In a previous WSGR Alert, we noted a mandate under the Economic Growth, Regulatory Relief, and Consumer Protection Act which directed the U.S. Securities and Exchange Commission (the SEC) to raise the applicable threshold amount triggering the increased disclosure requirements under Rule 701, from $5 million to $10 million. As described below, the increased threshold amount of $10 million was approved by the SEC on July 18, 2018, and became effective on July 23, 2018. Concurrently with the approval, the SEC also issued a concept release soliciting public comment on possible ways to modernize Rule 701 and Form S-8.

Amendment to Rule 701

Under the Securities Act of 1933, offers and sales of securities generally must be registered with the SEC, unless an exemption applies. Rule 701 provides such an exemption for offers and sales of securities under certain compensatory benefit plans, including equity compensation plans. Prior to the amendment, private issuers relying on Rule 701 with an aggregate sales price or amount of securities sold during any consecutive 12-month period of $5 million or less, were required to deliver to investors only a copy of the compensatory benefit plan. Upon exceeding the $5 million threshold, private issuers were required to provide additional disclosure to investors, including a summary of the plan's material terms, risk factors associated with investment in the securities under the plan, and the financial statements required in an offering statement.

Effective beginning July 23, 2018, Rule 701(e) has been amended to increase the threshold amount from $5 million to $10 million, such that the additional disclosure obligation would not apply to private issuers relying on Rule 701 until the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $10 million. Private issuers that have commenced an offering in the current 12-month period will be able to apply the increased $10 million threshold immediately. However, it remains unclear whether private issuers that otherwise had triggered the additional disclosure obligation by exceeding the $5 million threshold prior to July 23, 2018 will be relieved from the additional disclosure obligation until reaching the new $10 million threshold. We will continue to monitor any further developments and clarifications in this area.

Concept Release

In light of continued evolvement in the forms of equity compensation and the types of contractual relationships between companies and the individuals who work for them, the SEC is soliciting comment on possible ways to update the requirements of Rule 701 and Form S-8. The concept release specifically requests comment to, among others:

• Better understand the alternative work arrangements that have emerged in the "gig economy" and determine what attributes of these arrangements potentially may provide a basis for extending eligibility for the Rule 701 exemption;
• Determine whether the timing and manner requirements of Rule 701 disclosure need further clarification or amendment; and
• Determine whether Form S-8 and Rule 701 require further harmonization, potentially eliminating a need for Form S-8 altogether.

The comment period will close on September 24, 2018.