Introduction

The Rule 701 Disclosure Management enables companies issuing more than $10 million in equity compensation under Rule 701 within a 12-month period to automatically provide the required additional disclosures. When enabled, these disclosures are sent when granting new shares or exercising options. Active disclosure documents and email templates are centrally managed through the Administration Workspace settings. Additionally, a new workflow is available for sending bulk retroactive disclosures. All disclosure recipients are tracked via the Rule 701 Disclosures Report.

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Rule 701 disclosure information
Disclosure Management settings
Rule 701 Disclosure Bulk Communication workflow
Automatic disclosures in the Grant Shares and Exercise Options workflow

Rule 701 Disclosure information

What are Rule 701 Additional Disclosures?

SEC Rule 701 allows private companies to issue equity compensation without the cost or time burden of registering the offering with the SEC. If a company issues more than $10 million in a consecutive 12-month period, then there are additional disclosure requirements.

What documents are required for additional disclosures?

The following documents are required once a company meets the $10 million threshold for additional disclosures under Rule 701:

A summary of the plan's material terms 
List of risk factors associated with investing in the SIP 
GAAP financial statements, dated not more than 180 days before the sale

When do the disclosures need to be provided?

SEC guidance states that disclosures must be provided prior to the date of sale/grant: “The issuer must deliver the following disclosure to investors (participants) a reasonable period of time before the date of sale.”

There are two time periods that additional disclosures are required to be provided.

Prior to crossing the $10 million threshold:
- Disclosures are required to be sent to ALL stakeholders who received grants or exercised options under the SIP in the 12-month period prior to crossing $10M threshold.
- This is called “approaching threshold” and defined as within 10% or $9 million in this feature.
After crossing the threshold:
- After crossing the threshold, all new grants or options exercises are required to be provided with additional disclosures.
- This is called “exceeded threshold” in this feature.
- If disclosure is not provided to all participants in the offering prior to sale, the exemption is lost for the entire offering.

What happens if additional disclosure documents are not provided?

If a company in the additional disclosures requirement state does not provide documents to all stakeholders, then the Rule 701 exemption is lost for the entire offering.

Disclosure Management settings

Settings for Rule 701 Disclosure Management are found in the Administration Workspace in the Equity Settings section.

Automatic Disclosures

Automatic disclosures can be enabled on this page. If you have multiple Stock Incentive Plans then the feature will need to be enabled for each plan.

Disclosure documents must be added before you can enable automatic disclosures.

Disclosure Documents

The active documents set for automatic disclosures is managed on this page. Your stock plan(s) will display with a list of added documents and a status indicating if automatic disclosures have been enabled.

The current active documents can be changed at any time, but prior versions will be permanently retained in the Data Room. At least one document per plan must be uploaded to enable the automatic disclosures feature.

Note that recipient's document access will expire one year after the documents have been sent.

Adding or editing documents

Click Add Document to upload a new document to the appropriate plan. Drag and drop the file, or click Browse to select the file from your computer. Enter a title and select the effective date of the document.

We do not have any date enforcement and it’s the company responsibility to maintain current documents.

Click the download icon to download the current active version of the document. Click the edit icon to change the name or the effective date of the title. To remove a document, click the X icon and confirm you wish to remove the document.

Email Templates

The message that is sent with the documents can be customized on this page. The templates are set per plan, if you have more than one plan. There are separate templates used when running the Grant Shares Under The Plan workflow, and for the Exercise Options Workflow.

Rule 701 Disclosures Bulk Communication Workflow

This workflow is used to send bulk retroactive disclosures to all grant/exercise recipients in the prior 12-months, or to manually select individual recipients.

From the Company Workspace, go to Start New Workflow > Rule 701 Bulk Communication
Select to send to all grant/exercise recipients within the last 12 months, or to manually add recipients. Click Continue.
Confirm the recipients that will receive the communication. Click the Recipients List button to download an export. This is a 1:1 list and each recipient will only receive one communication, regardless of how many grants or exercises they received in the 12-month period.
To add additional recipients, click the Add button. This can be used to send disclosures for grants or stakeholders not yet existing in the system.
If a recipient who received a grant or exercise is missing an email address, you can enter the information here. If no email address is entered, then the stakeholder will display a “sent outside the platform” status on the Rule 701 Disclosures Report. The list can be refreshed at any time after entering email addresses.
Once you have confirmed the recipient list, click Continue.
Review the disclosure documents that will be sent. If you need to add or change any of the documents, you can do so in the Disclosure Settings, and then click Refresh Documents. When ready, click Continue.
At the checkpoint, review the recipients and the email message that will be sent. You can optionally send the workflow for legal review before continuing, or share the documents with other parties. When ready to send the communication, click Continue.
The disclosures have been sent, and can be tracked on the Disclosures Report page of the Rule 701 Report.

Automatic disclosures in the Grant Shares and Exercise Options workflows

Grant Shares Under Stock Incentive Plan workflow

A note will display on the first step of the Grant Shares workflow if automatic disclosures are enabled. If you are near or have exceeded the threshold, the note will update accordingly.

Automatic disclosures are emailed when the grant documents have been approved and released at the same time the grant is sent for acceptance. Links to the disclosure document(s) are displayed on the grant acceptance screen and the grantee will be required to acknowledge they have had the opportunity to review the disclosures prior to signing their grant documents.

Exercise Options workflow

Stakeholders will be emailed disclosure documents after they choose which options to exercise. The disclosure documents will also be displayed on the Review and Sign Document step. They will be required to acknowledge they have had the opportunity to review the documents and any relevant disclosures before continuing with the workflow.

Screenshots are for illustrative purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity Private Shares LLC provides cap table management and other administrative services to private companies and their equity compensation plans.

Fidelity Private Shares LLC

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