June 18, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Jonathan G. Katz, Secretary Re: File No. S7-2-98 Ladies and Gentlemen: We are a task force of the Corporate and Securities Law Committee of the American Corporate Counsel Association. We are responding to your request made in Release No. 33-7647 for comments relating to proposed amendments to Form S-8. ACCA is a national bar association made up of more than 10,000 attorneys who practice law as members of corporate law departments. Our Committee has more than 2,500 attorneys, a large number of whom practice as in-house counsel for public companies. Although our letter has been circulated for comment among the leadership of the Committee and certain other members of ACCA, it does not necessarily represent the official position of ACCA. Disclosure Relating to Consultants We do not believe the Commission should require disclosure in Part II of the S-8 or in Exchange Act reports, of the amount of securities issued under an S-8 to consultants and identification of such parties. This could be a significant invasion of a consultant's privacy, disruptive to an issuer's internal employee base when compensatory arrangements of external parties are made public, and a potential problem for issuers who rely a great deal on consultants and want to keep their competitors from learning this type of information. Such a disclosure requirement might very well discourage the issuance of equity securities to consultants by many issuers without a clear corresponding benefit. Reporting issuances to both employees and consultants on an aggregate basis might provide some useful information to the staff on detecting abuses of S-8 registrations to the extent the issuances to consultants are disproportionate to prior years or relative to the employee base generally. If this proposal was adopted, a requirement to check a box on the cover of an S-8 in the event securities are issued to consultants would make sense so the staff could more easily identify red flags raised by the new disclosures. We note, however, that even reporting aggregate issuances may produce administrative burdens for many public companies who have legitimately issued securities to Page 2 of 3 consultants, and will continue to do so, without any real risk of abuse. A more targeted and balanced approach might be to report specific or aggregate information to the SEC upon request on a confidential basis when the Commission staff has cause to believe the S-8 is being inappropriately used. Limitation on Sales We do not believe issuers should be limited in the amount of securities that can be issued to consultants because this would in the great majority of cases just impose an arbitrary ceiling. If any such requirement is adopted, constraints of this type should be more limited to the group of issuers believed to create most of the risk in this area. Certification We would not object to a rule requiring an issuer to certify that consultants or advisors who receive securities under an S-8 have not been hired to raise capital or promote the issuer's securities. We note, however, that the truth of the underlying facts of such a certification is a condition to use of the form and that the prospect of a Section 5 violation resulting from form ineligibility, irrespective of any certification requirement, in and of itself should be a major deterrent to abuse by most issuers. There will always be some bad actors that try to manipulate the system regardless of what is being required for eligibility, and we question whether any certification will be effective in most of these situations. If an issuer certification is required, we believe it would be cumbersome and unnecessary for it to be repeated in a post-effective amendment for each issuance under an S-8 to consultants. In addition, although there may be situations where the issuer believes it is appropriate to obtain a certification from a consultant, we believe this should be voluntary because in most cases the issuer will have adequate information based on the services performed by a consultant to evaluate whether there is a proper purpose for the securities issued to such consultant under an S-8. We also note that further interpretive guidance from the staff on the types of activities by consultants that are considered to be related to capital raising would be useful, or issuers may spend an inordinate amount of time analyzing this issue in connection with form eligibility as well as certification, if required. Eligibility We appreciate the Commission's rationale in proposing timely reporting over 12 months as a condition to using the Form S-8, given the incorporation of Exchange Act information into the S-8 and the abusive practices the staff has detected that have some relationship to untimely reporting. On the other hand, losing the use of Form S-8 would be a major burden for many responsible issuers who for some reason or circumstance not remotely related to abuse of the system, might file an Exchange Act report late. Page 3 of 3 Employees would also be prejudiced by having the issuance of shares held in abeyance pending registration of plan securities on a long form registration. As a result, we suggest that the Commission not condition S-8 eligibility on timely filed Exchange Act reports. However, to the extent this approach is adopted, the Commission should limit the disqualification for untimely reports to a narrower group of issuers more susceptible to abuse, such as non-listed companies or issuers of a certain size as suggested in the release. The Commission could also consider requiring a pattern of untimely filings, such as three late reports over an 18 month period, before S-8 disqualification is triggered. Respectfully submitted, Corporate and Securities Law Committee, American Corporate Counsel Association Keijon Waters Legal Resources Manager American Corporate Counsel Association waters@acca.com www.acca.com 202-293-4103x314