Here is some of the text from SEC Rule 701. As I humbly interpret the rule (which I have just finished reading, ugh!) from a layman's perspective: as long as SSA is providing legitimate bona fide services, such as redesigning the web site, contacting businesses and writing press releases in the same manner as any MAJOR public relations firm would, they are qualified. If they merely PROMOTE the sale of the company's stock - like a sales-type force, classic hype, to promote or maintain a market in the stock - they are not qualified. However as I read it, the ruling talks about exemptions from FILING DISCLOSURES, not whether or not someone/firm can receive stock.
p.s. the miscellaneous numbers in the body of the text are the SEC's footnote numbers.
Lily
RULE 701 – EXEMPT OFFERINGS PURSUANT TO COMPENSATORY ARRANGEMENTS
c) Transactions exempted by this section. This section exempts offers and sales of securities (including plan interests and guarantees pursuant to paragraph (d)(2)(ii) of this section) under a written compensatory benefit plan (or written compensation contract) established by the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent, for the participation of their employees, directors, general partners, trustees (where the issuer is a business trust), officers, or consultants and advisors, and their family members who acquire such securities from such persons through gifts or domestic relations orders. This section exempts offers and sales to former employees, directors, general partners, trustees, officers, consultants and advisors only if such persons were employed by or providing services to the issuer at the time the securities were offered. In addition, the term "employee" includes insurance agents who are exclusive agents of the issuer, its subsidiaries or parents, or derive more than 50% of their annual income from those entities.
(1) Special requirements for consultants and advisors. This section is available to consultants and advisors only if:
(i) They are natural persons;
(ii) They provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent; and
(iii) The services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer's securities.
THE SEC'S COMMENTS ON THE RULE:
D. Consultants and Advisors
Like regular employees, consultants and advisors are eligible to receive securities under the Rule 701 exemption. Similarly, where the issuer is a reporting company, consultants and advisors may receive securities in a transaction registered on Form S-8.32 Currently, the staff interprets the scope of eligible consultants and advisors differently for purposes of Rule 701 and Form S-8. The staff has interpreted Rule 701 to permit participation by a broader range of consultants and advisors, even though the words are identical in both Rule 701 and Form S-8.
At the same time we proposed changes to Rule 701, we proposed changes to Form S-8 to limit further the scope of eligible consultants and advisors.33 In many cases, the Form has been misused by registering shares for issuance to consultants and advisors who do not have sufficient connection and familiarity with the company. In some cases, these persons are receiving the securities for capital-raising, rather than compensatory, purposes and engage in public distributions of the company's securities.34
In the Rule 701 Proposing Release, we asked how consultants and advisers participate in compensatory arrangements and whether we should restrict their participation. We also asked whether Rule 701 and Form S-8 should be harmonized in their treatment of these persons. We are concerned that persons who would misuse exemptions will develop new methods to abuse deregulatory safe harbors, even as we are taking steps to close down other avenues for abuse.
We have determined that the flexible definition of "consultants and advisors," particularly in the context of registered offerings on Form S-8, has led to abuse. We are concerned that Rule 701 could be similarly abused if we make changes only to Form S-8, even though Rule 701 securities, unlike Form S-8 securities, are restricted.35 We are therefore adopting a definition of the term "consultants and advisors" in Rule 701 that will harmonize with the new definition in Form S-8,36 and narrow the scope of eligible consultants and advisors.
As revised, securities promoters clearly will be excluded from the scope of persons eligible to participate under the exemption. Independent agents,37 franchisees and salespersons who do not have an employment relationship with the issuer no longer will be within the scope of "consultant or advisor."38 A person in a de facto employment relationship with the issuer, such as a non-employee providing services that traditionally are performed by an employee,39 with compensation paid for those services being the primary source of the person's earned income, would qualify as an eligible person under the exemption.40 Other persons displaying significant characteristics of "employment," such as the professional advisor providing bookkeeping services, computer programming advice, or other valuable professional services may qualify as eligible consultants or advisors, depending upon the particular facts and circumstances.41 Our staff will continue to handle questions about "consultant or advisor" status on a case-by-case basis through its interpretive letter process, but the terms will be interpreted in the same manner for both Rule 701 and Form S-8. |
