83 FR 34940 - Exempt Offerings Pursuant to Compensatory Arrangements

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 142 (July 24, 2018)

Page Range		34940-34944
FR Document		2018-15730

The Securities and Exchange Commission is adopting an amendment to its regulations under the Securities Act of 1933 (the ``Securities Act''), which provide an exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements. As mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act (the ``Act''), the amendment revises a rule to increase from $5 million to $10 million the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which the issuer is required to deliver additional disclosures to investors.

Federal Register, Volume 83 Issue 142 (Tuesday, July 24, 2018)

[Federal Register Volume 83, Number 142 (Tuesday, July 24, 2018)]
[Rules and Regulations]
[Pages 34940-34944]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-15730]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 230

[Release No. 33-10520; File No. S7-17-18]
RIN 3235-AM39

Exempt Offerings Pursuant to Compensatory Arrangements

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission is adopting an
amendment to its regulations under the Securities Act of 1933 (the
``Securities Act''), which provide an exemption from registration for
securities issued by non-reporting companies pursuant to compensatory
arrangements. As mandated by the Economic Growth, Regulatory Relief,
and Consumer Protection Act (the ``Act''), the amendment revises a rule
to increase from $5 million to $10 million the aggregate sales price or
amount of securities sold during any consecutive 12-month period in
excess of which the issuer is required to deliver additional
disclosures to investors.

DATES:
Effective date: July 23, 2018.
Comment date: Comments regarding the collection of information
requirements within the meaning of the Paperwork Reduction Act of 1995
should be received on or before August 23, 2018.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's internet comment form (http://www.sec.gov/rules/final.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number S7-xx-18 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-17-18. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (http://www.sec.gov/rules/final.shtml). Comments are
also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549, on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Anne M. Krauskopf, Senior Special
Counsel, and Adam F. Turk, Special Counsel, Office of Chief Counsel,
Division of Corporation Finance, at (202) 551-3500.

SUPPLEMENTARY INFORMATION: We are adopting an amendment to 17 CFR

[[Page 34941]]

230.701 (Rule 701) \1\ under the Securities Act.\2\
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\1\ Unless otherwise noted, all references to statutory sections
are to the Securities Act, and all references to rules under the
Securities Act are to title 17, part 230 of the Code of Federal
Regulations [17 CFR part 230].
\2\ 15 U.S.C. 77a et seq.
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I. Background

Rule 701 provides an exemption from the registration requirements
of the Securities Act for offers and sales of securities under certain
compensatory benefit plans or written agreements relating to
compensation. The exemption covers securities offered or sold under a
plan or agreement between a non-reporting company \3\ and the company's
employees, officers, directors, partners, trustees, consultants, and
advisors.\4\
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\3\ Only issuers that are not subject to the reporting
requirements of Section 13 [15 U.S.C. 78m] or 15(d) [15 U.S.C.
78o(d)] of the Securities Exchange Act of 1934 (``Exchange Act'')
and are not investment companies registered or required to be
registered under the Investment Company Act of 1940 [15 U.S.C. 80a-1
et seq.] are eligible to rely on Rule 701.
\4\ The rule applies to compensatory arrangements established by
the issuer, its parents, its majority-owned subsidiaries and
majority-owned subsidiaries of the issuer's parent.
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II. Rule Amendment

As mandated by Section 507 of the Act,\5\ we are amending Rule
701(e) \6\ to increase from $5 million to $10 million \7\ the aggregate
sales price or amount of securities sold during any consecutive 12-
month period in excess of which the issuer is required to deliver
additional disclosure to investors. As amended, Rule 701(e) will
otherwise continue to operate in the same manner as it currently
does.\8\ Specifically, the additional disclosures required by Rule
701(e) \9\ will not be required for sales up to $10 million in the 12-
month period. If aggregate sales during that period exceed $10 million,
however, the issuer must deliver those additional disclosures a
reasonable period of time before the date of sale to all investors in
the 12-month period. Issuers that have commenced an offering in the
current 12-month period will be able to apply the new $10 million
disclosure threshold immediately upon effectiveness of the amendment.
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\5\ Public Law 115-174, 132 Stat. 1296 (2018).
\6\ 17 CFR 230.701(e).
\7\ Section 507 of the Act also requires that every five years
we index for inflation such aggregate sales price or amount of
securities sold to reflect the change in the Consumer Price Index
for All Urban Consumers published by the Bureau of Labor Statistics,
rounding to the nearest $1 million.
\8\ Concurrent with the adoption of this amendment to Rule 701,
we are issuing a concept release requesting public comment on
various other issues relating to Rule 701. See Release No. 33-10521
(Jul. 18, 2018).
\9\ These disclosures consist of:
A copy of the summary plan description required by the
Employee Retirement Income Security Act of 1974 (``ERISA'') [29
U.S.C. 1104-1107] or, if the plan is not subject to ERISA, a summary
of the plan's material terms;
risk factors associated with investment in the
securities under the plan or agreement; and
the financial statements required in an offering
statement on Form 1-A [17 CFR 239.90] under Regulation A [17 CFR
230.251 through 230.263].
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III. Procedural Matters

