-8. For example, under General Instruction C, the Form S-3
resale prospectus would be available for (i) the resale by a ``family
member'' who is an affiliate of the issuer of securities that were
registered on the Form S-8; and (ii) the resale by a ``family member''
of restricted securities acquired upon the exercise of transferred
employee benefit plan options before the Form S-8 was filed. Similarly,
if the employee/optionee left the company following the option
transfer, Form S-8 would remain available to the ``family member'' for
the option exercise to the same extent it would be available to a
former employee.
Moreover, consistent with current practice, registration of shares
underlying employee benefit plan options would continue to be permitted
at any time before the option is exercised, without regard to when the
option becomes exercisable. This departure from the general requirement
that a registration statement must be on file before an option becomes
exercisable (i.e., before an offering of the underlying security is
deemed to be made) if the exercise will be registered is based on a
policy determination that transactions registered on Form S-8 should be
afforded more flexibility because of the unique character of the
employer/employee relationship and the compensatory purpose
involved.47
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\47\ See Division of Corporation Finance Manual of Publicly
Available Telephone Interpretations (July, 1997), at Section G
(Securities Act Forms), Interpretation No. 61.
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As drafted, the proposal would make the form available to ``family
members'' of any person who satisfies the Form S-
[[Page 9654]]
8 definition of ``employee,'' including consultants and advisors.
Commenters should address whether this aspect of the proposal is too
broad, given that consultants and advisors have more remote connections
to the registrant than do traditional employees. Moreover, do the
consultant abuses discussed above justify limiting the proposal to
``family members'' of traditional employees?
As proposed, the form would be available only for options
transferred through a gift or domestic relations order. Other than
options transferred pursuant to domestic relations orders, should Form
S-8 be available for the exercise of any option transferred for value
to a ``family member''? In addition to trusts for the exclusive benefit
of family members, should Form S-8 be made available to any other
entity solely owned by ``family members,'' as proposed, or should only
entities other than trusts that are used for estate planning purposes,
such as limited partnerships, specifically be permitted? Alternatively,
is the limitation to entities solely owned by ``family members'' too
restrictive for legitimate estate planning purposes? For example,
should Form S-8 be available for the exercise of options transferred by
gift by the employee (and/or a ``family member'' transferee) to a
charity? Would extending Form S-8 to any entity not solely owned by
``family members'' exceed the boundaries of the employment connection
that justifies the abbreviated disclosure format of Form S-8?
As proposed, the ``family member'' transferee would not be required
to have received the option directly from the employee for Form S-8 to
be available to the transferee. Instead, the form would be available to
a subsequent transferee, provided that he or she is a ``family member''
of the employee, and receives the option either by gift or through a
domestic relations order from another ``family member'' of the
employee. Is it more consistent with the theory of compensatory purpose
to require the ``family member'' to receive the option directly from
the employee? Would making the form available for options transferred
indirectly from employees impose burdensome recordkeeping obligations
on issuers? 48
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\48\ Issuers would not, of course, have to permit these
transfers.
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As for ``reload'' options,\49\ it is assumed that following the
exercise of the original employee benefit plan option by a ``family
member,'' the reload option would be issued to the employee/optionee,
who would decide whether to exercise or transfer it. Should the form be
made available for reload options issued directly to the immediate
family member transferee? In this regard, would a gift be completed for
tax purposes if the donor received the reload option?
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\49\ ``Reload'' options generally are replacement options
granted upon the exercise of an earlier-granted option.
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B. Technical Change to Form S-8 to Allow Registration of Shares
Underlying Transferable Options
To implement the proposal to permit family member transferees to
exercise employee benefit plan options on Form S-8, the form must be
available to the issuer for the registration of shares underlying
transferable options. Current General Instruction A.1(a) to Form S-8
provides that the form is available to former employees, and guardians
and executors of both current and former employees, for the exercise of
non-transferable employee benefit plan stock options and the subsequent
sale of the underlying securities,\50\ if such exercises and sales are
not prohibited under the plan. The proposed amendment would eliminate
this non-transferability restriction.\51\ As a result, an issuer always
would be able to register shares underlying any employee benefit plan
option on Form S-8, whether or not the option is transferable.\52\
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\50\ Instruction A.1(a) also makes Form S-8 available to the
issuer's former employees, and guardians and executors of both
current and former employees, for the acquisition of registrant
securities pursuant to intra-plan transfers among plan funds, to the
extent permitted by the specific plan.
\51\ By its terms, this restriction applies only to the exercise
of options by former employees. However, issuers often apply it to
all Form S-8 optionees because of practical difficulties in
replacing options when current employees become former employees.
\52\ If this amendment is adopted as proposed, issuers no longer
would need to rely on the staff's interpretive position in Merrill
Lynch & Co., Inc. (May 16, 1996), which permitted former employees
to exercise on Form S-8 options transferable only to children, step-
children, grandchildren or trusts established for their exclusive
benefit, provided such options had never been transferred
previously.
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Commenters are asked to address whether unlimited transferability
is appropriate for option shares registered on Form S-8. Alternatively,
should the existing restriction be lifted only for options that may be
transferred to ``family members'' by gift or pursuant to a domestic
relations order, consistent with the proposed amendment to expand the
scope of offerees who may exercise options registered on Form S-8?
