The SEC Division of Corporation Finance recently issued two CDIs addressing Rule 701, which exempts offers and sales of private company securities pursuant to compensatory benefit plans or arrangements. The CDIs clarify that:

  • Public companies that acquire privately held companies and assume outstanding options that were issued in compliance with Rule 701 do not need to register the offer and sale of the shares now issuable (i.e. the acquiring company’s shares) upon the exercise of the assumed options. Further, the acquiror’s Exchange Act reports will satisfy any disclosure requirements under Rule 701(e).
  • Restricted Stock Units, or RSUs, that settle based on conditions related to company performance and/or length of service without the payment of additional consideration by the employee are deemed to be sold for purposes of Rule 701(e) on the date of grant. As a result, if the issuer "sells" over $5 million in securities (including RSUs) during a consecutive 12-month period, the company must provide the required risk factors, financial and other information a reasonable time before the date the RSU is granted.

The staff noted that although RSUs are derivative securities, they are not exercised or converted. Thus Rule 701(e)(6), which provides that information must be provided a reasonable time before derivative securities are exercised or converted, does not apply to RSUs.

https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#271.04

https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm#271.24