EX-5 3 memo.htm S-8 MEMORANDUM FOR PLAN PARTICIPANTS                              SUMMARY


Securities Act Release No. 33-7646, dated February 26, 1999, Regarding

             Registration of Securities on Form S-8

Purpose:  To clarify that S-8 is not available to consultants and advisors

          who directly or indirectly promote or maintain a market in the

          issuer's securities, declaring that these persons take from an

          issuer with a view of distribution and are therefore "statutory

          underwriters" (who presumably would not have an exemption for the

          resale of securities issued in these types of transactions

          [Section 4(l) of the Securities Act of 1933, as amended (the

          "Act"), the exemption relied upon for secondary sales of

          securities, is not available to "issuers, underwriters or dealers"

          in securities]).


          Effective April 7, 1999, the availability of S-8's streamlined

          registration process will be restricted to deter the abuse of the

          Form to make sales to the general public through so-called

          "consultants" and "advisors," and to eliminate registration on the

          Form to "stock promoters."

          S-8 eliminated a need to file a prospectus that duplicated

          information usually available to plan participants who were being

          compensated by the issuance of securities rather than cash, and it

          reflected the Commission's distinction between offerings made to

          employees for compensatory reasons and offerings made for capital

          raising. The Commission reasoned that the relationship of the

          employee to the issuer provided the employee with a familiarity of

          the issuer's business sufficient to justify the abbreviated

          disclosure, which would not be adequate in a capital raising,


          The 1990 amendment included "consultants," whom the Commission

          found no reason to distinguish with regular employees, for bona

          fide non-capital raising services rendered.

Abuses:   Since 1990, the Form has been used to distribute securities to the

          public without the protections to investors of registration under

          Section 5 of the Act. Securities are often issued to so-called

          "consultants" for nominal services, with pre- arrangements for

          exercise and distribution to the public in underlying markets.

          Often the options granted are exercised to provide funds to the

          issuer or the proceeds of the sales are for the payment of debts

          of the issuer that are not related to any of the services provided

          by the consultants.

          The initial registration of the shares underlying these options

          did not register the public "capital raising" transaction which

          actually takes place in the secondary sales. In these instances,

          the employee or consultant acts as a conduit to the public, and

          the shares are not actually issued as compensation for services,

          for which the Form is solely intended.

          Securities have also been issued to consultants whose services are

          to promote the issuer's securities. This practice invites fraud by

          providing inexpensive compensation to persons who hype the

          securities of the issuer and expand the issuer's market through

          resales by these and other persons.

          Through its recent amendments to Form S-8, the Commission has

          sought to curb these practices, while maintaining, to the extent

          possible, the initial intent of the Form, i.e., the registration

          of compensatory transactions between the issuer and consultants

          and advisors who render bona fide services outside "capital

          raising," circumstances, as well as to traditional employees.


          The Form's availability is for employees or employees of

          subsidiaries, pursuant to any employee benefit plan. An "employee"

          is defined to include a consultant or advisor who provides bona

          fide services to the issuer other than in capital raising

          transactions. Like the traditional employee, the consultant or

          advisor must be a natural person, and there must be a contract

          between the issuer and the consultant or advisor. The Commission

          has determined that "capital raising" includes (i) compensation

          for any service that directly or indirectly promotes or maintains

          a market for the issuer's securities, or (ii) where the securities

          are issued to persons who act as conduits for a distribution to

          the general public.

          Securities issued to persons who promote the issuer's securities

          are outside of the Form. Securities cannot be issued to any one

          who directly or indirectly promotes or maintains a market in the

          issuer's securities.

          Issuers cannot use the Form for the issuance of securities to

          consultants and advisors whose services relate to potential

          capital restructuring because this service is a predicate to

          "capital raising" and market maintenance; however, services

          rendered in structuring the compensation scheme would be included

          under the Form.

          Public relations services are also prohibited as the Commission

          believes these services enhance and expand the market of the

          issuer and its securities.

Rule 701 Amendments:

           Effective April 7, 1999, the Commission amended Rule 701 to

           harmonize the definition of "consultants and advisors" permitted

           to use the Rule to the narrower definition of Form S-8.  As

           revised, securities promoters will clearly be excluded from the

           scope of persons eligible to use Rule 701.