The Administrative Procedure Act (``APA'') generally requires an
agency to publish notice of a proposed rulemaking in the Federal
Register and provide an opportunity for public comment.\10\ This
requirement does not apply, however, if the agency ``for good cause
finds . . . that notice and public procedure are impracticable,
unnecessary, or contrary to the public interest.'' \11\ As discussed
above, Section 507 of the Act directs the Commission, not later than 60
days after the date of enactment, to amend Rule 701(e) to increase from
$5 million to $10 million the aggregate sales price or amount of
securities sold during any consecutive 12-month period in excess of
which the issuer is required to deliver additional disclosures to
investors. Because the amendment is necessary to conform Rule 701(e) to
the requirements of the Act, and involves no exercise of agency
discretion, we find that notice and public comment are unnecessary.\12\
The APA also generally requires that an agency publish an adopted rule
in the Federal Register 30 days before it becomes effective.\13\ This
requirement, however, does not apply if the agency finds good cause for
making the rule effective sooner.\14\ For the same reasons as we are
forgoing notice and comment, we find good cause to make the rules
effective immediately upon publication in the Federal Register. In
addition, we find that the amendment relieves a restriction in our
rules.\15\
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\10\ See 5 U.S.C. 553(b).
\11\ Id.
\12\ This finding also satisfies the requirements of 5 U.S.C.
808(2), allowing the amendment to become effective notwithstanding
the requirement of 5 U.S.C. 801 (if a federal agency finds that
notice and public comment are impractical, unnecessary, or contrary
to the public interest, a rule shall take effect at such time as the
federal agency promulgating the rule determines). The amendment also
does not require analysis under the Regulatory Flexibility Act. See
5 U.S.C. 604(a) (requiring a final regulatory flexibility analysis
only for rules required by the APA or other law to undergo notice
and comment).
\13\ See 5 U.S.C. 553(d).
\14\ Id.
\15\ Id.
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IV. Economic Analysis

We are mindful of the costs imposed by and the benefits obtained
from our rules and amendments.\16\ The discussion below addresses the
potential economic effects of the amendment, including the likely
benefits and costs. The Commission is adopting an amendment to
implement the specific statutory mandate of Section 507 of the Act. The
legislative history suggests that Section 507 of the Act was intended
to address two concerns with the existing $5 million threshold for
requiring additional disclosure. Namely, that the additional disclosure
makes it more expensive for companies to compensate their employees
with the company's stock and that this disclosure puts non-reporting
companies at risk of disclosing confidential financial information.\17\
By increasing the threshold from $5 million to $10 million, we believe
that Congress intended to alleviate some of these concerns. The costs
and benefits of this amendment stem entirely from the statutory mandate
of Section 507.\18\ In addition, given that the amendment implements a
statutory mandate and involves no exercise of agency discretion, we
believe there are no reasonable alternatives to the amendment.\19\
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\16\ Section 2(b) of the Securities Act [15 U.S.C. 77b(b)]
requires the Commission, when engaging in rulemaking where it is
required to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition and capital formation.
\17\ See, e.g., Report of the Financial Services Committee of
the House of Representatives to H.R. 1343 (``These exemptions assist
privately-held companies that want to provide their employees with
the option to purchase the company's securities to increase employee
ownership. . . . Rule 701 should be updated by raising the $5
million threshold requirement because the disclosures make it more
expensive for companies to compensate their employees with the
company's stock. In addition, these disclosure requirements put
private companies at risk of disclosing confidential financial
information.'').
\18\ As the intent of this rulemaking is to implement the
specific regulatory change mandated by Congress, this analysis
focuses on the economic effects arising from that change.
\19\ As noted above, concurrent with the adoption of this
amendment, we are issuing a concept release requesting public
comment on various other issues relating to Rule 701.
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A. Baseline

The baseline for our economic analysis is the disclosure
requirement of Item 701(e) prior to the amendment being adopted, which
required an issuer to deliver additional disclosures to investors if
the aggregate sales price or amount of securities sold during any
consecutive 12-month period exceeded $5 million. The amendment will
affect non-reporting companies that rely on Rule 701 to offer
securities to plan

[[Page 34942]]

