Tagged: Rule 701

A Reminder to Track Rule 701 Equity Awards to U.S. Residents

Canadian companies relying on Rule 701 under the Securities Act of 1933 to exempt their U.S. awards of stock options and other types of compensatory equity (such as RSUs and PSUs), need to track on an ongoing basis the amount of grants being made in the United States. If they anticipate that the aggregate dollar amount of the awards, calculated under Rule 701, will exceed US$5 million in any 12-month period, they must also prepare and deliver Rule 701-mandated disclosure documents. Just this month, the SEC announced a financial settlement with a privately-held fintech company, Credit Karma, Inc., relating to Credit Karma’s failure to provide stock option holders with the financial statements, risk...

Common U.S. Securities Problems with Canadian Stock-Based Compensation Plans

We are frequently asked to review Canadian companies’ stock option, restricted share unit (RSU), performance share unit (PSU), deferred share unit (DSU), and other stock-based compensation plans for U.S. securities law purposes, because awards are expected to be made to U.S. residents. For companies that are cross-listed and file reports with the Securities and Exchange Commission (SEC), the intention is typically to register the underlying securities by filing a Form S-8 with the SEC. For companies that do not file SEC reports – whether publicly traded in Canada or privately held – the intention is typically to rely on the exemption provided by Rule 701 under the Securities Act of 1933 and exemptions...

State Securities Laws – Granting Options and Equity Comp in the United States

A Canadian company that proposes to grant stock options or other types of equity compensation to persons in the United States must comply with the securities laws of the state in which the recipient is located, unless the type of equity being issued (e.g., the underlying common shares, in the case of options to purchase common shares) is listed on a “national securities exchange” such as the NYSE, Nasdaq, and NYSE MKT. This means that private companies, Canadian public companies that are not listed in the United States, and Canadian companies that are listed in the United States only in over-the-counter markets such as the OTCQX, OTCQB, or Pink Sheets, are required to...

New Approach for the Assumption of Options in M&A

A Canadian SEC reporting company that looks to acquire a company with outstanding equity grants in the United States will frequently need to address the question: What alternatives are available for the assumption of the target’s outstanding options or other equity-based compensatory awards? Under U.S. law, both the grant of the equity award and the exercise or conversion of the equity award must be registered under the 1933 Act or satisfy an available exemption. For Canadian issuers that are SEC reporting companies, the alternative approaches available to satisfy the 1933 Act requirements for the exercise or conversion of the assumed awards were formerly restricted to (i) an S-8 registration statement (either existing or...