C. Registration on Form S-3 of Shares Underlying Transferable Warrants
or Options
Currently, General Instruction I.B.4 to Form S-3 allows
registration on Form S-3 of the offer and sale of securities to be
received upon the exercise of outstanding transferable warrants issued
by the same issuer.\53\ The Instruction requires, as a condition to
Form S-3 availability, that the issuer have sent, within twelve
calendar months immediately before the Form S-3 is filed, specified
annual report information \54\ to all record holders of the
transferable warrants.
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\53\ Instruction I.B.4 also makes Form S-3 available for
securities offered upon exercise of outstanding rights granted by
the same issuer, pursuant to dividend or interest reinvestment
plans, or upon the conversion of outstanding convertible securities.
In each case, these securities may be registered on Form S-3 whether
or not the $75 million public float test is satisfied.
\54\ The Instruction specifically refers to material containing
the information required by Rule 14a-3(b) under the Exchange Act and
Regulation S-K Items 401 (Directors, Executive Officers, Promoters
and Control Persons), 402 (Executive Compensation) and 403 (Security
Ownership of Certain Beneficial Owners and Management).
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By interpretation, the staff of the Division of Corporation Finance
has expressed the view that employee benefit plan options transferred
by gift from employees to their immediate family members \55\ would be
considered ``transferable warrants'' for purposes of this
Instruction.\56\ If Form S-8 is amended as proposed to permit family
members to exercise employee benefit plan options on Form S-8, there
should be no further need for this interpretation because the proposed
amendments will provide more favorable relief.
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\55\ For purposes of this interpretation, the definition of
``immediate family'' in Exchange Act Rule 16a-1(e) applies.
\56\ Use of Form S-3 for Transferred Options (Aug. 7, 1997). The
letter addresses the procedures (including fee transfer) for
transferring such shares underlying a transferred option from a Form
S-8 to a Form S-3. (Fee transfers in other circumstances are
distinguished in Ropes & Gray (Oct. 30, 1997).)
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However, in considering this interpretation, the staff concluded
that it may be appropriate generally to treat options (including
options not issued under employee benefit plans) the same as warrants
for purposes of Form S-3 availability, in each case without regard to
transferability. Securities offered pursuant to options, like
securities offered pursuant to rights, convertible securities and
warrants, are offered to existing security holders of the issuer, who
are presumed to ``follow'' the issuer through corporate communications
and Exchange Act filings.\57\
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\57\ See Release 33-6331 (Aug. 6, 1981).
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[[Page 9655]]
Accordingly, the Commission proposes to amend General Instruction
I.B.4 to Form S-3 so that the form will be available equally for
securities underlying options and warrants in a broader context outside
the employee benefit area. The proposed amendment also re-writes the
Instruction so that it is more clear.
Commenters should address whether any differences between an
issuer's relationships with option holders and warrant holders justify
different treatment of the underlying securities for purposes of Form
S-3 availability. Do any similar distinctions arise based on whether
the instrument is transferable? For example, is it more likely that a
warrant holder would have purchased the warrant, whereas an option
holder would have been granted it under a plan or received it as a
gift? If so, does that make any difference in determining whether the
holder would have knowledge about the company for purposes of making
Form S-3 available? If transferability makes a difference, should
instruments with limited transferability be treated the same for S-3
purposes as fully transferable instruments?
D. Executive Compensation Disclosure of Transferred Options
The growing practice of transferring employee benefit plan stock
options raises questions on how transferred (or transferable) options
should be reported under the executive compensation disclosure
requirements of Item 402 of Regulations S-K and S-B.\58\ These issues
arise under the summary compensation table,\59\ the option/SAR grants
table,\60\ and the aggregated option/SAR exercises and fiscal year-end
option/SAR value table.\61\ Today's proposals and requests for comment
reflect the staff's current interpretation \62\ that the transfer of an
option by an executive does not negate the option's status as
compensation that should be reported.
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\58\ An issuer must include, or incorporate by reference, this
disclosure in Securities Act registration statements filed on Forms
S-1 [17 CFR 239.11], S-2, S-3, S-4, S-8, S-11 and SB-2. An issuer
also must include this disclosure in its Exchange Act registration
statement on Form 10 or Form 10-SB [together, 17 CFR 249.210], and
its proxy or information statement (if action is to be taken as to
the election of directors or the approval of specified director or
executive compensation, as provided in Item 8 of Schedule 14A [17
CFR 240.14a-101]). Finally, an issuer must include, or incorporate
by reference from its definitive proxy or information statement,
this disclosure in its annual report on Form 10-K [17 CFR 249.310]
or Form 10-KSB [17 CFR 249.310b].
\59\ Item 402(b) of Regulations S-B and S-K.
\60\ Item 402(c) of Regulations S-B and S-K.
\61\ Item 402(d) of Regulations S-B and S-K.
\62\ This interpretation and the other interpretations
referenced in this section have been given by the staff in response
to telephone inquiries.
