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Summary
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 Registration exemption for equity
compensation arrangements of private companies
Safe
harbor
- Only available to non-public
companies
- But becoming a filer does not affect
exemption for
options, etc. granted while private
- Arrangement
must be compensatory
- Not a subterfuge
for raising capital
Criteria
 Written
compensatory benefit plan or agreement
- Can be a stock incentive, stock option,
stock appreciation or stock purchase
plan
- Can also be an individual incentive,
option
or similar agreement
- Can be an employment agreement
- Must be in writing
Eligible
participants
- Employees
- Directors
- Officers
- Trustees
- Consultants
- Advisors
- Must be providing services to issuer at
the time of the issuance of the securities (i.e., the granting of the
options)
- Consultants and advisors must be natural
persons and must provide bona fide services not related to capital raising
securities offerings or promoting issuers securities
- Includes family members
Non-exclusive
exemption
- Regulation D may be an alternative for large
grants to executive officers and directors
- Also Section 4(2)
State
securities law compliance
- Must comply with state securities laws
- Determined by nexus of offer
- Generally, residence of offeree (employee, etc.)
- Exemptions vary greatly by state
Requires
filing of Form 701
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SEC Enforcement Actions
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Google
- Company exceeded $5mm Rule 701 limit
- $80mm in options were granted
- Google sought outside legal advice that it could
rely on other exemptions
- SEC disagreed with analysis
- General counsel was criticized
- Google was also target of California enforcement
action
-
Consent Order
1.12.05
Re: Violation of California Corporations Code § 25110
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Rule 701
SEC Releases
SEC FAQs - No-action Letters
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FAQS
No-action Letters
- Determining class of securities per
Rule 701(d)(2)(iii)
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Commentary
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Law
firm
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Related Topics
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