SECURITIES AND EXCHANGE COMMISSION

    17 CFR PART 239

    [RELEASE NO. 33-7647; File No. S7-2-98]

    RIN 3235-AG94

    REGISTRATION OF SECURITIES ON FORM S-8

    AGENCY:  Securities and Exchange Commission

    ACTION:  Proposed Rule; Extension of Comment Period and

    Further Request for Comment

    SUMMARY:  In connection with the proposals issued on

    February 17, 1998, Release No. 33-7506 [63 FR 9648] (the

    "Proposing Release), the Securities and Exchange Commission

    ("we or "Commission) is issuing a new proposal to amend

    Form S-8.  The new proposal is targeted to prevent the abuse

    of Form S-8 to register offerings to consultants and

    advisors who act as statutory underwriters, or to register

    securities issued as compensation to consultants or advisors

    who promote the registrant's securities.  In addition, we

    are extending the comment period until May 7, 1999 for the proposals

    and requests for comment in the Proposing Release that we

    continue to consider.

    DATES:  We must receive your comments on or before May 7, 1999.

    ADDRESSES:  Please submit three copies of your comments to

    Jonathan G. Katz, Secretary, U.S. Securities and Exchange

    Commission, Mail Stop 6-9, 450 Fifth Street, N.W.,

    Washington, D.C. 20549.  You also may submit comments

    electronically at the following e-mail address:  rule-

    comments@sec.gov.  All comment letters should refer to File

    Number S7-2-98; include this file number on the subject line

    if you use e-mail.  You may inspect and copy comment letters

    in the public reference room at the same address.  We will

    post electronically submitted comment letters on the

    Commission's Internet Web site (http://www.sec.gov).

    FOR FURTHER INFORMATION CONTACT:  Anne M. Krauskopf, Special

    Counsel, Office of Chief Counsel, Division of Corporation

    Finance, at (202) 942-2900.

    SUPPLEMENTARY INFORMATION:  Today we propose further

    amendments to Form S-8[1] under the Securities Act of 1933

    ("Securities Act).[2]

    I.   EXECUTIVE SUMMARY AND BACKGROUND

    In 1998, as part of our comprehensive agenda to deter

    registration and trading abuses, including microcap

    fraud,[3] we proposed various amendments to Form S-8.[4]

    In particular, Form S-8 has been misused to issue securities

    to nominal "consultants and advisors who act as statutory

    underwriters[5] to sell the securities to the general

    public, and to register securities issued to stock

    promoters.[6]

  Today, in a companion release we adopt some of the 1998 

    proposals that were designed to deter further misuse of the 

    form.[7]  We also propose a different amendment (the "new 

    proposal,) that would amend the instructions to Form S-8 to 

    impose new qualification requirements for companies using 

    the form.  The new proposal would require, before filing a 

    registration statement on Form S-8, that: 

    *  any company be timely in its Exchange Act reports[8]

  during the 12 calendar months and any portion of a month

  before the Form S-8 is filed; and

    *  a company formed by merger of a nonpublic company into an

  Exchange Act reporting company with only nominal assets

  at the time of the merger wait until it has filed an


    **FOOTNOTES**

  [1]: 17 CFR 239.16b.
  
  [2]: 15 U.S.C. 77a et seq.
  
  [3]:  See Securities Act Release No. 7505 (Feb. 17, 1998) 
  [63 FR 9632], adopting amendments to Regulation S [17 CFR 
  230.901 et seq.]; Release No. 39670 (Feb. 17, 1998) [63 FR 
  9661] under the Securities Exchange Act of 1934 ("Exchange 
  Act,) [15 U.S.C. 78a et seq.], proposing amendments to 
  Exchange Act Rule 15c2-11 [17 CFR 240.15c2-11]; Securities 
  Act Release No. 7541 (May 21, 1998) [63 FR 29168], proposing 
  amendments to Securities Act Rule 504 [17 CFR 230.504]; 
  Securities Act Release No. 7644 (Feb. 25, 1999), adopting 
  amendments to Securities Act Rule 504; and Exchange Act 
  Release No. 41110 (Feb. 25, 1999), reproposing amendments to 
  Rule 15c2-11.
  
  [4]:  See Securities Act Release 7506 (Feb. 17, 1998) [63 FR 
  9648] (the "Proposing Release,).
  
  [5]:  An "underwriter, is defined in Section 2(a)(11) of the 
  Securities Act [15 U.S.C. 77b(a)(11)] to include "any person 
  who has purchased from an issuer with a view to, or offers 
  or sells for an issuer in connection with, the distribution 
  of any security, or participates or has a direct or indirect 
  participation in any such undertaking, or participates or 
  has a participation in the direct or indirect underwriting 
  of any such undertaking . . . .,
  
  [6]:  For a detailed discussion of Form S-8 abuses, see 
  Securities Act Release No. 7646 (Feb. 25, 1999) (the 
  "Adopting Release,), at Sections I.A and II.
  
  [7]:  See Adopting Release at Sections II.A and II.B.  We 
  also adopt amendments that allow Form S-8 to be used for the 
  exercise of employee benefit plan stock options by the 
  employee's family members who receive the options from the 
  employee by gift or through a domestic relations order, and 
  clarify executive compensation disclosure requirements that 
  apply to transferred options.  See Adopting Release at 
  Section III.
  
  [8]: These reports are required by Sections 13(a) and 15(d) 
  of the Exchange Act [15 U.S.C. 78m(a) and 15 U.S.C. 78o(d)].
  
  

     2


  annual report on Form 10-K[9] or Form 10-KSB[10]

  containing audited financial statements reflecting the

  merger.

    In issuing the new proposal, our specific goal is to

    make Form S-8 less susceptible to abuse, without imposing

    undue burdens on companies more likely to be operating

    legitimate employee benefit plans. We believe that the new

    proposal may be better targeted toward deterring potentially

    abusive situations.