participants pursuant to compensatory benefit plans. In particular, the
amendment will affect non-reporting companies that issue, or seek to
issue, between $5 million and $10 million in a 12-month period. Non-
reporting companies that issue less than $5 million or more than $10
million in a 12-month period will not be affected by the amendment. The
Commission lacks data on non-reporting companies that rely on, or seek
to rely on, Rule 701 to offer securities pursuant to compensatory
benefit plans. We can approximate the number of growth companies with
external financing needs using data on companies conducting exempt
securities offerings under Regulation D, Regulation A, and Regulation
Crowdfunding. This group may be likely to rely on Rule 701 for the
purpose of offering competitive compensation packages to attract and
retain key individuals. Based on filings in 2017, we estimate there are
approximately 16,491 non-reporting companies conducting exempt
offerings of unregistered securities under the aforementioned
exemptions.\20\ Some of these companies may currently be too small to
offer securities in compensatory benefit plans that would fall in the
$5 million to $10 million range over a 12-month period, but could
potentially be able to do so in the future if they successfully grow
their businesses. We do not have access to equivalent data for non-
reporting foreign private issuers, who also can rely on Rule 701 to
offer securities pursuant to compensatory benefit plans.
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\20\ Based on staff analysis of EDGAR filings in calendar year
2017, there were approximately 15,960 non-reporting operating
companies conducting Regulation D offerings. In addition, there were
88 newly qualified offerings under Regulation A during calendar year
2017, excluding post-qualification amendments and withdrawn
offerings. Finally, 443 non-reporting companies conducted offerings
solely under Regulation Crowdfunding in 2017 (companies conducting
both Regulation D and Regulation Crowdfunding offerings in 2017 are
included in the number for Regulation D offerings).
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Plan participants who make use of issuer disclosures will also be
affected by the amendment mandated by the Act. To the extent a company
issues more than $5 million but less than $10 million in aggregate
sales price of securities under the rule in a 12-month period, the
company will not be required to deliver the Rule 701(e) disclosures to
plan participants.

B. Economic Effects of the Amendment

The statutory mandate requires the Commission to raise the
threshold for requiring issuers to deliver additional disclosure to
plan participants in Rule 701 offerings from $5 million to $10 million
in any consecutive 12-month period. This will lower the regulatory
burden in terms of required disclosures and thereby reduce the cost of
securities offerings in this range pursuant to compensatory benefit
plans by affected non-reporting companies. In addition, if the
regulatory burden under the baseline currently deters some non-
reporting companies from using this form of compensation arrangement to
an extent that otherwise would be desired, such companies may be able
to improve the efficiency of their employee compensation plans or
contracts under the amendment and thereby improve company performance
(e.g., through improved incentive provisions). Such increases in
efficiency may permit these companies to deploy resources more
productively. Further, these efficiency gains may be passed through to
some plan participants through increases in the value of securities
offered by non-reporting companies as these companies are able to avail
themselves of the Rule 701 exemption without having to provide the
previously required disclosure.
The amendment may reduce the amount of information available to
plan participants, as issuers conducting offerings in the $5 million to
$10 million range will not be required to provide Rule 701(e)
disclosures to investors a reasonable period of time before the date of
sale. Less information to plan participants may in turn make it harder
for them to accurately value the offerings, and may partially offset
the efficiency gains noted above. To the extent non-reporting issuers
have issued securities in reliance on Regulation A and made available
the information required by Rule 701(e) or have issued securities in
excess of $5 million in reliance on Rule 701 in the current 12-month
period, and, at their option, continue to provide the disclosures
required by Rule 701(e), there may be no loss of information to
participants.\21\
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\21\ Based on a review of Regulation A offering statements,
irrespective of the offering amount sought, the staff identified
approximately seven cases of companies that disclosed unregistered
securities sold in reliance upon Rule 701 in the past twelve months
in Part I of Form 1-A; however, this would not account for companies
that have conducted a Regulation A offering and subsequently have
relied upon Rule 701 for unregistered sales.
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We expect the amendment to make compliance burdens the same between
companies seeking to use Rule 701 to offer amounts up to $5 million and
companies seeking to use Rule 701 to offer amounts between $5 million
and $10 million. By doubling the amount of securities that can be
offered to employees without requiring the additional disclosure under
Rule 701(e) from $5 million to $10 million, the amendment to Rule 701
may have competitive effects for non-reporting companies that offer or
sell securities as compensation. Although the Commission does not
anticipate that the amendment will have substantial competitive effects
among firms that currently rely on Rule 701, the amendment may permit
some smaller companies to compete with larger companies to recruit and
retain employees by increasing the offering amount threshold for
additional disclosure from $5 million to $10 million.
Relatedly, companies seeking to offer amounts between $5 million
and $10 million will experience a reduction in regulatory burden
compared to companies wishing to offer amounts over $10 million. As
discussed below in Section V.A, for the purposes of the Paperwork
Reduction Act, the Commission estimates that approximately 10% of the
16,149 non-reporting companies, or 1,600 issuers, provide information
under Rule 701, and that approximately one-half of those issuers (800)
will sell securities in compensatory benefit plans between $5 million
to $10 million over a 12-month period. Using these estimates, we
further estimate that the amendment will reduce the regulatory burden
associated with Rule 701 by 400 hours of company personnel time and
$480,000 in professional costs per year.
Finally, to the extent compensatory benefit plans are used by non-
reporting companies to attract and retain persons that are in demand
internationally, a reduction in regulatory burden due to the amendment
of Rule 701(e) may also increase the international competiveness of the
companies affected by the amendment.