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1. Summary Compensation Table
The summary compensation table prescribed by Item 402(b) requires a
three year reporting history of compensation, including the number of
securities for which options were granted, for each person serving as
the issuer's chief executive officer (the ``CEO'') during the last
fiscal year and the four other most highly compensated executive
officers serving at the end of that year (together with the CEO, the
``named executive officers''). Item 402(b)(2)(iv)(B) would be amended
so that the sum of the number of securities underlying stock options
granted required to be reported in column (g) of the table would
include options that subsequently have been transferred by the officer.
This amendment would codify the staff's current interpretation of this
disclosure Item. Commenters should address whether this codification is
necessary or desirable.
2. Option/SAR Grants Table
This table must show, among other things, the number of options
granted during the most recent fiscal year to the named executive
officers, together with footnote disclosure of the material terms of
those options. Consistent with current staff interpretation, Item
402(c)(1) would be amended so that the information required by the
table would apply to all options and SARs granted during the year,
including options and SARs that subsequently have been transferred.
Although the staff is of the view that transferability is an option
term that should be disclosed in a footnote to this table, no rule
proposal codifying this position is included among the amendments
proposed today. However, comment is solicited whether Instruction 3 to
Item 402(c) should be amended to include transferability among the
material terms requiring footnote disclosure. If so, should the
instructions to the table also be amended to require footnote
disclosure that specifies the date of any transfer of an option or SAR
that has occurred? Should such a footnote require that a transfer be
characterized as ``donative'' or ``for value received?''
Should the footnote name a family member--or any other--transferee?
Alternatively, would generic disclosure of the transferee's status,
such as an ``immediate family member'' or ``unaffiliated charity'' be
sufficient? Should a similar footnote description of transfers also be
required in the summary compensation table, so that disclosure will be
required of transfers that take place in the two years following the
year in which an option is granted?
3. Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
Table (``Option Exercises and Year-End Value Table'')
This table must present, among other things, both the option
exercises by the named executive officers during the last fiscal year
and the value of options held by the named executive officers at fiscal
year end. That value is computed based on the difference between the
exercise price of the options and the year-end fair market value of the
covered shares.
The proposed amendments to the summary compensation and the option/
SAR grants tables are designed to ensure that executive compensation
disclosure continues to provide investors meaningful information as to
all option and SAR compensation awarded by the issuer. In order to make
executive compensation disclosure complete, is it necessary to amend
the option exercises and year-end value table to include all option and
SAR compensation from which the named executive officer's family
members continue to derive benefits?
Such an instruction has not been included among the rule proposals
published today. However, comment is solicited whether a new
instruction should be added to Item 402(d)(2) to require that options
and SARs exercised or held by a ``family member'' (as defined in the
proposed amended Instructions to Form S-8) of the named executive
officer be included in the table. If so, should the family member be
named in a footnote to the table? Where the transferee is controlled by
the named executive officer's family, such as a charitable foundation,
should the option or SAR be included in the option exercises and year-
end value table? Should the result depend on whether the named
executive officer's family continues to benefit financially from
securities held by the entity?
IV. General Request for Comment
Any interested person is invited to submit written comments on the
proposed rule and form amendments, or to suggest additional changes or
comments on other matters that might have an impact on the proposals
set forth in this release. Comments should be submitted in triplicate
to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450
Fifth Street, NW., Washington, DC 20549.
[[Page 9656]]
Comment is requested as to the impact of the proposals from the
point of view of the public, as well as public companies and their
employees affected by the proposed rule and form amendments. Comments
on this inquiry will be considered by the Commission in complying with
its responsibilities under Section 19(a) of the Securities Act.\63\
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\63\ 15 U.S.C. 77s(a).
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Comment letters should refer to File No. S7-2-98. All comments
received will be available for public inspection and copying in the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. Electronically submitted comment letters will be posted to
the Commission's Internet Web site (http://www.sec.gov).
V. Cost-Benefit Analysis
The proposed rule and form changes have two objectives. The changes
pertaining to the sale of shares to consultants and advisers are
intended to eliminate misuses of Form S-8 and thus enhance investor
protection. The changes pertaining to interfamily transfers are
intended to facilitate such transfers and, thereby, provide significant
benefits to issuers and their employees. The costs and benefits of
these changes are discussed below. The Commission requests comment on
this analysis. Commenters are requested to provide empirical data and
other factual support for their views to the extent possible.
A. Shares Issued to Consultants and Advisers
Currently, some issuers are using Form S-8 inappropriately to make
distributions of their securities to the general public, or to
compensate consultants for services that promote or maintain the market
for their securities. The proposal is intended to preclude the use of
Form S-8 to register transactions in which consultants act as conduits
to distribute securities to the public, or transactions in which
consultants are compensated for other capital-raising services. This
will discourage filers from misusing the form to register transactions
for which it currently is not available. The Commission believes this
will provide a substantial investor protection benefit. Other forms
remain available to register securities for these purposes.
The Commission's records indicate that 5340 Forms S-8 were filed
during the fiscal year ending September 30, 1997.64 The
Commission does not have the data to determine how many of those
filings would have been precluded if the proposed amendments to Form S-
8 had been in effect. To the extent any reduction is due to the fact
that the transaction was not eligible for Form S-8, however, the
Commission believes this effect is a benefit rather than a cost.