    We also solicit comment on whether other potential

    amendments, such as Exchange Act disclosure of aggregate

    Form S-8 sales to both consultants and employees,  may

    prevent further abuse of Form S-8 (the "new comment

    solicitations).[11]

     Finally, we extend the comment period on one of the

    proposals and some of the requests for comment that we

    issued in the 1998 proposal (together, the "remaining

    proposals).[12]

    We may adopt any combination of the new proposal, the

    remaining proposals and the new comment solicitations.

    II.  REGISTRANT ELIGIBILITY PROPOSAL

    Our investigation of the misuse of Form S-8 shows that

    the companies involved frequently share one or more of the

    following characteristics:

    *   failure to file Exchange Act reports, or failure to file

  them on a timely basis;

    *  "going public by means of a merger into a public "shell

  corporation with only nominal assets; and

    *  stopping Exchange Act reporting not long after using Form

  S-8 to make an unregistered distribution to the general

  public, whether or not the company is eligible to suspend

  or terminate its Exchange Act reporting.

  We believe that tightening the eligibility 

    standards of Form S-8 may be needed in order to deter 

    abuse.  In cases involving companies formed by merger 

    of a non-reporting company into a public "shell,, a 

    Form S-8 instruction requiring post-merger public 

    information would have prevented misuse.[13]  In other 

    cases, a Form S-8 instruction requiring the issuer to 

    have filed Exchange Act reports on a timely basis would 

    have prevented misuse.[14]

 Form S-8 currently permits use of the form by any   

    company that: 

    *  immediately before the time of filing is subject to the

  requirement to file reports under Section 13[15] or 15(d)

  of the Exchange Act; and

    *  has filed all reports and other materials so required

  during the preceding 12 months (or such shorter period as

  the registrant was required to file under the Exchange

  Act).

    Under the new proposal, more stringent eligibility

    standards would apply to all companies.  Any company filing

    a Form S-8 would be required to have filed its most recent

    Exchange Act reports on a timely basis (the "proposed

    timeliness standard), and companies formed by a merger of a

    non-reporting company into a public "shell no longer would

    be able to file a Form S-8 immediately.

    Under the proposed timeliness standard, in order to

    file a Form S-8, any company would need to:

    *  be subject to the Exchange Act reporting requirements;

    *  have filed all Exchange Act Section 13(a) or 15(d)

  reports and all other materials required to be filed

  during the immediately preceding 12 months (or such

  shorter time as the company was subject to the Exchange

  Act reporting requirements); and

    *  have timely filed all Exchange Act Section 13(a) or 15(d)

  reports required to be filed during the 12 calendar

  months and any portion of a month immediately preceding

  the Form S-8 filing (or such shorter time as the company

  was subject to those requirements).

    The first two requirements would be the same as the

    existing Form S-8 eligibility standard.[16]  The third

    requirement would apply the timeliness standards of

    Securities Act Forms S-2[17] and S-3[18] to Form S-8.  As

    with Forms S-2 and S-3, a company that uses Rule 12b-25[19]

    to extend the due date for all or part of an Exchange Act

    report would be considered timely if the company actually

    filed the material within the time prescribed by that rule.

    Because Form S-8, like Forms S-2 and S-3, provides

    disclosure through incorporation by reference of Exchange

    Act reports, requiring those reports to be filed on a timely

    basis as a form eligibility condition would be appropriate.

    The proposed timeliness standard would apply to certain

    post-effective amendments as well as new filings.  When a

    registration statement is post-effectively amended to

    satisfy the updating standards of Securities Act Section

    10(a)(3),[20] the form and contents of the amendment must

    conform to the applicable rules and forms in effect on the

    date it is filed.[21]  With Form S-8, like Form S-3,

    incorporation by reference of the company's subsequently

    filed annual report on Form 10-K or Form 10-KSB is deemed to

    amend the registration statement for Section 10(a)(3)

    updating purposes.  Accordingly, for an effective Form S-8,

    the proposed timeliness standard also would be triggered

    when an Exchange Act annual report is due, for purposes of

    determining whether the company may continue to use that

    Form S-8 to make compensatory offers and sales of

    securities.  If the company does not timely file its Form

    10-K or Form 10-KSB under the standards of the new proposal,

    that Form S-8 no longer would be available for purposes of

    making subsequent offers and sales of securities.

    A stricter standard would apply to a company formed 

   by a merger between an entity that was not subject to the

    Exchange Act reporting requirements at the time of the

    merger and an entity subject to the Exchange Act reporting

    requirements that had only nominal assets at the time of the

    merger.  This type of company would not be allowed to file

    any registration statement on Form S-8 until it had filed an

    annual report on Form

    10-K or Form 10-KSB containing audited financial statements

    reflecting the merger, even if its other Exchange Act

    reports were timely filed.

    Because a company that "goes public through a "shell

    merger does not file a Form 10 or Form 10-SB,[22] the merged

    entity does not file audited financial statements until it

    files an Exchange Act annual report.  The period before the

    first Exchange Act annual report is filed appears to be the

    most likely period for using Form S-8 to make an improper

    public offering, because the discipline of an audit has not

    yet been applied to the financial statements of the merged

    entity.[23]  Prohibiting "shell companies from using Form

    S-8 until such an annual report is filed will make Form S-8

    unavailable during this critical period.  Once the Form 10-K

    or 10-KSB is filed within 12 months after the

    formation/merger, the company would be subject to the

    proposed timeliness standard.

    Commenters are requested to address whether the new

    proposal would be an effective deterrent to Form S-8 abuse.

