July 19, 2018

SEC Concept Release: Expanding Form S-8 & Rule 701

At its open meeting yesterday, the SEC voted to issue a 36-page concept release that seeks input on expanding and simplifying Form S-8 & Rule 701. Among other points, the release asks whether:

– Rule 701 & Form S-8 accommodations should extend to “gig economy” relationships – and what parameters should apply

– Form S-8 requirements should be revised to ease compliance issues that arise when plan sales exceed the number of shares registered

– The SEC should permit all of a company’s plans to be registered on a single registration statement

– Companies would benefit from a “pay-as-you-go” or periodic fee structure for Form S-8

– Rule 701 should be extended to reporting companies – eliminating the need for Form S-8

– The SEC should amend the disclosure content & timing requirements of Rule 701(e)

This blog from Cooley’s Cydney Posner notes that much of the discussion at the open meeting and in the concept release relates to whether or not liberalizing the equity compensation rules would create incentives for companies to “go public and stay public” (here’s Commissioner Stein’s statement and here’s Commissioner Peirce’s statement).

SEC Raises Rule 701 Disclosure Threshold

Yesterday, the SEC announced that it had unanimously approved an amendment to Rule 701(e). Non-reporting companies that issue equity compensation won’t have to provide financial statements, risk factors and other disclosures to participants until they’ve sold an aggregate of $10 million in securities during a 12-month period. Previously, that threshold was $5 million.

As John blogged a couple months ago, this amendment was a result of the “Economic Growth, Regulatory Relief & Consumer Protection Act.” The amendment will become effective immediately upon publication in the Federal Register – and companies that have already started an offering in the current 12-month period will be able to apply the new threshold.

House Passes “Jobs Act 3.0”

The “Jobs & Investor Confidence Act of 2018” has now passed the House – by a vote of 406-4 – according to this announcement from the House Financial Services Committee. Among other things, the 32 pieces of legislation that comprise the bill would:

– Require the SEC to analyze the costs & benefits of the use of Form 10-Q by emerging growth companies and consider the use of alternative formats for quarterly reporting for EGCs.

– Direct the SEC to consider amendments to Rule 10b5-1 that would, among other things: limit insiders’ ability to use overlapping plans, establish a mandatory delay between the adoption of the plan and execution of the first trade, limit the frequency of plan amendments, require companies and insiders to file plans and amendments with the SEC, and impose board oversight requirements.

– Require companies with multi-class share structures to make certain proxy statement disclosures about shareholders’ voting power.

– Allow emerging growth companies with less than $50 million average annual gross revenue to opt out of auditor attestation requirements beyond the typical 5-year period.

– Amend the definition of “accredited investor” to include people with education or job experience that would allow them to evaluate investments.

– Expand to all public companies the “testing the waters” and confidential submission process for registration statements in an IPO or a follow-on offering within one year of an IPO.

– Allow venture exchanges to register with the SEC, as a trading venue for small & emerging companies.

– Direct the SEC & FINRA to study the direct and indirect costs for small & medium-sized companies to undertake public offerings.

Liz Dunshee