Commenters are requested to provide data that would enable the
Commission to quantify this effect.
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\64\ During the same period, 684 post-effective amendments were
filed on Form S-8.
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The proposals also would require disclosure of: (a) The identity of
consultants and advisors who will be compensated with securities
registered on Form S-8, (b) the services they provide to the issuer,
and (c) the number of securities to be issued to each. This may require
registrants to incur some additional costs. However, these costs should
not be significant since they will primarily involve the transmission
of information that is readily available. Where the information must be
provided by post-effective amendment, the additional burden should not
be significant because the post-effective amendment filing procedure
does not require registrants to refile materials that previously were
filed in the original Form S-8. The Commission estimates the total
reporting and recordkeeping burden that will result from the collection
of this additional information to be one hour per form.
Currently, issuers are not required to indicate whether Form S-8 is
being used to compensate a consultant or advisor; therefore, the
Commission cannot estimate the number of Forms S-8 under which
securities were issued to consultants and advisors. For purposes of
cost estimation, the Commission is assuming that one tenth of the Forms
S-8 registered securities for issuance to consultants and advisors, and
that the average number of consultants and advisors is two. The
Commission further assumes that future filings will reflect the same
proportions. Based on these assumptions, the additional annual
aggregate cost of reporting and recordkeeping is estimated to be
approximately $110,000 (1,100 hours x $100/hour). Commenters are
asked to provide data that would help the Commission ensure that this
estimate of burden hours and cost is as accurate as possible.
B. Facilitating Intra-Family Transfers
The exercise of employee benefit plan options by family members of
the employee optionees is not currently permitted on Form S-8. Form S-3
currently is not available for the exercise of outstanding
nontransferable warrants or outstanding options (whether or not
transferable) without regard to the ``float test'' applicable to
primary offerings by the issuer, except under limited circumstances
based on staff interpretation. The proposal to make Form S-8 available
for option exercises by an employee's family members should reduce
recordkeeping and compliance burdens by eliminating the need to file a
different, less streamlined registration form for these option
exercises. By reducing these costs for issuers, option transferability
may become more widespread, allowing families to incur estate tax
savings as a result. Because information on interfamily transfers is
not reported, the Commission does not have any data upon which to
estimate these savings. The Commission estimates that issuers could
save an average of four hours by using Form S-8 rather than one of the
more detailed registration forms.
The proposal to make Form S-3 available for the exercise of options
to the same extent as it is available for the exercise of warrants also
should reduce recordkeeping and compliance burdens by making this
streamlined registration form available for a broader group of
transactions. The Commission does not have a basis for quantifying this
effect. Commenters are requested to provide data on how many additional
Forms S-3 would be filed if the proposed amendment is adopted, and
quantify cost savings where possible.
The proposed amendments to Item 402 of Regulations S-B and S-K
should not increase recordkeeping and compliance burdens because they
will not require the reporting of any compensatory transactions that
are not already required to be reported. Commenters recommending
changes that have not been proposed but for which comment is requested,
such as reporting of options exercised or held by an executive
officer's family members, should estimate any additional recordkeeping
burden, and quantify costs where possible.
Comment is requested on whether the proposed rule amendments would
be a ``major rule'' for purposes of the Small Business Regulatory
Enforcement Fairness Act of 1996. The Commission preliminarily believes
that the proposed rule amendments would not result in a major increase
in costs or prices for consumers or individual industries, or
significant adverse effects on competition, employment, investment,
productivity, innovation or small business. The Commission believes
that persons affected by the proposed amendments will not have
significantly increased costs for providing information. Comments are
requested
[[Page 9657]]
on whether the proposed rule amendments are likely to have a $100
million or greater annual effect on the economy. Commenters are
requested to provide empirical data to support their views.
VI. Initial Regulatory Flexibility Analysis
The Commission has prepared an initial Regulatory Flexibility
Analysis in accordance with 5 U.S.C. 603 regarding the proposed
amendments.
As noted in the analysis, the amendments to Form S-8, Rules 401 and
405 are proposed to deter abusive practices in which Form S-8 is used
to make capital-raising distributions of securities to the general
public, or to compensate consultants and advisors for promotional and
other capital-raising activities, in contravention of the express
purposes of the form. Other amendments to Form S-8 and the amendments
to Item 402 of Regulations S-B and S-K result from concerns expressed
by representatives of industry that the current limited scope of
persons permitted to exercise options under Form S-8 has a chilling
effect on intra-family transfers for estate planning and other
purposes. The amendments to Form S-3 result from the staff's analysis
that shares underlying options should be treated the same as shares
underlying warrants for purposes of form availability. The Commission
believes that the proposed amendments will not result in any impairment
of protection for the investing public, and should result in improved
protection by assuring that capital-raising offerings are registered on
the forms prescribed for those offerings.
As the IRFA describes, the staff is aware of approximately 1100
Exchange Act reporting companies that currently satisfy the definition
of ``small business'' under Rule 157 of the Securities Act. Overall,
13,226 companies are Exchange Act reporting companies. However, the
Commission has no empirical data upon which it may quantify the effects
of the proposed changes on small businesses. The IRFA states that the
proposals will not significantly increase reporting, recordkeeping or
compliance burdens, and in some cases may reduce those burdens for
smaller businesses.
