The state of Oregon recently enacted Oregon Administrative Rule (OAR) §441-035-0300, a new state “Blue Sky” securities law that makes it easier for an employer that is not publicly traded in the US to grant equity awards to its employees residing in Oregon.
A company that is not publicly traded in the US — generally, a company whose stock is not registered under the Securities Act of 1933, such as US private companies or non-US public companies that are not listed in the US — must generally comply with the securities laws of the state where the company is making a securities offering in addition to seeking an exemption from the registration requirements at the federal level.
These state securities law requirements also apply to compensatory equity awards, such as stock options. State securities law exemptions available to employee stock offerings are generally easier to meet than the exemptions available to general stock offerings. Many of these exemptions require no filing or approval process if the offering terms meet the requirements for the exemption at the federal level under Rule 701 of the Securities Act — the primary and most commonly invoked exemption available for compensatory equity offerings. Rule 701 provides a self-executing (i.e., no filing or approval) exemption for a stock offering made under a written compensatory benefit plan.
Although the majority of states provide for relaxed Blue Sky regimes for equity awards, a handful of states impose onerous requirements as part of the application or filing process to seek an exemption for a compensatory stock offering — and until recently, Oregon fell among this camp.
Oregon Blue Sky Laws
Prior to the enactment of the new law, Oregon had one of the most rigorous application and filing requirements of any state for employee equity offerings. Even if the requirements of Rule 701 were met, private offerings under a compensatory benefit plan were required to be approved before they could be made.
As part of the initial application requesting approval, the employer was required to complete and file numerous forms providing a detailed description of the offering and seeking to license and register an officer or director of the employer as a “sales person” in Oregon. The application required personal information regarding the designated sales person such as detailed employment and residence history, social security number, place/date of birth, and even their height and weight. In addition to this onerous initial application, an annual renewal filing was required.
In enacting OAR §441-035-0300, Oregon has retained a filing requirement and filing fee, but has relaxed the application process significantly so long as Rule 701 is met at the federal level.
The new filing eliminates the application process, including the licensing of a sales person. However, the filing requires the employer to certify that the terms of the employee equity offering meet the requirements of Rule 701 and must be made no later than 30 days after the initial offer of securities is made.
Although the new law has provided an easier filing requirement for compensatory benefit plan offerings, employers with only a handful of employees in Oregon may prefer to take advantage of the state’s small-offering exemption, which does not require a filing.