Excerpt from Current Issues and Rulemaking Projects Outline Quarterly Update (March 31, 2001)
Section 12 Registration Relief Involving Employee Stock Option Plans
Companies have granted stock options to broad based groups of employees under stock option plans in anticipation of going public within a short time after the stock option grants. These stock options are granted under stock option plans established for compensatory purposes. Many companies are now finding that they have granted stock options to 500 or more employees and their plans to go public have been delayed.
Under Section 12(g) of the Exchange Act, an issuer with 500 holders of record of a class of equity security and assets in excess of $10 million at the end of its most recently ended fiscal year must register the class of equity security, unless it has an exemption from registration. Stock options are a separate equity security under the Exchange Act. Accordingly, an issuer with 500 or more option holders and more than $10 million in assets is required to register that class under the Exchange Act, absent an exemption. The exemption from registration under Section 12(g) contained in Rule
12h-1(a) for "[a]ny interest or participation in an employee stock bonus, stock purchase, profit sharing, pension, retirement, incentive, thrift, savings or similar plan which is not transferable by the holder except in the event of death or mental incompetency, or any security issued solely to fund such plans" does not apply to stock options.
Beginning in 1991, the Commission by order, and subsequently the staff by no action letter, exempted or relieved issuers with 500 or more stock option holders from having to register their stock options under the Exchange Act when specified conditions were present. For the conditions necessary to receive relief under these letters and orders see, for example, the no action letter to Mitchell International Holdings, Inc. (available December 27, 2000).
Due to current market conditions, which are delaying the plans of many companies to go public, we are revising the conditions necessary to receive relief from registering their employee stock options under Section 12(g). As in the past, any relief granted by the staff would apply only to the stock options. Once a company has 500 holders of record of any other class of equity securities (e.g., common stock outstanding as a result of stock issuances, including option exercises), it would be required to register that class. The modified conditions would need to be present only when the company is relying on the relief.
We will consider granting relief in situations where the conditions of our prior no action letters noted above are met with the following modifications:
We will premise any changes in our current position on option holders receiving essentially the same Exchange Act registration statement, annual report and quarterly report information they would have received had the company registered the class of securities under Section 12, including audited annual financial statements and unaudited quarterly financial information, each prepared in accordance with GAAP.
April 30, 2001 is the filing date for registration statements of issuers that met the Section 12(g) registration requirement as of December 31, 2000. We will consider extending that filing date to July 30, 2001 for any issuer that has submitted a no-action request to us by April 30, 2001. Any questions may be directed to Amy Starr in the Office of the Chief Counsel, (202) 942-2900.