    In particular, would the proposed timeliness standard deter

    misuse by the companies most likely to abuse Form S-8

    without imposing undue burdens on companies that sponsor

    legitimate employee benefit plans?  Many companies that file

    Forms S-8 also file (or are establishing eligibility to

    file) registration statements on Forms S-2 and S-3.[24]  We

    do not believe that it will be difficult for these companies

    to satisfy the same timeliness standards for purposes of

    Form S-8.  We also believe that imposing these timeliness

    standards on other companies will make the form less

    susceptible to abuse.  However, we request your comment on

    whether the proposed timeliness standard would be equally

    effective and less burdensome if it required timely filing

    only of the company's annual report on Form 10-K or Form 10-

    KSB, rather than all Exchange Act reports.

    We also are considering whether the proposed timeliness

    standard should apply only to some subset of public

    companies.  Can this requirement be tailored so that it does

    not apply to the companies least likely to abuse Form S-8?

    For example, should the standard apply only to companies

    that do not have securities listed on a national securities

    exchange or admitted to trading on the NASDAQ National

    Market System?[25]  Alternatively, should the standard apply

    only to companies that do not have securities listed on the

    New York Stock Exchange or the American Stock Exchange, or

    admitted to trading on the NASDAQ National Market System?

    In either case, are there any particular listing

    requirements that would form an appropriate basis for

    distinguishing among different markets for this purpose?

    If we impose the proposed timeliness standard on a

    limited basis, should its application be based on the

    company's size rather than the market on which the company's

    securities are traded?  If so, should a size test be based

    on assets or revenues?  For example, would it be appropriate

    to apply the proposed timeliness standard only to companies

    with annual revenues below $10 million?  Should a revenue

    test be lower, such as $5 million, or higher, such as $20 or

    $25 million?  If instead the test is based on assets, should

    the standard apply only to companies with assets below $50

    million?  Would a lower limit, such as $25 million, or a

    higher limit, such as $100 million, be more appropriate?

    Should an asset test be based on total assets, or only net

    tangible assets, whose value is more readily determinable

    and realizable?

     Should a size test be based instead on the aggregate

    market value of the voting and non-voting common equity held

    by non-affiliates (the "public float), as reported in the

    company's most recently filed Form 10-K or Form 10-KSB?  If

    so, should the proposed timeliness standard apply only to

    companies with a public float less than $75 million?

    Would the new proposal be more effective if it required

    newly reporting companies, as well as companies formed by

    "shell mergers, to postpone filing a Form S-8 for a

    specified period of time after becoming subject to the

    Exchange Act in order to establish a reporting history?  For

    example, should we reinstate a 90-day waiting period before

    a newly reporting company is allowed to file a Form S-8?[26]

    Would a different waiting period be appropriate, either

    shorter (30 or 60 days or some other number) or longer (120

    or 180 days or some other number)?

    With respect to companies formed by "shell mergers,

    should the new proposal instead prohibit them from using

    Form S-8 for a longer period of time, such as 18 months, two

    years, or three years?  Does the "nominal assets standard

    provide sufficient guidance?  If not, should an objective

    benchmark be provided?  What level of assets would be

    appropriate for this purpose?   For example, should assets

    of $200,000 or less be considered "nominal?  Should the

    "nominal character of the public shell's assets be measured

    on an absolute basis (such as $100,000, $200,000, $500,000

    or some other number), or by reference to the assets of the

    private company that is acquired (such as five, ten, or 25

    percent of the combined assets, or some other percentage)?

    Should all assets be considered for purposes of this

    test, or only net tangible assets?  In addition -- or as an

    alternative -- should the test address whether the public

    shell has had continuous operations for a specified period

    of time?  For example, Exchange Act Rule 3a51-1[27] excludes

    from the definition of "penny stock a security of an issuer

    having net tangible assets in excess of $2 million, if the

    issuer has been in continuous operation for at least 3

    years, or $5 million, if the issuer has been in continuous

    operation for less than three years.

    Should the eligibility test for companies formed

    through "shell mergers be measured by reference to the

    "shell's assets at all, or only with respect to whether the

    "shell has a business plan other than to merge with the

    private company?  For example, Securities Act Rule 419[28]

    defines a "blank check company, in part, as a development

    stage company that either has no specific business plan or

    purpose, or has indicated that its business plan is to merge

    with an unidentified company or companies.[29]  Should the

    same test apply for Form S-8 eligibility purposes, whether

    or not a merger candidate is identified?  If we use this

    test, should we eliminate the "development stage provision?

    The standards of the new proposal would apply to a

    company whether or not the company is a "small business

    issuer.[30]   However, we request comment on whether the

    new proposal would have a disproportionate adverse effect on

    small business issuers. Would the new proposal discourage

    these issuers from going public, so that they could continue

    to issue securities to employees under Securities Act Rule

    701?[31]

    Finally, would the new proposal be more effective and

    less burdensome than any of the remaining proposals?[32]  In

    particular, would the new proposal be more effective and

    impose fewer burdens on legitimate employee benefit plans

    than the proposed Form S-8 Part II disclosure of the number

    of securities issued to consultants, their names and the

    services they provide (or disclosure of the same information

    in the company's Exchange Act reports)?  Is the new proposal

    better targeted at the specific problem than a limitation on

    the percentage of a class of securities outstanding that may

    be sold to consultants and advisors during the company's

    fiscal year?


    **FOOTNOTES**

  [9]: 17 CFR 249.310.
  
  [10]: 17 CFR 249.310b.
  
  [11]: See Section III, below.
  
  [12]: See Section IV, below.
  
  [13]: See, e.g., In the Matter of Sky Scientific, Inc. 
  ("Sky Scientific,), Securities Act Release No. 7372, 
  Exchange Act Release No. 38049, Accounting and Auditing 
  Enforcement Release No. 863 (Dec. 16, 1996); and SEC v. 
  Hollywood Trenz, Inc., Litigation Release No. 15730, 
  Accounting and Auditing Enforcement Release No. 1032 (May 4, 
  1998).
  