V. Paperwork Reduction Act

A. Background and Summary

Certain provisions of Rule 701 that will be affected by the
amendment contain ``collection of information'' requirements within the
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\22\ The
Commission is submitting the amendment to the Office of Management and
Budget (``OMB'') for review in accordance with the PRA.\23\ The title
for the affected collection of information is:
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\22\ 44 U.S.C. 3501 et seq.
\23\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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Rule 701 (OMB Control No. 3235-0522).

[[Page 34943]]

Rule 701 provides an exemption from registration for offers and
sales of securities pursuant to certain compensatory benefit plans and
contracts relating to compensation. Issuers conducting employee benefit
plan offerings in excess of $5 million in reliance on Rule 701 are
required to provide plan participants with certain disclosures,
including financial statement disclosures. This disclosure constitutes
a collection of information. An agency may not conduct or sponsor, and
a person is not required to respond to, a collection of information
requirement unless it displays a currently valid OMB control number.
Compliance with the information collection is mandatory. Responses to
the information collection are not kept confidential and there is no
mandatory retention period for the information disclosed.
We estimate that currently approximately 1,600 issuers \24\ provide
information under Rule 701, and that the estimated number of burden
hours per respondent is two.\25\ Therefore, we estimate an aggregate of
3,200 burden hours per year. The portion of the burden carried by
outside professionals is reflected as a cost, while the portion of the
burden carried by the issuer internally is reflected in hours. We
estimate that 25% of the burden per response is completed by the issuer
internally and the other 75% of burden per response is attributed to
outside cost, using $400 as the professional cost per burden hour.\26\
We believe the amendment will reduce the current burden estimates
associated with Rule 701 for issuers that sell securities in
compensatory benefit plans in the $5 million to $10 million range over
a 12-month period, especially for issuers that do not otherwise prepare
the same types of disclosure in their normal course of business. We
estimate this will impact one-half of the issuers that currently
provide information under Rule 701, or 800 issuers.
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\24\ See Section IV.A, above. While we estimate that there are
16,491 non-reporting companies conducting exempt offerings of
unregistered securities under Regulation A, Regulation Crowdfunding
and Regulation D, some of these issuers may currently be too small
to offer securities in compensatory benefit plans in excess of $5
million over a 12-month period. For purposes of this PRA analysis,
we estimate that approximately 10% of those issuers currently
provide information under Rule 701.
\25\ Issuers are required to provide information that is similar
to, but not as extensive as, the information required by Form 1-SA
[17 CFR 239.90], the semiannual report required to be filed with the
Commission under Regulation A [17 CFR 230.251 through 230.263]. We
believe, however, that many of these issuers already prepare the
same types of disclosure in their normal course of business, such as
for using other exemptions, so we estimate that the burden is two
hours.
\26\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis we estimate that
such costs will be an average of $400 per hour. This estimate is
based on consultations with several registrants, law firms and other
persons who regularly assist registrants in preparing and filing
periodic reports with the Commission.
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We therefore estimate the total annual decrease in the paperwork
burden for all affected companies to comply with the collection of
information requirements of Rule 701, as amended, will be approximately
1,600 hours, allocated as a decrease of 400 hours (800 issuers x 0.5
burden hour) of company personnel time and a decrease of $480,000 of
professional costs (800 issuers x 1.5 hours x $400 per hour).

Table 1--Decrease in Paperwork Burden Under the Final Amendment
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Estimated
number of Decrease in Total decrease 75% Professional
affected burden hours in burden hours 25% Company Professional costs
responses per response
(A) (B) (C) = (A) *(E) = (C) * (E) = (C) * (F) = (E) *
0.25 0.75 $400
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Rule 701(e) disclosure............................ 800 2 (1,600) (400) (1,200) ($480,000)
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B. Request for Comment

We request comments in order to evaluate: (1) Whether the
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information would
have practical utility; (2) the accuracy of our estimate of the burden
of the collection of information; (3) whether there are ways to enhance
the quality, utility and clarity of the information to be collected;
and (4) whether there are ways to minimize the burden of the collection
of information on those who are to respond, including through the use
of automated collection techniques or other forms of information
technology.
Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
the burdens. Persons who desire to submit comments on the collection of
information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy of the comments to Brent J.
Fields, Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File No. S7-17-18.
Requests for materials submitted to the OMB by us with regard to these
collections of information should be in writing, refer to File No. S7-
17-18 and be submitted to the Securities and Exchange Commission,
Office of FOIA Services, 100 F Street NE, Washington, DC 20549-0213.
Interested persons are encouraged to send comments to the OMB by August
23, 2018.

VI. Statutory Authority

The amendment contained in this release is adopted under the
authority set forth in sections 3(b), 19(a), and 28 of the Securities
Act and section 507 of the Economic Growth, Regulatory Relief, and
Consumer Protection Act.

List of Subjects in 17 CFR Part 230

Reporting and recordkeeping requirements, Securities.