The proposals to require disclosure of the identity of consultants
and advisors who will be compensated with securities registered on Form
S-8, to specify the services that will be provided to the issuer, and
to quantify the number of securities to be issued to each consultant or
advisor may require registrants to incur some additional costs.
However, these costs should not be significant, since they will be
limited to the transmission of limited additional information in the
Securities Act registration statement. Where the information must be
provided by post-effective amendment, the additional burden should not
be significant because post-effective amendment filing procedure does
not require registrants to refile materials that previously were filed
in the original Form S-8.
The Commission estimates the total reporting and recordkeeping
burden that will result from the collection of this additional
information to be one hour per form. The Commission's records indicate
that 5340 Forms S-8 were filed during the fiscal year ended September
30, 1997. However, the Commission cannot estimate with certainty either
the number of those filings that were made by small business issuers or
the number under which securities were issued to consultants and
advisors. For purposes of the analysis, the Commission assumes that
one-tenth of the Forms S-8 filed during fiscal 1997 registered
securities for issuance to two consultants apiece, and that small
issuers accounted for one-twelfth of all such filings.65
Based on these assumptions, 45 small issuers would have an annual
aggregate reporting and recordkeeping cost of approximately $9,000 (90
hours x $100/hour).
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\65\ Small issuers account for approximately one-twelfth of all
reporting issuers.
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The proposal to make Form S-8 available for option exercises by an
employee's family members should reduce recordkeeping and compliance
burdens by eliminating the need to file a different, less streamlined
registration form for these option exercises. While the Commission
cannot quantify the number of small businesses that would be affected,
the Commission estimates the average reporting and recordkeeping burden
that would be avoided by eliminating the need to file a different form
rather than Form S-8 as approximately four hours. Thus, even if there
were only 26 Forms S-8 filed by small businesses per year, the savings
to small businesses would exceed the costs of providing the new
disclosures about consultants and advisors.
The proposal to make Form S-3 available for the exercise of options
to the same extent as it is available for the exercise of warrants will
further reduce recordkeeping and compliance burdens by making this
streamlined registration form available for a broader group of
transactions.
The proposed amendments to Item 402 of Regulations S-B should not
increase recordkeeping and compliance burdens because they will not
require the reporting of any compensatory transactions that are not
already required to be reported. Regulation S-K does not generally
apply to small issuers.
The Commission invites written comments on any aspect of the IRFA.
In particular, the Commission requests comment on: (i) The number of
small entities that would be affected by the proposed rule amendments;
and (ii) the determination that the proposed rule amendments would
reduce reporting, recordkeeping and other compliance requirements for
small entities. Commenters should address whether the proposed
amendments to Forms S-3 and S-8 will increase the number of
registration statements filed on these forms, increase the dollar
amount of securities sales on these forms, or make the forms generally
more available to small entities. Commenters should address how much
time and money may be saved by making more streamlined forms available
for more transactions.
Any commenter who believes that the proposals will significantly
impact a substantial number of small entities should describe the
nature of the impact and estimate the extent of the impact. For
purposes of making determinations required by the Small Business
Regulatory Enforcement Act of 1996, the Commission also requests data
regarding the potential impact of the proposed amendments on the
economy on an annual basis. All comments will be considered in the
preparation of the Final Regulatory Flexibility Act Analysis if the
proposed amendments are adopted. A copy of the Initial Regulatory
Flexibility Act Analysis may be obtained from Anne M. Krauskopf, Office
of Chief Counsel, Division of Corporation Finance, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
VII. Paperwork Reduction Act
Certain provisions of the proposed amendments contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'') (44 U.S.C. 3501 et seq.). The
Commission staff has submitted the proposals for review by the Office
of Management and Budget (``OMB'') in accordance with the PRA . An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number. This collection of information has been assigned
OMB Control No. 3235-0066. The title to the affected information
collection is: ``Form S-8.''
[[Page 9658]]
The proposed amendments, if adopted, will require registrants
filing Form S-8 for the issuance of securities to consultants and
advisors to disclose the identity of these persons in the form, to
specify the services that they will provide to the issuer, and to
specify the number of securities to be issued to each consultant and
advisor. As discussed above, the Commission estimates the total
reporting and recordkeeping burden that will result from the collection
of this additional information to be one hour per form. Of the 5340
Forms S-8 filed during the fiscal year ended September 30, 1997, the
Commission cannot estimate with certainty the number of Forms S-8 under
which securities were issued to consultants and advisors. Assuming that
one-tenth of these filings registered securities for issuance to two
consultants apiece,66 the additional annual aggregate
reporting and recordkeeping burden should be approximately 1100 hours.
Commenters should address whether these assumptions are accurate.
---------------------------------------------------------------------------
\66\ See Cost-Benefit Analysis at Section V, above.