  [14]: See, e.g., SEC v. Charles O Huttoe, et al., Litigation 
  Release No. 15153 (Nov. 7, 1996); and SEC v. Softpoint, 
  Litigation Release No. 14480, Accounting and Auditing 
  Release No. 666 (Apr. 27, 1995).
  
  [15]:15 U.S.C. 78m.
  
  [16]: The proposed language would clarify that the existing 
  standard's reference to "other materials required to be 
  filed, means the materials required by Exchange Act Sections 
  14(a) or 14(c) [15 U.S.C. 78n(a) and 78n(c)].
  
  [17]: See General Instruction I.C(2) to Form S-2 [17 CFR 
  239.12].
  
  [18]: See General Instruction I.A.3(b) to Form S-3 [17 CFR 
  239.13].
  
  [19]: 17 CFR 240.12b-25.
  
  [20]: 15 U.S.C. 77j(a)(3). This section states that if a 
  registration statement is used more than nine months 
  following its effective date, the information it contains 
  may be no more than 16 months old.
  
  [21]: Securities Act Rule 401(b) [17 CFR 230.401(b)].
  
  [22]: 17 CFR 249.210 and 249.210b. These are the long form 
  Exchange Act registration statements, which contain 
  extensive business and financial information.
  
  [23]: In this regard, note that Item 3(a) of Form S-8 
  requires a registrant to incorporate by reference into its 
  Form S-8 the registrant's latest annual report filed under 
  Section 13(a) or 15(d) of the Exchange Act, or either: (1) 
  the latest prospectus filed under Rule 424(b) [17 CFR 
  230.424(b)]; or (2) the registrant's effective registration 
  statement on Form 10, 10-SB, 20-F or 40-F [17 CFR 249.210, 
  249.220f and 249.240f]. One of these documents (or the 
  company's annual report under Exchange Act Rule 14a-3(b) [17 
  CFR 240.14a-3(b)]) also must be delivered to plan 
  participants to satisfy Form S-8 prospectus delivery 
  materials requirements under Rule 428(b)(2) [17 CFR 
  230.428(b)(2)]. These standards are designed to require 
  incorporation by reference and delivery of a document 
  containing audited financial statements for the registrant's 
  latest fiscal year. The new proposal would assure that a 
  company that "goes public, through a "shell, merger 
  satisfies these requirements with respect to the merged 
  entity, rather than the premerger "shell.,
  
  [24]: Although General Instruction I.B.1 requires the 
  aggregate market value of a company's voting and non-voting 
  common equity held by non- affiliates to be at least $75 
  million for Form S-3 to be available for a primary offering, 
  this condition need not be met in order to use Form S- 3 for 
  any other transaction for which it is available, such as 
  secondary offerings.
  
  [25]: In this case, we anticipate that the proposed 
  timeliness standard would apply to companies with securities 
  traded in or quoted on markets such as the Pink Sheets, the 
  OTC Bulletin Board, and the Nasdaq Small Cap market, as well 
  as companies whose securities trade other than in an 
  organized market, such as securities that are traded 
  exclusively on the internet.
  
  [26]: Previously, the Form S-8 instructions required the 
  registrant to have been subject to the Exchange Act 
  reporting requirements for 90 days before filing a Form S-8. 
  This requirement was eliminated in the 1990 revisions to 
  Form S-8. See Securities Act Release No. 6867 (Jun. 6, 1990) 
  [55 FR 23909]. In proposing this change, the Commission 
  noted that "[r]etention of the requirement that Form S-8 
  registrants be subject to Exchange Act reporting obligations 
  would provide for current public information. Information in 
  an effective Securities Act or Exchange Act registration 
  statement would be available to the marketplace and the 
  registrant would be subject to the continuous reporting 
  system under the Exchange Act. As a result, the business and 
  financial information regarding the registrant would be 
  available to employees., Securities Act Release No. 6836 
  (Jun. 12, 1989) [54 FR 25936].
  
  [27]: 17 CFR 240.3a51-1.
  
  [28]: 17 CFR 230.419.
  
  [29]: Securities Act Rule 251(a)(3) [17 CFR 230.251(a)(3)] 
  makes the Regulation A [17 CFR 230.251 et seq.] exemption 
  from Securities Act registration unavailable to these 
  companies. Similarly, Rule 504(a)(3) [17 CFR 230.504(a)(3)] 
  makes the Rule 504 [17 CFR 230.504] exemption of Regulation 
  D [17 CFR 230.501 et seq.] unavailable to these companies.
  
  [30]: This term currently is defined as a company that: (i) 
  has revenues of less than $25,000,000; (ii) is a U.S. or 
  Canadian issuer; (iii) is not an investment company; (iv) if 
  a majority owned subsidiary, the parent corporation is also 
  a small business issuer; and (v) the public float (aggregate 
  market value of outstanding voting and non-voting common 
  stock held by non-affiliates) does not exceed $25,000,000. 
  See Item 10 of Regulation S-B [17 CFR 228.10] and Securities 
  Act Rule 405 [17 CFR 230.405]. In the Securities Act Reform 
  Release (Securities Act Release No. 7606A (Nov. 13, 1998) 
  [63 FR 67171]), we proposed to amend the definition of 
  "small business issuer, to raise the revenue threshold to 
  $50,000,000, and to eliminate the public float test. See 
  Securities Act Reform Release at Section V.E.2.
  
  [31]:17 CFR 230.701. The Commission adopted amendments to 
  Rule 701 in Securities Act Release No. 7645 (Feb. 25, 1999).
  
  [32]:The remaining proposals are described Section IV, 
  below.
  


     3


    III. OTHER POTENTIAL AMENDMENTS

    Although we do not propose any other specific amendment

    today, we ask commenters to address whether any approaches

    other than the new proposal and the remaining proposals

    would help to deter Form S-8 abuse.  For example, should we

    consider other forms of certification?  As described below,

    one of the remaining proposals is to expand the existing

    Form S-8 certification to require the company to certify

    that any consultant or advisor who receives securities

    registered on the form is not hired for capital-raising or

    promotional activities.

