Rule 12h-1

Exemptions from Exchange Act §12(g) Registration

Overview

Rule 12h-1 provides specified exemptions from
Exchange Act §12(g)

Exchange Act §12(h) authorizes the SEC to adopt exemptions from §12(g) registration requirements
Per §12(g), unless exempt, an issuer with

(i) 500 or more holders of record of a class of equity security and
(ii) assets in excess of $10 million at the end of its most recently ended fiscal year must register that class of equity security

Developments

SEC has proposed adding additional exemptions to Rule 12h-1 for compensatory employee stock options

Would add new subsections (f) and (g) to Rule 12h-1

See Proposal Release 34-56010

First such exemption -- new subsection (f) -- would be available to issuers that are not required to file periodic reports under the Exchange Act

Would apply only to the issuers compensatory employee stock options
Would not extend to the class of securities underlying those options
See Proposed Rule 12h-1(f) below
Publication of final rules is pending

Second such exemption -- new subsection (g) -- would be available to issuers that are required to file periodic reports under the Exchange Act because they have registered under Exchange Act Section 12 the class of securities underlying the compensatory employee stock options

See Proposed Rule 12h-1(g) below

Publication of final rules is pending

Rule 12h-1

Official source 17 CFR 240.12h-1

e-CFR Official source
2007 CFR Official source

Preamble

Issuers shall be exempt from the provisions of Section 12(g) of the Act with respect to the following securities:

12h-1(a) Employee plans

Any 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;

12h-1(b) Common trust funds

Any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of monies contributed thereto by the bank in its capacity as a trustee, executor, administrator, or guardian. For purposes of this paragraph (b), the term "common trust fund" shall include a common trust fund which is maintained by a bank which is a member of an affiliated group, as defined in Section 1504(a) of the Internal Revenue Code of 1954, and which is maintained exclusively for the investment and reinvestment of monies contributed thereto by one or more bank members of such affiliated group in the capacity of trustee, executor, administrator, or guardian; Provided, that:

1. The common trust fund is operated in compliance with the same state and Federal regulatory requirements as would apply if the bank maintaining such fund as any other contributing banks were the same entity; and

2. The rights of persons for whose benefit a contributing bank acts as trustee, executor, administrator or guardian would not be diminished by reason of the maintenance of such common trust fund by another bank member of the affiliated group;

12h-1(c) Class not outstanding after 60 days

Any class of equity security which would not be outstanding 60 days after a registration statement would be required to be filed with respect thereto;

12h-1(d) Standardized options

Any standardized option, as that term is defined in Rule 9b-1(a)(4), that is issued by a clearing agency registered under section 17A of the Act and traded on a national securities exchange registered pursuant to section 6(a) of the Act or on a national securities association registered pursuant to section 15A(a) of the Act; and

12h-1(e) Security futures product

Any security futures product that is traded on a national securities exchange registered pursuant to section 6 of the Act or on a national securities association registered pursuant to section 15A(a) of the Act and cleared by a clearing agency that is registered pursuant to section 17A of the Act or is exempt from registration under section 17A(b)(7) of the Act.

12h-1(f) Compensatory options - Non-reporting cos

Amendment alert

Subsection (f) is proposed to be added to Rule 12h-1
See Proposal Release 34-56010
Publication of final rules is pending

(1) Stock options issued under written compensatory stock option plans of an issuer under the following conditions:

