The Advisors' Blog

As calendar-year companies finalize and file their third-quarter 10-Qs, here’s a timely reminder from the team at Perkins Coie addressing a common client question: When do shares withheld upon the vesting or exercise of equity awards need to be disclosed under Item 703 of Regulation S-K?

Item 703 of Regulation S-K requires, among other things, tabular disclosure of any purchase made by an issuer of shares that are registered under Section 12 of the Exchange Act. For context, Question 149.01 of the Regulation S-K C&DIs makes it clear that if an employee utilizes a “net” option exercise to cover taxes due upon exercise of a stock option, Item 703 tabular disclosure is not required. The idea is that with “net” exercises, Item 703 disclosure is not required because the underlying shares were never issued under the option.

In contrast, with respect to restricted stock, the SEC staff has said that shares withheld to cover taxes due upon vesting of a restricted stock award do require Item 703 disclosure because the restricted shares were already outstanding at the time of the vest.

What about RSUs and PSUs, though? The blog continues:

RSUs (and PSUs), like options, are not outstanding shares. At a high level, these securities represent a contingent right to receive shares in the future. Therefore, shares withheld to cover taxes in connection with an RSU vesting do not require Item 703 disclosure.

– Meredith Ervine