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Comment Letter to the SEC
May 12, 2004
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Jonathan G. Katz, Secretary
Via e-mail: rule-comments@sec.gov
Re: Use of Form S-8 and Form 8-K by Shell Companies
(Release Nos. 33-8407; 34-49566; File No. S7-19-04; RIN 3235-AH88)
Ladies and Gentlemen:
The American Society of Corporate Secretaries, Inc. (ASCS) is a professional
association founded in 1946 whose members serve more than 3,000 issuers. The
responsibilities of our members include working with corporate boards of directors
and senior management regarding corporate governance, assuring issuer compliance
with securities regulations and listing requirements, and the administration
of incentive and benefit plans, including the registration of such plans on
the Commission's Form S-8.
We appreciate the opportunity to comment on the above-captioned release. The
observation we have to make is very brief. Since the majority of ASCS members
are attorneys who are actively involved in their company's merger and acquisition
transactions, our recommendations are founded on actual experience.
Recommendation:
- The definition of "shell company" should not include any company
which has previously been an operating company but has sold its business within
the last 18 months.
- Use of Form S-8 during this 18 month period would, however, be limited to
securities offered to actual directors, officers and employees of the company
and would not be available for shares offered to consultants subsequent to
the sale of the business.
Rationale: Registrants sometimes sell their entire businesses for value.
They then enter into a transition period of perhaps a year or somewhat more
during which they may seek to reinvest the proceeds or put themselves up for
sale. Either way, the company still has a management and employees who have
interests in incentive and benefit plans or in securities issued or to be issued
under those plans. This is obviously a period of considerable stress for the
management and employees and retention of key personnel is a major challenge
until there is a final plan for exiting the transition period. Such employees,
and their employer, should not be disadvantaged in devising legitimate incentive
and benefit plans to retain those directors, officers and employees.
This approach satisfies legitimate business objectives of shell companies in
transition while addressing the Commission's concern that Form S-8 is being
misused to issue shares to persons for whom Form S-8 was not intended.
We have included as Exhibit A a case study of exactly the situation described
in this letter where continued eligibility to use Form S-8 was a valuable tool
to aid the company in transition without being abused to issue securities to
persons who were actually part the general public or to facilitate the resale
of securities by those persons. The continuation of S-8 eligibility for the
shell company was not prolonged beyond the point where option plans and S- 8
protection were intended to apply. This case study is drawn from the experience
of one of our members. We believe it is representative of the non-abusive uses
of Form S-8 by a public company during a transition period following the sale
of all or substantially all of its business.
We appreciate your consideration of the foregoing. Please call either of the
undersigned should you have questions.
Respectfully submitted,
American Society of Corporate Secretaries
Securities Law Committee
By: Karl R. Barnickol.
314-345-6481
By: Richard H. Troy.
203-321-1216
Exhibit A To Comment Letter Of The
American Society Of Corporate Secretaries
Example: During 1997 Tseng Labs, Inc. decided to sells its business of designing
computer graphics chips. It sold the business by the end of 1997 for about $27
million. Tseng Labs, Inc. then reviewed many acquisition opportunities. It agreed
to be acquired by an emerging private pharmaceutical company, Cell Pathways,
Inc. In a registered S-4 transaction which closed in November 1998, Cell Pathways,
Inc. issued to the stockholders of Tseng Labs, Inc. common stock equal to about
23% of the overall equity interest in Cell Pathways, Inc., and Tseng Labs, Inc.
became a wholly owned subsidiary of Cell Pathways, Inc. Simultaneously with
the closing, Cell Pathways, Inc. registered itself with Nasdaq, and trading
of its common commenced on the Nasdaq National Market. Under the proposed new
definition of "shell company," Tseng Labs, Inc. would have become
a "shell company" near the end of 1997 - and both the company and
its continuing employees would have been denied S-8 benefits with respect to
issuance and resale of common stock pursuant to their several stock option plans
during the one year transition period. Fortunately, S-8 was available for normal
incentive and benefit plan purposes through closing of the acquisition by Cell
Pathways, Inc. Any new rule should permit this.
Society of Corporate Secretaries and Governance Professionals
521 Fifth Avenue New York NY 10175
212-681-2000 - Fax 212-681-2005
membership
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