The proposed revisions are significantly influenced by public comments received in response to the SEC’s July 2018 Concept Release on Compensatory Securities Offerings and Sales. The release solicited public comment pertaining to possible approaches to modernizing the Rule 701 exemption and the relationship between the exemption and Form S-8. It also places emphasis on the substantial changes to both the composition of the workforce and the types of compensatory offerings issuers have been making since the last time these regulations were significantly amended. In an associated release, the SEC proposed rules to allow an issuer to provide equity compensation (subject to certain conditions and on a temporary basis) to certain “platform workers” who perform services offered through the issuer’s technology-based marketplace platform.

Under Form S-8, the proposed amendments would:

• implement improvements and clarifications to simplify registration on the form, including:
  • clarifying the ability to add multiple plans to a single Form S-8
  • simplifying the ability to allocate securities among multiple incentive plans on a single Form S-8
  • allowing the addition of securities or classes of securities automatically by post-effective amendment
• implement improvements to simplify share counting and fee payments on the form, including:
  • requiring the registration of an aggregate offering amount of securities for defined contribution plans
  • implementing a new fee payment method for registration of offers and sales pursuant to defined contribution plans
  • conforming Form S-8 instructions with current IRS plan review practices
• revise Item 1(f) of Form S-8 to eliminate the requirement to describe the tax effects of plan participation on the issuer

Under Rule 701, the proposed amendments would:

• allow the exemption to be available for offers and sales of securities under a written compensatory benefit plan established by the issuer’s subsidiaries, whether or not majority-owned
• update the time at which such disclosure is required to be delivered for derivative securities that do not involve a decision by the recipient to exercise or convert in specified circumstances where such derivative securities are granted to new hires
• increase two of the three alternative regulatory maximums that cap the overall amount of securities that a non-reporting issuer may sell pursuant to the exemption during any consecutive 12-month period
• revise the additional disclosure requirements for Rule 701 exempt transactions exceeding $10 million, including how the disclosure threshold applies, the type of financial disclosure required, and the frequency with which it must be updated

Together, Rule 701 and Form S-8 would:

• broaden eligibility for former employees to specified post-termination grants and former employees of acquired entities
• expand consultant and advisor eligibility to entities meeting specified ownership criteria designed to link the securities to the performance of services

The SEC will seek public comment on the proposed rule for 60 days following publication in the Federal Register. Interested parties may send comments electronically via the SEC’s internet submission form or email submissions to rule-comments@sec.gov. Paper submissions may be mailed to Vanessa A. Countryman, Secretary, Securities and Exchange SEC, 100 F Street, NE, Washington, DC 20549-1090. Submissions should refer to File Number S7-18-20, and if email is used, the file number should appear on the subject line. Information that is submitted will become part of the meeting’s public record and posted on the SEC’s website at sec.gov.

Sources:

SEC Proposes Amendments to Modernize Framework for Securities Offerings and Sales to Workers (www.sec.gov)

Modernization of Rules and Forms for Compensatory Securities Offerings and Sales (www.sec.gov)