Text of Amendment

For the reasons set out in the preamble, title 17 chapter II of the
Code of Federal Regulations is amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read in part as
follows:

[[Page 34944]]

Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126
Stat. 313 (2012), and Pub. L. 115-174, sec. 507, 132 Stat. 1296
(2018), unless otherwise noted.
* * * * *

0
2. Section 230.701 is amended by revising the introductory text of
paragraph (e) to read as follows:

Sec. 230.701 Exemption for offers and sales of securities pursuant
to certain compensatory benefit plans and contracts relating to
compensation.

* * * * *
(e) Disclosure that must be provided. The issuer must deliver to
investors a copy of the compensatory benefit plan or the contract, as
applicable. In addition, if the aggregate sales price or amount of
securities sold during any consecutive 12-month period exceeds $10
million, the issuer must deliver the following disclosure to investors
a reasonable period of time before the date of sale:
* * * * *

By the Commission.

Dated: July 18, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-15730 Filed 7-23-18; 8:45 am]
BILLING CODE 8011-01-P

34940 Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Rules and Regulations

Committee deliberations on all issues. information and recommendation reporting companies pursuant to
Like all Committee meetings, the submitted by the Committee and other compensatory arrangements. As
October 25, 2017, meeting was a public available information, it is hereby found mandated by the Economic Growth,
meeting, and all entities, both large and that this rule, will tend to effectuate the Regulatory Relief, and Consumer
small, were able to express views on declared policy of the Act. Protection Act (the ‘‘Act’’), the
this issue. amendment revises a rule to increase
In accordance with the Paperwork List of Subjects in 7 CFR Part 985 from $5 million to $10 million the
Reduction Act of 1995 (44 U.S.C. Marketing agreements, Oils and fats, aggregate sales price or amount of
chapter 35), the Order’s information Reporting and recordkeeping securities sold during any consecutive
collection requirements have been requirements, Spearmint oil. 12-month period in excess of which the
previously approved by OMB and For the reasons set forth in the issuer is required to deliver additional
assigned OMB No. 0581–0178, Specialty preamble, 7 CFR part 985 is amended as disclosures to investors.
Crops Program. No changes are follows: DATES:
necessary in those requirements as a Effective date: July 23, 2018.
result of this action. Should any changes PART 985—MARKETING ORDER Comment date: Comments regarding
become necessary, they would be REGULATING THE HANDLING OF the collection of information
submitted to OMB for approval. SPEARMINT OIL PRODUCED IN THE requirements within the meaning of the
This rule establishes salable FAR WEST Paperwork Reduction Act of 1995
quantities and allotment percentages for should be received on or before August
Class 1 (Scotch) spearmint oil and Class ■ 1. The authority citation for 7 CFR 23, 2018.
3 (Native) spearmint oil produced in the part 985 continues to read as follows: ADDRESSES: Comments may be
Far West during the 2018–2019 Authority: 7 U.S.C. 601–674. submitted by any of the following
marketing year. Accordingly, this rule methods:
imposes no additional reporting or ■ 2. Revise § 985.233 to read as follows:
recordkeeping requirements on either Electronic Comments
§ 985.233 Salable quantities and allotment
small or large Far West spearmint oil percentages. • Use the Commission’s internet
producers or handlers. As with all comment form (http://www.sec.gov/
The salable quantity and allotment
Federal marketing order programs, rules/final.shtml); or
percentage for each class of spearmint
reports and forms are periodically • Send an email to rule-comments@
oil during the marketing year beginning
reviewed to reduce information sec.gov. Please include File Number S7–
on June 1, 2018, shall be as follows:
requirements and duplication by xx–18 on the subject line; or
(a) Class 1 (Scotch) oil—a salable • Use the Federal eRulemaking Portal
industry and public-sector agencies. As
mentioned in the initial regulatory quantity of 760,660 pounds and an (http://www.regulations.gov). Follow the
flexibility analysis, USDA has not allotment percentage of 35 percent. instructions for submitting comments.
identified any relevant Federal rules (b) Class 3 (Native) oil—a salable
quantity of 1,307,947 pounds and an Paper Comments
that duplicate, overlap, or conflict with
this final rule. allotment percentage of 53 percent. • Send paper comments in triplicate
AMS is committed to complying with §§ 985.234 and 985.235 [Removed]
to Brent J. Fields, Secretary, Securities
the E-Government Act, to promote the and Exchange Commission, 100 F Street
use of the internet and other ■ 3. Remove §§ 985.234 and 985.235. NE, Washington, DC 20549–1090.
information technologies to provide Dated: July 19, 2018. All submissions should refer to File
increased opportunities for citizen Bruce Summers, Number S7–17–18. This file number
access to Government information and should be included on the subject line
Administrator, Agricultural Marketing
services, and for other purposes. Service. if email is used. To help us process and
A proposed rule concerning this review your comments more efficiently,
[FR Doc. 2018–15788 Filed 7–23–18; 8:45 am]
action was published in the Federal please use only one method. The
BILLING CODE 3410–02–P
Register on April 6, 2018 (83 FR 14766). Commission will post all comments on
Copies of the proposed rule were also the Commission’s internet website
mailed or sent via facsimile to all Far (http://www.sec.gov/rules/final.shtml).
West spearmint oil handlers. Finally, SECURITIES AND EXCHANGE Comments are also available for website
the proposal was made available COMMISSION viewing and printing in the
through the internet by USDA and the Commission’s Public Reference Room,
17 CFR Part 230 100 F Street NE, Washington, DC 20549,
Office of the Federal Register. A 60-day
comment period ending June 5, 2018, [Release No. 33–10520; File No. S7–17–18] on official business days between the
was provided for interested persons to hours of 10:00 a.m. and 3:00 p.m. All
RIN 3235–AM39 comments received will be posted
respond to the proposal. No comments
were received. without change; we do not edit personal
Exempt Offerings Pursuant to identifying information from
A small business guide on complying Compensatory Arrangements
with fruit, vegetable, and specialty crop submissions. You should submit only
marketing agreements and orders may AGENCY: Securities and Exchange information that you wish to make
be viewed at: http://www.ams.usda.gov/ Commission. available publicly.
rules-regulations/moa/small-businesses. FOR FURTHER INFORMATION CONTACT:
ACTION: Final rule.
jstallworth on DSKBBY8HB2PROD with RULES