    Instead, each time a company issues securities to

    consultants, should it be required to post-effectively amend

    its Form S-8 to certify that the consultants receiving the

    securities will not engage in these activities?

    Alternatively, should we require consultants and advisors

    who receive securities registered on Form S-8 to provide the

    company with certifications that they have not and will not

    engage in capital-raising, promotional or market maintenance

    activities?  If this requirement is imposed, companies would

    be required to retain the certification for a period of time

    and provide it to the Commission or the staff upon

    request.[33]  Would a three- or five-year retention

    period[34] be appropriate for this purpose?  If not, for

    what period of time should this information be retained?

    Instead of certification, another possibility would be

    to require companies to make a statement in Part II of the

    Form S-8 registration statement that the securities will be

    issued for compensatory, not capital-raising, purposes.

    Would this approach be an effective deterrent to abuse?

    In some cases, companies have improperly filed a series

    of Forms S-8 to make unregistered offerings of securities to

    the public, distributing a significant percentage -- if not

    most -- of the company's securities in this manner.[35]  One

    of the remaining proposals would require companies to

    disclose, in their Exchange Act reports, Form S-8 sales of

    securities to consultants and advisors.

    Instead, should we require companies to provide

    disclosure in their quarterly and annual Exchange Act

    reports when aggregate issuances on Form S-8 (to both

    consultants and traditional employees) during the preceding

    12 month period have exceeded a specified percentage of the

    number of securities of the same class outstanding?  In

    particular, would Exchange Act disclosure of aggregate

    issuances to traditional employees, as well as consultants,

    be necessary to identify companies misusing Form S-8 to make

    public offerings?

    If so, would ten, 15, 20 percent, or some other

    percentage, of outstanding securities of the same class be

    an appropriate threshold for requiring this disclosure?  In

    particular, would the 15 percent of outstanding securities

    of the class or 15 percent of the issuer's total assets test

    used in Rule 701 be an appropriate threshold?  Should this

    disclosure identify both the aggregate number of securities

    and options issued, and the aggregate number of employees

    and consultants who received them?  Should issuances to

    employees be segregated from issuances to consultants for

    this purpose? If we require Exchange Act disclosure only of

    aggregate issuances to consultants, would one percent of the

    outstanding securities of the class during the preceding 12

    month period be an appropriate disclosure threshold?

     If an aggregate disclosure requirement is adopted,

    should companies be required to identify individual

    issuances if they exceed a particular threshold, such as one

    percent of the outstanding securities of the class?  Should

    information identifying the recipients of the securities be

    required?  Finally, do the companies that abuse Form S-8

    continue to file Exchange Act reports long enough for this

    kind of disclosure to be meaningful?

    IV.  CONTINUING REQUEST FOR COMMENT

   During the comment period, we are extending our request

    for comment on the remaining proposals.[36]  These are:

    Proposal:  Disclosure in Part II of Form S-8 of the

    names of any consultants or advisors who will receive

    securities under the registration statement, the number of

    securities to be issued to each of them, and the specific

    services that each will provide the company.

    Requests for comment:

    *  Whether companies should be required to disclose Form S-8

  sales of securities to consultants or advisors in their

  Exchange Act reports -- either in Form 10-K and Form 10-

  Q,[37] or on Form 8-K;[38]

    *  Whether the aggregate percentage of securities that may

  be sold to consultants and advisors on Form S-8 during

  the company's fiscal year should be limited to a

  specified percentage of the number of securities of the

  same class outstanding;

    *  Whether the existing requirement that the company certify

  "that it has reasonable grounds to believe that it meets

  all of the requirements for filing on Form S-8 should be

  expanded also to require the company to certify that any

  consultant or advisor who receives securities registered

  on the form does not, and will not, engage in capital-

  raising or promotional activities; and

    *  Whether the Form S-8 cover page should include a box that

  the company would be required to check if any securities

  registered on the form are offered and sold to

  consultants and advisors.

    In particular, we are considering carefully whether, to

    what extent and in what form, there should be additional

    disclosure requirements about consultants and advisors.  We

    solicit your comment on this issue.

    With respect to limiting the aggregate percentage of

    securities that may be sold to consultants and advisors on

    Form S-8 during the company's fiscal year, we previously

    solicited comment whether annual percentage limitations of

    five, ten or 15 percent of the number of securities of the

    same class outstanding, computed based on the company's most

    recent balance sheet, would be appropriate. [39]  Would a

    higher percentage, such as 30 percent, be appropriate for

    this purpose?  Would the 15 percent of the issuer's total

    assets test used in Rule 701 be an appropriate cap?

    Instead, should a higher percentage, such as 30, 40 or 50

    percent, be applied to limit annual aggregate Form S-8 sales

    to employees, as well as to consultants and advisors?

    We may adopt any combination of the new proposal, the

    remaining proposals and the new comment solicitations.

    V.   GENERAL REQUEST FOR COMMENT

  We request your written comment on all aspects of the

    new proposal, the new comment solicitations and the

    remaining proposals.  You should address whether the new

    proposal, as drafted, is easy to understand and implement.

    In particular, would the new proposal and the new comment

    solicitations be less burdensome and more effective in

    deterring Form S-8 abuse than the remaining proposals?

    VI.      COST-BENEFIT ANALYSIS

    The new proposal is intended to eliminate misuse of

    Form S-8 and thus enhance investor protection.  The costs

    and benefits of the new proposal are discussed below.[40]

    We request your written comment on this analysis as an aid

    to further evaluate the costs and benefits of the new

    proposal.  Please provide empirical data and other factual

    support for your views to the extent possible.

