SEC Adopts Rules Exempting Compensatory Employee Stock Options from Registration Under Section 12(g) of the Exchange Act

The Securities and Exchange Commission (the “SEC”) has adopted two new exemptions from the registration requirements of Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for compensatory employee stock options.

Section 12(g) of the Exchange Act requires a company with 500 or more 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 to register that class of equity security unless an exemption from registration is available. Stock options, including those issued to employees under stock option plans, are treated as a separate class of security for purposes of the Exchange Act. Although Exchange Act Rule 12h-1(a) provides an exemption from registration for interests in “stock bonus, stock purchase, profit-sharing, pension, retirement, incentive, thrift, savings or similar plans,” there was previously no exemption for compensatory employee stock options. Since the early 1990s, the SEC’s Division of Corporation Finance has provided no-action letter relief to private companies faced with registration under the Section 12(g) of the Exchange Act solely due to their compensatory employee stock options being held by 500 or more holders of record (and having more that $10 million in assets), subject to meeting certain criteria.