Concerned by a private market developing for their securities, companies asked the SEC to continue to block the transfer of the options. The options or the received stock can only be transferred back to the company or transferred to another person in the event of death or disability. The threshold is only measured on the last day of the fiscal year, and many companies forget about the rule when they are busy issuing options early in the year. Several companies started the year in 2000 intending to hold an IPO shortly and had no reason to be judicious with their option grants. When the IPO window closed, their financing strategy also changed.
Companies still have to be sensitive to certain requirements when they set up the plan.
When establishing the program, the number of expected participants in the plan is still an important issue as is the structure of the plan if it will exceed 500 participants. Companies must file registration documents or apply for relief within 120 days of fiscal year-end. Issued and effective on March 29, the SEC interpretation catches companies with fiscal years ending from December 2000 forward. Venture capitalists most likely face the situation through their investments in companies in labor-intensive industries, such as consulting firms, telecommunications firms and technology manufacturers. Notable companies which received no action relief in the past include Kinko's Inc. and Starbucks Corp. Companies still risk that exercised options will create over 500 pure equity shareholders, which would force the company to file with the SEC under all circumstances.