    The new proposal is designed to deter the use of Form

    S-8 to register transactions in which consultants or

    employees act as conduits to distribute securities to the

    public, or transactions in which consultants are compensated

    for other capital-raising or promotional services.  We

    believe that this will benefit investors by permitting

    registration and sale of securities only when current

    information is available, which should inhibit fraudulent

    promotional schemes and will enhance investor confidence in

    the integrity of the securities markets.  Other forms remain

    available to register securities for capital-raising

    purposes.  The additional costs of using these other forms

    are justified in order to provide adequate information to

    non-employee investors.

    Our records indicate that approximately 5600 Forms S-8

    were filed during the fiscal year ending September 30,

    1998.[41]  We do not have data to determine how many of

    these filings would have been precluded if the amendments

    had been in effect.  Therefore, we cannot quantify the

    impact.  However, we believe that the rule change will

    impact primarily transactions that were not intended to use

    the form.

    The new proposal will require:

    *  any company using Form S-8 to be timely in its Exchange

  Act reports during the 12 calendar months and any portion

  of a month before the Form S-8 is filed; and

    *  a company formed by merger of a nonpublic company into an

  Exchange Act reporting company with only nominal assets

  at the time of the merger to wait until it has filed an

  annual report on Form 10-K or Form 10-KSB containing

  audited financial statements reflecting the merger before

  filing a registration statement on Form S-8.

    Some companies may face increased costs as a result of

    the rule change because, for limited periods of time, Form

    S-8 may not be available to them to register compensatory

    employee benefit plan securities offerings.  This could

    reduce the flexibility of these companies' compensation

    arrangements.  Commenters should consider whether the new

    proposal would make an affected company more likely to use

    cash for compensation purposes.  If so, would this result in

    cash flow concerns or constrain reinvestment in the

    company's business?

    For all companies, the proposed timeliness standard

    would condition Form S-8 availability on the company's

    timely satisfaction of its Exchange Act reporting

    requirements.  Form S-8 would be available if the company

    does no more than what it otherwise is required to do.

    Accordingly, the proposed timeliness standard will not

    require a company to incur additional costs.  The proposed

    timeliness standard will provide investor protection

    benefits by giving companies an additional incentive to file

    their Exchange Act reports on a timely basis.

    For a company formed by a "shell merger, the proposed

    standard will make Form S-8 unavailable until the company

    has filed a Form 10-K or Form 10-KSB that includes audited

    financial statements for the merged entity.  This will

    provide investor protection benefits by ensuring that the

    audited financial statements of the merged entity, rather

    than merely the "shell, are incorporated by reference into

    the Form S-8.  However, during the limited period that the

    proposed standard will apply, such a company would be

    required to use a less streamlined registration statement to

    register securities offered under a compensatory employee

    benefit plan.  The most likely registration statement forms

    to be used for this purpose are Forms S-1, SB-2, S-2 and S-

    3. The estimated burden hours for purposes of the Paperwork

    Reduction Act for using Form S-8 are 12 hours.  The

    estimated burden hours[42] for the other forms are:

     Form SB-2   138
     Form S-3   398
     Form S-2   470
     Form S-1 1290

    Because none of these alternative forms becomes

    automatically effective upon filing, there may be additional

    costs due to potential delay in implementing the employee

    benefit plan.  However, once the company files the required

    Form 10-K or Form 10-KSB, the company would be able to post-

    effectively amend the less streamlined registration

    statement to convert it to a Form S-8,[43] assuming the

    proposed general timeliness standard also is satisfied,

    thereby regaining the benefits of the abbreviated form.

    For purposes of the Small Business Regulatory

    Enforcement Fairness Act of 1996 ("SBREFA),[44] we request

    data and analysis on whether the new proposal would result

    in a major increase in costs or prices for consumers or

    individual industries, or significant adverse effects on

    competition, employment, investment, productivity,

    innovation or small business.  Would the new proposal be

    likely to have a $100 million or greater annual effect on

    the economy?  Commenters are requested to provide empirical

    data to support their views.

    VII. SUMMARY OF INITIAL REGULATORY FLEXIBILITY ANALYSIS

   The Commission has prepared an Initial Regulatory

    Flexibility Analysis ("IRFA) in accordance with 5 U.S.C.

    603 regarding the new proposal.

    As noted in the analysis, the new proposal is designed

    to deter abusive practices in which Form S-8 is used to make

    capital-raising distributions of securities to the general

    public, or to compensate consultants and advisors for

    promotional and other capital-raising activities.  These

    uses are contrary to the express purposes of the form.  We

    believe that the new proposal will not result in any

    impairment of protection for the investing public, and

    should result in improved protection by assuring that

    capital-raising offerings are registered on the forms

    prescribed for those offerings.

    As the IRFA describes, the staff is aware of

    approximately 815 Exchange Act reporting companies that

    currently satisfy the definition of "small business under

    Rule 157 of the Securities Act.[45]  Overall, 13,577

    companies are Exchange Act reporting companies.  Based on a

    random sample of the Forms S-8 filed during fiscal 1998, the

    Commission estimates that approximately 380 of those Forms

    S-8 were filed by small business issuers, and that

    consultants or advisors were the sole recipients of

    securities registered on approximately 185 of the Forms S-8.

    The new proposal will not impose any new reporting,

    recordkeeping or compliance burdens for most small issuers.

    However, the new proposal may require some small businesses

    to use less streamlined forms to register securities

    offerings that otherwise would have been registered on Form

    S-8.  We believe that in many cases, however, these will be

    offerings for which Form S-8 was not in fact previously

    available.  This may reduce the flexibility of the

    compensation arrangements for some small businesses that

    merge with "shells.  We do not have the data to estimate

    this effect, but note that the effect would be only for the

    limited time until the combined entity files a Form 10-KSB

    with audited financial statements that reflect the merger.