Any questions about the compliance Anne M. Krauskopf, Senior Special
guide should be sent to Richard Lower SUMMARY: The Securities and Exchange Counsel, and Adam F. Turk, Special
at the previously mentioned address in Commission is adopting an amendment Counsel, Office of Chief Counsel,
the FOR FURTHER INFORMATION CONTACT to its regulations under the Securities Division of Corporation Finance, at
section. Act of 1933 (the ‘‘Securities Act’’), (202) 551–3500.
After consideration of all relevant which provide an exemption from SUPPLEMENTARY INFORMATION: We are
material presented, including the registration for securities issued by non- adopting an amendment to 17 CFR

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Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Rules and Regulations 34941

230.701 (Rule 701) 1 under the must deliver those additional rules and amendments.16 The
Securities Act.2 disclosures a reasonable period of time discussion below addresses the
before the date of sale to all investors in potential economic effects of the
I. Background
the 12-month period. Issuers that have amendment, including the likely
Rule 701 provides an exemption from commenced an offering in the current benefits and costs. The Commission is
the registration requirements of the 12-month period will be able to apply adopting an amendment to implement
Securities Act for offers and sales of the new $10 million disclosure the specific statutory mandate of
securities under certain compensatory threshold immediately upon Section 507 of the Act. The legislative
benefit plans or written agreements effectiveness of the amendment. history suggests that Section 507 of the
relating to compensation. The Act was intended to address two
exemption covers securities offered or III. Procedural Matters concerns with the existing $5 million
sold under a plan or agreement between The Administrative Procedure Act threshold for requiring additional
a non-reporting company 3 and the (‘‘APA’’) generally requires an agency to disclosure. Namely, that the additional
company’s employees, officers, publish notice of a proposed rulemaking disclosure makes it more expensive for
directors, partners, trustees, consultants, in the Federal Register and provide an companies to compensate their
and advisors.4 opportunity for public comment.10 This employees with the company’s stock
II. Rule Amendment requirement does not apply, however, if and that this disclosure puts non-
the agency ‘‘for good cause finds . . . reporting companies at risk of disclosing
As mandated by Section 507 of the confidential financial information.17 By
that notice and public procedure are
Act,5 we are amending Rule 701(e) 6 to increasing the threshold from $5 million
impracticable, unnecessary, or contrary
increase from $5 million to $10 million 7 to $10 million, we believe that Congress
to the public interest.’’ 11 As discussed
the aggregate sales price or amount of intended to alleviate some of these
securities sold during any consecutive above, Section 507 of the Act directs the
Commission, not later than 60 days after concerns. The costs and benefits of this
12-month period in excess of which the amendment stem entirely from the
issuer is required to deliver additional the date of enactment, to amend Rule
701(e) to increase from $5 million to $10 statutory mandate of Section 507.18 In
disclosure to investors. As amended, addition, given that the amendment
Rule 701(e) will otherwise continue to million the aggregate sales price or
amount of securities sold during any implements a statutory mandate and
operate in the same manner as it involves no exercise of agency
currently does.8 Specifically, the consecutive 12-month period in excess
of which the issuer is required to deliver discretion, we believe there are no
additional disclosures required by Rule reasonable alternatives to the
701(e) 9 will not be required for sales up additional disclosures to investors.
Because the amendment is necessary to amendment.19
to $10 million in the 12-month period.
