Securities & Corporate Governance - SEC Provides Relief for Certain Companies with 500 or more Option Holders
On November 15, the SEC adopted two exemptions from registration under Section 12(g) of the Securities Exchange Act of 1934 for certain companies with 500 or more Option Holders. As noted in its
press release, these amendments will be effective as soon as the rules are published in the Federal Register. The SEC release concerning the rule amendments has not yet been disseminated by the SEC.
The first exemption allows private non-reporting issuers to avoid Exchange Act registration for compensatory employee stock options issued under employee stock option plans. This exemption is conditioned on the following:
- the compensatory stock option plan must be written;
- optionees must be limited to directors, employees, consultants and advisors;
- the options and underlying shares must be subject to transfer restrictions;
- there must not be a public market for the options;
- there must be ongoing delivery of risk and financial information (either physically or electronically) – the content of this information is equivalent to disclosures made under Reg A; and
- optionees most have the same access to issuer’s books and records as the issuer’s shareholders.
The second exemption allows issuers that are required to file reports under the Exchange Act pursuant to Section 13 or Section 15(d) to avoid Section 12(g) registration for compensatory employee stock options.
These exemptions apply only to an issuer's compensatory employee stock options and do not extend to the class of securities underlying those options.