    We invite your written comments on any aspect of the

    IRFA.  In particular, we seek your comment on:  (1) the

    number of small entities that would be affected by the

    proposed rule amendments; and (2) the determination that the

    proposed rule amendments would not significantly increase

    reporting, recordkeeping and other compliance requirements

    for small entities.  Commenters should address whether the

    proposed amendments to Form S-8 will affect the number of

    registration statements filed on this form, affect the

    dollar amount of securities sales on this form, or affect

    the form's availability to small entities.

    Any commenter who believes that the new proposal will

    significantly impact a substantial number of small entities

    should describe the nature of the impact and estimate the

    extent of the impact.  For purposes of making determinations

    required by SBREFA, we also request data regarding the

    potential impact of the proposed amendments on the economy

    on an annual basis.  All comments will be considered in the

    preparation of the Final Regulatory Flexibility Analysis if

    the new proposal is adopted.  Please refer to the Proposing

    Release for a summary of the separate Initial Regulatory

    Flexibility Analysis with respect to the remaining

    proposals.[46]  A copy of either Initial Regulatory

    Flexibility Analysis may be obtained from Anne M. Krauskopf,

    Office of Chief Counsel, Division of Corporation Finance,

    Securities and Exchange Commission, 450 Fifth Street, N.W.,

    Washington, D.C. 20549.

    VIII. PAPERWORK REDUCTION ACT ANALYSIS

    Parts of the new proposal contain "collection of

    information requirements within the meaning of the

    Paperwork Reduction Act of 1995 ("PRA).[47]  Our staff has

    submitted the new proposal for review by the Office of

    Management and Budget ("OMB) in accordance with the PRA.

    The title to the affected information collection is:  "Form

    S-8.  An agency may not conduct or sponsor, and a person is

    not required to respond to, a collection of information

    unless it displays a currently valid control number.

   The new proposal may require some companies to use less

    streamlined forms to register securities offerings that

    otherwise would have been registered on Form S-8. We

    estimate that this may reduce the number of registration

    statements filed on Form S-8 by approximately not more than

    five percent, and may increase the number of registration

    statements filed on different forms by a corresponding

    amount.  In many cases, however, these will be offerings for

    which Form S-8 was not in fact previously available.  We

    believe that this will provide a substantial investor

    protection benefit that justifies any additional costs to

    filers.

     In accordance with 44 U.S.C. 3506(c)(2)(B), we solicit

    comment on the following:

    *  whether the proposed changes in the collection of

  information are necessary to the agency's function,

  including practical utility;

    *  the accuracy of the estimated burden of the proposed

  changes to the collection of information;

    *  whether there are ways to enhance the quality, utility

  and clarity of the information to be collected; and

    *  whether the burden of collection of information on those

  who are to respond, including through the use of

  automated collection techniques or other forms of

  information technology, may be minimized.

    Persons who wish to submit comments on the collection

    of information requirement should direct them to the Office

    of Management and Budget, Attention:  Desk Officer for the

    Securities and Exchange Commission, Office of Information

    and Regulatory Affairs, Washington, D.C., with reference to

    File No. S7-2-98.  Because the OMB is required to make a

    decision concerning the collection of information between 30

    and 60 days after publication, your comment is best assured

    of having its full effect if OMB receives it within 30 days

    of publication.

    Please refer to the Proposing Release for a separate

    Paperwork Reduction Act Analysis of the remaining

    proposals.[48]

    IX.  STATUTORY BASIS AND TEXT OF PROPOSED AMENDMENTS

    The new amendment to Securities Act Form S-8 is

    proposed under the authority set forth in Sections 6, 7, 8,

    10 and 19 of the Securities Act of 1933.

    List of Subjects in 17 CFR Part 239

    Reporting and recordkeeping requirements, Securities.

    TEXT OF THE PROPOSED AMENDMENTS

    In accordance with the foregoing, Title 17, Chapter II

    of the Code of Federal Regulations is proposed to be amended

    as follows:

    PART 239 - FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    1.  The authority citation for part 239 continues to

    read in part as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2,

    77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d),

    79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24,

    80a-29, 80a-30 and 80a-37, unless otherwise noted.

 * * * * *

    2.  By amending 239.16b to redesignate paragraph (b)

    as paragraph (c); redesignate paragraphs (a)(1) and (a)(2)

    as new paragraphs (b)(1) and (b)(2);  revise paragraph (a);

    and add new paragraph (b) introductory text to read as

    follows:

    239.16b  Form S-8, for registration under the Securities

    Act of 1933 of

    securities to be offered to employees pursuant to employee

    benefit

    plans.

        * * * * *

    (a)  A registrant may use this form for registration

    under the Securities Act of 1933 ("the Act) of the

    securities listed in paragraph (b) of this section if the

    registrant satisfies the requirements of paragraph (a)(1)

    and (a)(2) of this section:

    (1)  A registrant may not file a registration statement

    on this form unless, immediately before filing the

    registration statement, the registrant:

    (i)  Is subject to the reporting requirements of

    sections 13(a) or 15(d) of the Securities Exchange Act of

    1934 (the "Exchange Act) (15 U.S.C. 78m(a) or 78o(d));

    (ii) Has filed all reports required by Section 13(a) or

    15(d) of the Exchange Act and all materials required by

    section 14(a) or 14(c) of the Exchange Act (15 U.S.C. 78n(a)

    or 78n(c)) required to be filed during the 12 months

    immediately before filing a registration statement on this

    form (or for such shorter period that the registrant was

    required to file such reports and materials); and

    (iii) Has filed on a timely basis all reports required

    by section 13(a) or 15(d) of the Exchange Act during the 12

    calendar months and any portion of a month immediately

    preceding the filing of the registration statement (or for

    such shorter period that the registrant was required to file

    such reports).  If during that time the registrant has used

    240.12b-25 of this chapter with respect to a report or a

    part of a report, that material must have been filed within

    the time prescribed by that section.

