NASPP Comments on Rule 701 and Form S-8 Modernizations - Banner

NASPP Comments on Rule 701 and Form S-8 Modernizations

March 02, 2021

Fun fact: Did you know that NASPP’s comment letter on the SEC’s 2018 concept release is mentioned 17 (seventeen!) times in this year’s Rule 701 and Form S-8 modernization proposal? The SEC even quotes our letter at least once.

In light of our success with the concept release, we have submitted a comment letter on the SEC’s proposal to update Rule 701 and Form S-8. We feel it is important to represent the interests of our members when given the opportunity to do so. Here is a summary of our comments.


Rule 701(e) Additional Disclosures

When companies rely on Rule 701 to issue more than $10 million worth of stock in a 12-month period, they are required to provide additional disclosures to employees.  These disclosures include the company’s financial statements. We support the following SEC proposals for the additional disclosures:

  • Allowing the additional disclosures to be provided only for sales exceeding the $10 million threshold.
  • Providing a four-month grace period before the disclosures are required when the threshold is exceeded.
  • Extending the permissible age of the financial statements to six months, or, requiring companies to update the financial statements only annually unless there is a material change in the value of the company or its securities.
  • Allowing companies to provide employees with a Section 409A valuation report in lieu of financial statements.

For RSU awards, we suggest allowing companies to provide the additional disclosures when the grant paperwork is distributed to employees (rather than, in advance of issuance of the grant, as is currently required), provided that employees will have at least 30 days to accept the grant.


Rule 701(d)

The amount of securities companies can issue over a 12-month period in reliance on Rule 701 is currently limited to the greater (i) $1 million worth, (ii) 15% of the company’s assets, or (iii) 15% of the currently outstanding securities. We support the SEC’s proposal to increase amount (i) to $2 million and amount (ii) to 25% of the company’s assets. We also suggest indexing the $2 million cap to inflation.


Elimination of Form S-8

We do not support the SEC’s proposal to eliminate Form S-8 and allow public companies to rely on Rule 701 instead. We are concerned that this will impose onerous resale restrictions on employees, could force public companies to comply with state blue sky laws, and would impose additional (and duplicative) disclosure requirements on public companies.


Registering Additional Plans and Share Authorizations on Form S-8

We support allowing companies to register multiple plans on a single Form S-8 and allowing companies to register additional plans and additional share authorizations via an immediately effective post-effective amendment to Form S-8.


Rule 701 and Form S-8 Eligible Participants

We support the SEC’s proposed expansions to the eligible recipients of securities under Rule 701 and Form S-8. We also suggest that the SEC expand Rule 701 to cover securities issued to investment firms in compensation for service on a company’s board of directors.


Bridging the IPO Gap

Lastly, in response to a suggestion we made in our earlier comment letter on the SEC’s 2018 concept release on Rule 701 and Form S-8, the SEC solicited comments on how it might make it easier for companies to implement an ESPP in conjunction with an IPO. We offer two alternative solutions.

Reliance on Rule 701: We suggest that companies could initially rely on Rule 701 to allow employees to enroll in the ESPP in advance of the IPO, if the SEC will permit the following:

  • Subsequent to their IPO, companies would be allowed to register both the plan and outstanding purchase rights under the plan on Form S-8, thereby eliminating any resale restrictions that would otherwise apply to nonaffiliates.
  • The shares that would be acquired under the ESPP would not count against the Rule 701(d) limits until the purchase occurs, by which time the plan and outstanding rights will have been registered on Form S-8 and thus reliance on Rule 701 would no longer be necessary.

Communication in Advance of Form S-8 Filing: As an alternative, we suggest that companies be allowed to communicate with employees about the plan and employees be allowed to enroll in the plan in advance of the IPO, if the following conditions are met:

  • The company provides employees with the disclosures required under Part I of Form S-8.
  • The company provides employees with the IPO prospectus once it is available.
  • No funds will be contributed to the plan, nor will shares be purchased under the plan, until after the Form S-8 is filed.
  • The plan permits employees to reduce their participation rate or withdraw their enrollment without penalty in advance of their first contribution to the plan (and informs employees of this right, as well as the mechanism by which to exercise it).



We thank NASPP Executive Advisory Committee members Thomas Welk of Cooley and Art Meyers of Gunster for their assistance with the NASPP’s comment letter.

  • Barbara Baksa
    By Barbara Baksa

    Executive Director