If aggregate sales during that period conform Rule 701(e) to the requirements A. Baseline
exceed $10 million, however, the issuer of the Act, and involves no exercise of
agency discretion, we find that notice The baseline for our economic
and public comment are unnecessary.12 analysis is the disclosure requirement of
1 Unless otherwise noted, all references to
Item 701(e) prior to the amendment
statutory sections are to the Securities Act, and all The APA also generally requires that an
references to rules under the Securities Act are to being adopted, which required an issuer
agency publish an adopted rule in the
title 17, part 230 of the Code of Federal Regulations to deliver additional disclosures to
Federal Register 30 days before it
[17 CFR part 230]. investors if the aggregate sales price or
2 15 U.S.C. 77a et seq. becomes effective.13 This requirement,
amount of securities sold during any
3 Only issuers that are not subject to the reporting however, does not apply if the agency
consecutive 12-month period exceeded
requirements of Section 13 [15 U.S.C. 78m] or 15(d) finds good cause for making the rule
[15 U.S.C. 78o(d)] of the Securities Exchange Act of $5 million. The amendment will affect
effective sooner.14 For the same reasons
1934 (‘‘Exchange Act’’) and are not investment non-reporting companies that rely on
companies registered or required to be registered
as we are forgoing notice and comment,
Rule 701 to offer securities to plan
under the Investment Company Act of 1940 [15 we find good cause to make the rules
U.S.C. 80a–1 et seq.] are eligible to rely on Rule 701. effective immediately upon publication 16 Section 2(b) of the Securities Act [15 U.S.C.
4 The rule applies to compensatory arrangements
in the Federal Register. In addition, we 77b(b)] requires the Commission, when engaging in
established by the issuer, its parents, its majority-
owned subsidiaries and majority-owned
find that the amendment relieves a rulemaking where it is required to consider or
subsidiaries of the issuer’s parent. restriction in our rules.15 determine whether an action is necessary or
5 Public Law 115–174, 132 Stat. 1296 (2018).
appropriate in the public interest, to consider, in
6 17 CFR 230.701(e).
IV. Economic Analysis addition to the protection of investors, whether the
action will promote efficiency, competition and
7 Section 507 of the Act also requires that every
We are mindful of the costs imposed capital formation.
five years we index for inflation such aggregate by and the benefits obtained from our 17 See, e.g., Report of the Financial Services
sales price or amount of securities sold to reflect the Committee of the House of Representatives to H.R.
change in the Consumer Price Index for All Urban 1343 (‘‘These exemptions assist privately-held
Consumers published by the Bureau of Labor 10 See 5 U.S.C. 553(b). companies that want to provide their employees
Statistics, rounding to the nearest $1 million. 11 Id.
with the option to purchase the company’s
8 Concurrent with the adoption of this 12 This finding also satisfies the requirements of
securities to increase employee ownership. . . .
amendment to Rule 701, we are issuing a concept 5 U.S.C. 808(2), allowing the amendment to become Rule 701 should be updated by raising the $5
release requesting public comment on various other effective notwithstanding the requirement of 5 million threshold requirement because the
issues relating to Rule 701. See Release No. 33– U.S.C. 801 (if a federal agency finds that notice and disclosures make it more expensive for companies
10521 (Jul. 18, 2018). public comment are impractical, unnecessary, or to compensate their employees with the company’s
9 These disclosures consist of: contrary to the public interest, a rule shall take stock. In addition, these disclosure requirements
• A copy of the summary plan description effect at such time as the federal agency put private companies at risk of disclosing
required by the Employee Retirement Income promulgating the rule determines). The amendment confidential financial information.’’).
jstallworth on DSKBBY8HB2PROD with RULES