(i) The issuer of the stock options does not have a class of security registered under section 12 of the Act and is not required to file reports pursuant to section 15(d) of the Act;
(ii) The stock options have been issued by the issuer pursuant to one or more written compensatory stock option plans established by the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuers parents;
_____
Note to paragraph (f)(1)(ii): All stock options issued under all of the issuers written compensatory stock option plans on the same class of equity security will be considered part of the same class of equity security for purposes of the provisions of this section.
(iii) The stock options are held only by those persons described in Rule 701(c) under the Securities Act (17 CFR 230.701(c));
(iv) The stock options and the shares issuable upon exercise of such stock options are restricted as to transfer by the optionholder or holder of the shares received on exercise of the option other than to persons who are family members (as defined in Rule 701(c)(3) under the Securities Act (17 CFR 230.701(c)(3)) through gifts or domestic relations orders, or to an executor or guardian of the optionholder or holder of shares received on exercise of such stock option upon the death or disability of the optionholder or holder of shares, until the issuer becomes subject to the reporting requirements of section 13 or 15(d) of the Act; provided that the optionholder or holder of shares may transfer the options or shares to the issuer (or its designated affiliate if the issuer is unable to repurchase the options or shares) if applicable law prohibits a restriction on transfer;
_____
Note to paragraph (f)(1)(iv): For purposes of this section, optionholders and holders of shares received on exercise of an option may include any permitted transferee under paragraph (f)(1)(iv) of this section; provided that such permitted transferees may not further transfer the stock options or shares issuable upon exercise of such stock options;
(v) The stock options, the shares issuable upon exercise of such stock options, and shares of the same class of equity security as those underlying the options are restricted as to any pledge, hypothecation, or other transfer, including any short position, any put equivalent position (as defined in 240.16a-1(h) of this chapter), or any call equivalent position (as defined in 240.16a-1(b) of this chapter) by the optionholder or holder of shares received on exercise of an option, except as permitted in paragraph (f)(1)(iv) of this section, until the issuer becomes subject to the reporting requirements of section 13 or 15(d) of the Act;
(vi) There can be no market or available process or methodology that permits an optionholder or holder of shares received on exercise of an option to receive any consideration or compensation for the options, the shares issuable on exercise of the options, or shares of the same class of equity security as those underlying the options, except as permitted in paragraph (f)(1)(iv) of this section, until the issuer becomes subject to the reporting requirements of section 13 or 15(d) of the Act; and
_____
Note to paragraphs (f)(1)(iv), (f)(1)(v), and (f)(1)(vi): The transferability restrictions in paragraphs (f)(1)(iv), (f)(1)(v), and (f)(1)(vi) of this section must be contained in either the written compensatory stock option plan, individual written compensatory stock option agreement, or other stock purchase or stockholder agreement to which the issuer and the optionholder or holder of shares are a signatory or party, or in the issuers by-laws, certificate of incorporation.
(vii) The issuer has agreed in the written compensatory stock option plan or the individual written compensatory stock option agreement to provide the following information to optionholders and holders of shares received on exercise of an option until the issuer becomes subject to the reporting requirements of section 13 or 15(d) of the Act:

(A) The information described in Rules 701(e)(3), (4), and (5) under the Securities Act (17 CFR 230.701(e)(3), (4), and (5)), with such information provided either by physical or electronic delivery to the optionholders and holders of shares received on exercise of an option or by written notice to the optionholders and holders of shares received on exercise of an option of the availability of the information on a password-protected Internet site and of any password needed to access the information; and

(B) Access to the issuers books and records, including corporate governance documents, to the same extent that they are available to other shareholders of the issuer.
_____
Note to paragraph (f)(1)(vii): The issuer may request that the optionholder or holder of shares received on exercise of an option agree to keep the information to be provided pursuant to this section confidential. If an optionholder or holder of shares received on exercise of an option does not agree to keep the information to be provided pursuant to this section confidential, then the issuer is not required to provide the information; provided, that the issuer must then allow the optionholder or holder of shares received on exercise of an option to inspect the information and documents at one of the issuers offices that is at or near where the optionholder or holder of shares received on exercise of an option is or was employed or retained by the issuer.

(2) If the exemption provided by paragraph (f)(1) of this section ceases to be available, the issuer of the compensatory stock options that is relying on the exemption provided by this section must file a registration statement to register the class of options under section 12 of the Act within 60 calendar days after the conditions in paragraph (f)(1) of this section are no longer satisfied.

12h-1(g) Compensatory options- Reporting cos

Amendment alert

Subsection (g) is proposed to be added to Rule 12h-1
See Proposal Release 34-56010
Publication of final rules is pending

(1) Stock options issued under written compensatory stock option plans of an issuer under the following conditions:

(i) The issuer of the stock options has registered the class of equity security issuable on exercise of the options under section 12 of the Act;
(ii) The stock options have been issued by the issuer pursuant to one or more written compensatory stock option plans established by the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuers parents; and
_____
Note to paragraph (g)(1)(ii): All stock options issued under all of the issuers written compensatory stock option plans on the same class of equity security will be considered part of the same class of equity security for purposes of the provisions of this section.
(iii) The stock options are held only by those persons described in Rule 701(c) under the Securities Act (17 CFR 230.701(c)).

(2) If the exemption provided by paragraph (g)(1) of this section ceases to be available, the issuer of the compensatory stock options that is relying on the exemption provided by this section must file a registration statement to register the class of options or the class of equity security issuable on exercise of the options under section 12 of the Act within 60 calendar days after the conditions in paragraph (g)(1) of this section are no longer satisfied.

SEC Releases

SEC Release 34-7581

30 FR 6114 4.30.65
Adopted Rule 12h-2

SEC Release 34-14363

43 FR 2392 1.17.78
Exempted common trust funds from Exchange Act registration requirements by adding paragraph (b) to
Rule 12h-2

SEC Release 34-18647

47 FR 17052 4.21.82
Removed old Rule 12h-1
Redesignated Rule 12h-2 as Rule 12h-1
Proposal Release 34-18189 (10.27.81) 46 FR 52382

SEC Release 33-8171

68 FR 188 1.02.03
Exempted standardized options from Exchange Act registration requirements by adding paragraphs (d) and (e) to Rule 12h-1
Proposal Release 33-8114 (7.25.02) 67 FR 50326

Comment letters

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