---------------------------------------------------------------------------
The proposed amendments to Form S-8, if adopted, also would permit
the form to be used for the exercise of employee benefit plan options
by family members of employee optionees. By eliminating the need to
file different, less streamlined registration statements for these
transactions, the proposed amendments may encourage registrants to
permit intra-family transfers of employee benefit plan options. The
Commission believes that, to the extent registrants have filed separate
registration statements for option exercises by family member
transferees, the form most often used was Form S-3.67 The
Commission is unable to estimate with certainty the number of Forms S-3
that have been filed for this purpose, but believes it to be a
negligible percentage of the 3137 Forms S-3 filed during the fiscal
year ending September 30, 1997.68 Because option
transferability is a relatively new and limited practice, it is
difficult to quantify burden hours that will be saved by the proposed
amendments. However, by permitting family members' option exercises to
be registered on the least burdensome registration form, the proposed
amendments, like prior rule amendments and staff
interpretations,69 should make transferability substantially
more attractive. The Commission estimates that an average of four
burden hours per Form S-8 will be saved by this proposal.
---------------------------------------------------------------------------
\67\ See Use of Form S-3 for Transferred Options (Aug. 7, 1997),
discussed at n. 43 and n. 56 above.
\68\ This number does not include Forms S-3 filed to register
dividend or interest reinvestment plans, or to register additional
securities pursuant to Rule 462(b).
\69\ See Sections I.B, III.A and III.C, above.
---------------------------------------------------------------------------
The proposed amendment to General Instruction I.B.4 Form S-3 to
make the form available for the registration of shares underlying
options as well as warrants, in each case without regard to
transferability, would allow the registration of additional
transactions on Form S-3, a relatively streamlined registration form.
While the Commission cannot state with certainty the number of Forms S-
3 filed during fiscal 1997 that were filed in reliance on General
Instruction I.B.4, the Commission estimates that it was a relatively
small percentage of the 3137 Forms S-3 filed. Commenters are asked to
estimate, to the extent possible, the number of additional Forms S-3
that would be filed and the number of burden hours that would be saved
if this amendment were adopted. Even if only 275 additional Forms S-3
are filed per year, the savings due to the use of Form S-3 will exceed
the costs described above.
In accordance with 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comment on the following: Whether the proposed changes in the
collection of information is necessary; the accuracy of the estimated
burden of the proposed changes to the collection of information; the
quality, utility and clarity of the information to be collected; and
whether the burden of collection of information on those who are to
respond, including through the use of automated collection techniques
or other forms of information technology, may be minimized.
Persons desiring to submit comments on the collection of
information requirement should direct them to the Office of Management
and Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
D.C. 20549, with reference to File No. S7-2-98. The Office of
Management and Budget (``OMB'') is required to make a decision
concerning the collection of information between 30 and 60 days after
publication, so a comment to OMB is best assured of having its full
effect if OMB receives it within 30 days of publication.
VIII. Effects on Efficiency, Competition, and Capital Formation
Sections 2(b) of the Securities Act 70 and 3(f) of the
Exchange Act 71 require the Commission, when engaged in
rulemaking, to consider in addition to the protection of investors,
whether the action will promote efficiency, competition and capital
formation.72 In addition, section 23(a)(2) of the Exchange
Act 73 requires the Commission, in adopting rules under the
Exchange Act, to consider the impact any rule would have on competition
and not to adopt rules that would impose a burden on competition not
necessary or appropriate in the public interest. Several of the
proposed amendments are intended to prevent issuers from abusing Form
S-8 by registering their stock sold to so-called consultants and
advisors who act as promoters and statutory underwriters; other
proposed amendments provide a simplified form to facilitate certain
intra-family transfers of stock options.
---------------------------------------------------------------------------
\70\ 15 U.S.C. 77b(b).
\71\ 15 U.S.C. 78c(f).
\72\ 15 U.S.C. 77b(b) and 78c(f).
\73\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------
The Commission's preliminary view is that the proposed amendments
would not have any anticompetitive effects that are not necessary or
appropriate. Because Form S-8 was never intended for capital-raising
transactions, but solely for purposes of compensating employees, the
proposed amendments should have no effect on legitimate capital-
raising. To the extent the proposed amendments make it easier for
reporting companies to compensate their employees, the Commission
believes the amendments would promote efficiency.
The Commission requests comments on the competitive benefits that
may result from the proposals and any anticompetitive effects that may
result if the Rule is adopted as proposed. The Commission requests data
and analysis on what effect the proposed changes may have on efficiency
and capital formation.
IX. Statutory Basis and Text of Amendments
The amendments to Securities Act Forms S-8 and S-3 and Rules 401(g)
and 405 are being proposed pursuant to the authority set forth in
Sections 6, 7, 8, 10 and 19 of the Securities Act of 1933. The proposed
amendments to Item 402 of Regulations S-B and S-K also are being
proposed pursuant to Exchange Act Sections 12, 13, 14, 15 and 23.
List of Subjects in 17 CFR Parts 228, 229, 230 and 239
Reporting and recordkeeping requirements, Securities.
[[Page 9659]]
Text of the Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
1. The authority citation for part 228 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o 78u-5, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37,
80b-11, unless otherwise noted.