Security Act of 1974 (‘‘ERISA’’) [29 U.S.C. 1104– also does not require analysis under the Regulatory 18 As the intent of this rulemaking is to
1107] or, if the plan is not subject to ERISA, a Flexibility Act. See 5 U.S.C. 604(a) (requiring a final implement the specific regulatory change mandated
summary of the plan’s material terms; regulatory flexibility analysis only for rules by Congress, this analysis focuses on the economic
• risk factors associated with investment in the required by the APA or other law to undergo notice effects arising from that change.
securities under the plan or agreement; and and comment). 19 As noted above, concurrent with the adoption
13 See 5 U.S.C. 553(d).
• the financial statements required in an offering of this amendment, we are issuing a concept release
14 Id.
statement on Form 1–A [17 CFR 239.90] under requesting public comment on various other issues
Regulation A [17 CFR 230.251 through 230.263]. 15 Id. relating to Rule 701.

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Federal Register / Vol. 83, No. 142 / Tuesday, July 24, 2018 / Rules and Regulations 34943

Rule 701 provides an exemption from retention period for the information 701 for issuers that sell securities in
registration for offers and sales of disclosed. compensatory benefit plans in the $5
securities pursuant to certain We estimate that currently million to $10 million range over a 12-
compensatory benefit plans and approximately 1,600 issuers 24 provide month period, especially for issuers that
contracts relating to compensation. information under Rule 701, and that do not otherwise prepare the same types
Issuers conducting employee benefit the estimated number of burden hours of disclosure in their normal course of
plan offerings in excess of $5 million in per respondent is two.25 Therefore, we business. We estimate this will impact
reliance on Rule 701 are required to estimate an aggregate of 3,200 burden one-half of the issuers that currently
provide plan participants with certain hours per year. The portion of the provide information under Rule 701, or
disclosures, including financial burden carried by outside professionals 800 issuers.
statement disclosures. This disclosure is reflected as a cost, while the portion We therefore estimate the total annual
constitutes a collection of information. of the burden carried by the issuer decrease in the paperwork burden for all
An agency may not conduct or sponsor, internally is reflected in hours. We affected companies to comply with the
and a person is not required to respond estimate that 25% of the burden per collection of information requirements
to, a collection of information response is completed by the issuer of Rule 701, as amended, will be
requirement unless it displays a internally and the other 75% of burden approximately 1,600 hours, allocated as
currently valid OMB control number. per response is attributed to outside a decrease of 400 hours (800 issuers ×
Compliance with the information cost, using $400 as the professional cost 0.5 burden hour) of company personnel
collection is mandatory. Responses to per burden hour.26 We believe the time and a decrease of $480,000 of
the information collection are not kept amendment will reduce the current professional costs (800 issuers × 1.5
confidential and there is no mandatory burden estimates associated with Rule hours × $400 per hour).

TABLE 1—DECREASE IN PAPERWORK BURDEN UNDER THE FINAL AMENDMENT
Estimated Decrease in Total decrease
number of 25% 75% Professional
burden hours in burden
affected Company Professional costs
per response hours
responses

(A) (B) (C) = (A) * (B) (E) = (C) * (E) = (C) * (F) = (E) *
0.25 0.75 $400

Rule 701(e) disclosure ............................. 800 2 (1,600) (400) (1,200) ($480,000)

B. Request for Comment comments on the collection of VI. Statutory Authority
information requirements should direct
We request comments in order to their comments to the Office of The amendment contained in this
evaluate: (1) Whether the collection of Management and Budget, Attention: release is adopted under the authority
information is necessary for the proper set forth in sections 3(b), 19(a), and 28
Desk Officer for the Securities and
performance of the functions of the of the Securities Act and section 507 of
Exchange Commission, Office of
agency, including whether the the Economic Growth, Regulatory
information would have practical Information and Regulatory Affairs,
Relief, and Consumer Protection Act.
utility; (2) the accuracy of our estimate Washington, DC 20503, and send a copy
of the comments to Brent J. Fields, List of Subjects in 17 CFR Part 230
of the burden of the collection of
information; (3) whether there are ways Secretary, Securities and Exchange
Reporting and recordkeeping
to enhance the quality, utility and Commission, 100 F Street NE,
requirements, Securities.
clarity of the information to be Washington, DC 20549–1090, with
collected; and (4) whether there are reference to File No. S7–17–18. Text of Amendment
ways to minimize the burden of the Requests for materials submitted to the
For the reasons set out in the
collection of information on those who OMB by us with regard to these
preamble, title 17 chapter II of the Code
are to respond, including through the collections of information should be in
of Federal Regulations is amended as
use of automated collection techniques writing, refer to File No. S7–17–18 and
follows:
or other forms of information be submitted to the Securities and
technology. Exchange Commission, Office of FOIA PART 230—GENERAL RULES AND
Any member of the public may direct Services, 100 F Street NE, Washington, REGULATIONS, SECURITIES ACT OF
to us any comments concerning the DC 20549–0213. Interested persons are 1933
accuracy of these burden estimates and encouraged to send comments to the
any suggestions for reducing the OMB by August 23, 2018. ■ 1. The authority citation for part 230
burdens. Persons who desire to submit continues to read in part as follows:
24 See Section IV.A, above. While we estimate 25 Issuers are required to provide information that 26 We recognize that the costs of retaining outside

that there are 16,491 non-reporting companies is similar to, but not as extensive as, the professionals may vary depending on the nature of
jstallworth on DSKBBY8HB2PROD with RULES

conducting exempt offerings of unregistered information required by Form 1–SA [17 CFR the professional services, but for purposes of this
securities under Regulation A, Regulation 239.90], the semiannual report required to be filed PRA analysis we estimate that such costs will be an
Crowdfunding and Regulation D, some of these
with the Commission under Regulation A [17 CFR average of $400 per hour. This estimate is based on
issuers may currently be too small to offer securities
in compensatory benefit plans in excess of $5 230.251 through 230.263]. We believe, however, consultations with several registrants, law firms and
million over a 12-month period. For purposes of that many of these issuers already prepare the same other persons who regularly assist registrants in
this PRA analysis, we estimate that approximately types of disclosure in their normal course of preparing and filing periodic reports with the
10% of those issuers currently provide information business, such as for using other exemptions, so we Commission.
under Rule 701. estimate that the burden is two hours.

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Document Created: 2018-07-24 00:10:36
Document Modified: 2018-07-24 00:10:36

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Rules and Regulations
Action		Final rule.
Dates		Effective date: July 23, 2018.
Contact		Anne M. Krauskopf, Senior Special Counsel, and Adam F. Turk, Special Counsel, Office of Chief Counsel, Division of Corporation Finance, at (202) 551-3500.
FR Citation		83 FR 34940
RIN Number		3235-AM39
CFR Associated		Reporting and Recordkeeping Requirements and Securities