    (2)  If the registrant is an entity formed by the

    merger between:

    (i)  An entity subject to the Exchange Act reporting

    requirements that had only nominal assets at the time of the

    merger; and

    (ii) An entity that was not subject to the Exchange Act

    reporting requirements at the time of the merger, the

    registrant may not file a registration statement on this

    form until it has filed an annual report on Form 10-K or

    Form 10-KSB (249.310 or 249.310b of this chapter)

    containing audited financial statements for a fiscal year

    ending after consummation of the merger.

    (b)  A registrant may use this form for registration

    under the Act of the following securities:

 * * * * *

    3.  By amending Form S-8 (referenced in 239.16b) in

    General Instruction A to redesignate paragraphs 1.(a) and

    1.(b) as paragraphs 1.(d) and 1.(e); revise the introductory

    text of paragraph 1.; and add new paragraphs 1.(a) and 1.(b)

    to read as follows:

    Note - The text of Form S-8 does not, and this

    amendment will not, appear in the Code of Federal

    Regulations.

    Form S-8  Registration Statement under the Securities Act of

    1933

 * * * * *

    General Instructions

    A.   Rule as to Use of Form S-8

    1.   A registrant may use this form for registration

    under the Securities Act of 1933 of the securities listed in

    paragraph 1.(d) and 1.(e) of this section if the registrant

    satisfies the requirements of paragraph 1.(a) and 1.(b) of

    this section:

    (a)  A registrant may not file a registration statement

    on this form unless, immediately before filing the

    registration statement, the registrant:

    (i)  Is subject to the reporting requirements of

    Sections 13(a) or 15(d) of the Securities Exchange Act of

    1934 (the "Exchange Act) (15 U.S.C. 78m(a) or 78o(d));

    (ii) Has filed all reports required by Section 13(a) or

    15(d) of the Exchange Act and all materials required by

    Section 14(a) or 14(c) of the Exchange Act (15 U.S.C. 78n(a)

    or 78n(c)) required to be filed during the 12 months

    immediately before filing a registration statement on this

    form (or for such shorter period that the registrant was

    required to file such reports and materials); and

    (iii) Has filed on a timely basis all reports required

    by Section 13(a) or 15(d) of the Exchange Act during the 12

    calendar months and any portion of a month immediately

    preceding the filing of the registration statement (or for

    such shorter period that the registrant was required to file

    such reports).  If during that time the registrant has used

    Rule 12b-25 (240.12b-25 of this chapter) under the Exchange

    Act with respect to a report or a part of a report, that

    material must have been filed within the time prescribed by

    that rule.

    (b)  If the registrant is an entity formed by the

    merger between:

    (i)  An entity subject to the Exchange Act reporting

    requirements that had only nominal assets at the time of the

    merger; and

    (ii) An entity that was not subject to the Exchange Act

    reporting requirements at the time of the merger, the

    registrant may not file a registration statement on this

    form until it has filed an annual report on Form 10-K or

    Form 10-KSB (249.310 or 249.310b of this chapter)

    containing audited financial statements for a fiscal year

    ending after consummation of the merger.

 * * * * *



    By the Commission.

  Jonathan G. Katz
  Secretary

    February 25, 1999










    **FOOTNOTES**

  [33]: Securities Act Rule 418 [17 CFR 230.418] requires  
  companies to furnish information supplementally to the  
  Commission or the staff upon request.
  
  [34]: Securities Act Rule 428(a)(2) [17 CFR 230.428(a)(2)] 
  requires a company to keep documents that are used as part 
  of the Form S-8 Section 10(a) prospectus (other than 
  documents incorporated by reference) for five years after 
  they are last used as part of that prospectus.
  
  [35]: See, e.g., Sky Scientific, cited at n. 13 above, in 
  which the company conducted an unregistered distribution to 
  the public by misusing 106 registration statements and post-
  effective amendments on Form S-8, distributing approximately 
  30 million shares of common stock.
  
  [36]: We have not republished in this release the text of 
  the rules previously published in the Proposing Release. 
  Please refer to Sections II.C and II.D of the Proposing 
  Release for a full discussion of the remaining proposals.  
  See Section II.C of the Adopting Release for a brief 
  discussion of the comments we have received to date on the 
  remaining proposals.  A Comment Summary with respect to the 
  Proposing Release also is available for inspection and 
  copying in the Commission's Public Reference Room under file 
  number S7-2-98.  Comments that were submitted electronically 
  are available on the Commission's website 
  (http://www.sec.gov).
  
  [37]: 17 CFR 249.308a.
  
  [38]: 17 CFR 249.308.
  
  [39]: See Section II.D of the Proposing Release. [40]:   For 
  a discussion of the costs and benefits of the remaining 
  proposals, see Section V of the Proposing Release. We invite 
  additional comments on that cost-benefits analysis also. 
  [41]: During the same period, 745 post-effective amendments 
  were filed on Form S-8.
  
  [42]: The estimated burden hours for Form S-8 and Form SB-2 
  assume that only 25% of the total hours spent to prepare the 
  form will be spent by company employees. These estimates 
  assume that the remaining 75% of the total hours will be 
  spent by hired professionals, such as attorneys or 
  accountants. These estimates therefore do not include within 
  the burden hours the remaining 75% of total hours, but 
  instead account for that time as costs. The estimated burden 
  hours for Form S-2 and S-3 do not follow this convention, 
  but instead account for all estimated hours as burden hours.
  
  [43]: See Securities Act Rule 401(e) [17 CFR 230.401(e)].
  
  [44]: Pub. L. No. 104-121, 110 Stat. 857 (1996) (codified in 
  various sections of 5 U.S.C., 15 U.S.C., and as a note to 5 
  U.S.C. 601).
  
  [45]: 17 CFR 230.157.
  
  [46]: Section VI of the Proposing Release.
  
  [47]: 44 U.S.C. 3501 et seq.
  
  [48]: Section VII of the Proposing Release.