2. In Sec. 228.402, paragraph (b)(2)(iv) introductory text is
republished and paragraphs (b)(2)(iv)(B) and (c)(1) introductory text
are revised to read as follows:
Sec. 228.402 (Item 402) Executive compensation.
* * * * *
(b) Summary compensation table--(1) General * * *
(2) * * *
(iv) Long-term compensation (columns (f), (g) and (h)), including:
(A) * * *
(B) The sum of the number of securities underlying stock options
granted (including options that subsequently have been transferred),
with or without tandem SARs, and the number of freestanding SARs
(column (g)); and
* * * * *
(c) Option/SAR grants table.--(1) The information specified in
paragraph (c)(2) of this item, concerning individual grants of stock
options (whether or not in tandem with SARs) and freestanding SARs
(including options and SARs that subsequently have been transferred)
made during the last completed fiscal year to each of the named
executive officers shall be provided in the tabular format specified
below:
* * * * *
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
3. The authority citation for part 229 continues to read in part as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll(d), 79e,
79n, 79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise
noted.
* * * * *
4. In Sec. 229.402, paragraph (b)(2)(iv) introductory text is
republished and paragraphs (b)(2)(iv)(B) and (c)(1) introductory text
are revised to read as follows:
Sec. 229.402 (Item 402) Executive compensation.
* * * * *
(b) Summary Compensation Table.
(1) General. * * *
(2) * * *
(iv) Long-term compensation (columns (f), (g) and (h)), including:
(A) * * *
(B) The sum of the number of securities underlying stock options
granted (including options that subsequently have been transferred),
with or without tandem SARs, and the number of freestanding SARs
(column (g)); and
* * * * *
(c) Option/SAR Grants Table. (1) The information specified in
paragraph (c)(2) of this item, concerning individual grants of stock
options (whether or not in tandem with SARs) and freestanding SARs
(including options and SARs that subsequently have been transferred)
made during the last completed fiscal year to each of the named
executive officers shall be provided in the tabular format specified
below:
* * * * *
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
5. The authority citation for part 230 continues to read in part as
follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30,
and 80a-37, unless otherwise noted.
* * * * *
6. By amending Sec. 230.401 to revise paragraph (g) to read as
follows:
Sec. 230.401 Requirements as to proper form.
* * * * *
(g) Except for registration statements and post-effective
amendments that become effective automatically pursuant to
Secs. 230.462 and 230.464, a registration statement or any amendment
thereto is deemed filed on the proper form unless the Commission
objects to the form before the effective date.
7. By amending Sec. 230.405 to revise the definition of ``Employee
benefit plan'' to read as follows:
Sec. 230.405 Definition of terms.
* * * * *
Employee benefit plan. The term employee benefit plan means any
written purchase, savings, option, bonus, appreciation, profit sharing,
thrift, incentive, pension or similar plan or written compensation
contract solely for employees, directors, general partners, trustees
(where the registrant is a business trust), officers, or consultants or
advisors. However, a consultant or advisor may participate in an
employee benefit plan only if:
(1) The consultant or advisor renders bona fide services to the
registrant;
(2) The services rendered by the consultant or advisor are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a
market for the registrant's securities; and
(3) The consultant or advisor is a natural person who has
contracted directly with the registrant to render those services.
* * * * *
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
8. The authority citation for part 239 continues to read in part as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c,
78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j,
79l, 79m, 79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless
otherwise noted.
* * * * *
9. By amending Sec. 239.13 to revise paragraph (b)(4) to read as
follows:
Sec. 239.13 Form S-3, for registration under the Securities Act of
1933 of securities of certain issuers offered pursuant to certain types
of transactions.
* * * * *
(b) Transaction requirements.
* * *
(4) Rights offerings, dividend or interest reinvestment plans, and
conversions, warrants and options. (i) Securities to be offered:
(A) Upon the exercise of outstanding rights granted by the issuer
of the securities to be offered, if such rights are granted on a pro
rata basis to all existing security holders of the class of securities
to which the rights attach;
(B) Under a dividend or interest reinvestment plan; or
(C) Upon the conversion of outstanding convertible securities or
the exercise of outstanding warrants or options issued by the issuer of
the securities to be offered, or an affiliate of that issuer.
(ii) However, Form S-3 is available for registering these
securities only if the issuer has sent, within the twelve
[[Page 9660]]
calendar months immediately before the registration statement is filed,
material containing the information required by Sec. 249.14a-3(b) of
this chapter under the Exchange Act to:
(A) All record holders of the rights;
(B) All participants in the plans; or
(C) All record holders of the convertible securities, warrants or
options, respectively.
(iii) The issuer also must have provided, within the twelve
calendar months immediately before the Form S-3 registration statement
is filed, the information required by Items 401, 402 and 403 of
Regulation S-K (Secs. 229.401 through 229.403 of this chapter) to:
(A) Holders of rights exercisable for common stock;
(B) Holders of securities convertible into common stock; and
(C) Participants in plans that may invest in common stock,
securities convertible into common stock, or warrants or options
exercisable for common stock, respectively.
* * * * *
10. By amending Form S-3 (referenced in Sec. 239.13) by revising
paragraph B.4 of General Instruction I to read as follows:
[Note--The text of Form S-3 does not, and this amendment will not,
appear in the Code of Federal Regulations.]
Form S-3 Registration Statement Under the Securities Act of 1933
* * * * *
General Instructions
I. Eligibility Requirements for Use of Form S-3
* * * * *
B. Transaction Requirements. * * *
4. Rights Offerings, Dividend or Interest Reinvestment Plans, and
Conversions, Warrants and Options.
(a) Securities to be offered (1) upon the exercise of outstanding
rights granted by the issuer of the securities to be offered, if such
rights are granted on a pro rata basis to all existing security holders
of the class of securities to which the rights attach, (2) under a
dividend or interest reinvestment plan, or (3) upon the conversion of
outstanding convertible securities or the exercise of outstanding
warrants or options issued by the issuer of the securities to be
offered, or an affiliate of that issuer.
(b) However, Form S-3 is available for registering these securities
only if the issuer has sent, within the twelve calendar months
immediately before the registration statement is filed, material
containing the information required by Rule 14a-3(b) (Sec. 249.14a-3(b)
of this chapter) under the Exchange Act to:
(1) All record holders of the rights,
(2) All participants in the plans, or
(3) All record holders of the convertible securities, warrants or
options, respectively.
(c) The issuer also must have provided, within the twelve calendar
months immediately before the Form S-3 registration statement is filed,
the information required by Items 401, 402 and 403 of Regulation S-K
(Secs. 229.401-229.403 of this chapter) to:
(1) Holders of rights exercisable for common stock,
(2) Holders of securities convertible into common stock, and
(3) Participants in plans that may invest in common stock,
securities convertible into common stock, or warrants or options
exercisable for common stock, respectively.
* * * * *
11. By amending Sec. 239.16b to revise paragraph (a)(1) to read as
follows:
Sec. 239.16b Form S-8, for registration under the Securities Act of
1933 of securities to be offered to employees pursuant to employee
benefit plans.
(a) * * *
(1) Securities of such registrant to be offered to its employees or
employees of its subsidiaries or parents pursuant to any employee
benefit plan. The form also is available for the exercise of employee
benefit plan options by an employee's family member who has acquired
the options from the employee through a gift or a domestic relations
order.
* * * * *
12. By amending Form S-8 (referenced in Sec. 239.16b) by revising
paragraph 1.(a) of General Instruction A; by amending Part II by
redesignating Items 8 and 9 as Items 9 and 10, respectively; and by
adding Item 8 to read as follows:
[Note--The text of Form S-8 does not, and this amendment will not,
appear in the Code of Federal Regulations.]
Form S-8 Registration Statement Under the Securities Act of 1933
* * * * *
General Instructions
A. Rule as to Use of Form S-8.
1. * * *
(a) Securities of such registrant to be offered pursuant to any
employee benefit plan to its employees or employees of its subsidiaries
or parents. For purposes of this form, the term ``employee benefit
plan'' is defined in Rule 405 of Regulation C (Sec. 230.405).
(1) For purposes of this form, the term ``employee'' is defined as
any employee, director, general partner, trustee (where the registrant
is a business trust), officer, or consultant or advisor. Form S-8 is
available for the issuance of securities to a consultant or advisor
only if:
(i) The consultant or advisor renders bona fide services to the
registrant;
(ii) The services rendered by the consultant or advisor are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a
market for the registrant's securities; and
(iii) The consultant or advisor is a natural person who has
contracted directly with the registrant to render those services.
(2) In addition, the term ``employee'' includes insurance agents
who are exclusive agents of the registrant, its subsidiaries or
parents.
(3) The term ``employee'' also includes former employees as well as
executors, administrators or beneficiaries of the estates of deceased
employees, guardians or members of a committee for incompetent former
employees, or similar persons duly authorized by law to administer the
estate or assets of former employees. The inclusion of all individuals
described in the preceding sentence in the term ``employee'' is only to
permit registration on Form S-8 of:
(i) The exercise of employee benefit plan stock options and the
subsequent sale of the securities, if these exercises and sales are
permitted under the terms of the plan; and
(ii) The acquisition of registrant securities pursuant to intra-
plan transfers among plan funds, if these transfers are permitted under
the terms of the plan.
(4) The term ``registrant'' as used in this Form means the company
whose securities are to be offered pursuant to the plan, and also may
mean the plan itself.
(5) The form also is available for the exercise of employee benefit
plan options by an employee's immediate family member who has acquired
the options from the employee through a gift or a domestic relations
order. For purposes of this form, ``family member'' includes any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships,
trusts for the exclusive benefit of these persons, and any other entity
owned solely by these persons.
* * * * *
[[Page 9661]]
Part II
Information Required in the Registration Statement
* * * * *
Item 8. Consultants and Advisors
Disclose the names of any consultants or advisors to whom
securities will be issued pursuant to the registration statement.
Specify the number of securities that will be issued to each of these
persons pursuant to this registration statement. Describe the specific
services provided to the registrant by each consultant or advisor that
are compensated by securities registered on this registration
statement.
* * * * *
Dated: February 17, 1998.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4459 Filed 2-24-98; 8:45 am]
BILLING CODE 8010-01-P
