Facebook, Inc. And CalEASI

Allen Matkins
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In 1996, the California legislature enacted SB 261 (Beverly) which established an exemption, Corporations Code Section 25102(o), for the offer or sale of securities by a corporation pursuant to an option plan or agreement provided that specified conditions are met.  Four years later, the legislature amended Section 25102(o) to include securities issued by limited liability companies.  Stats. 2000 ch. 705 § 4 (SB 1837).

The exemption is subject to three requirements, one of which is that the issuer must file a notice of transaction with the Department of Corporations (see 10 CCR § 260.102.19(c)).  In 2001, the Business Law Section of the California State Bar successfully sponsored legislation making it clear that the failure to file the notice or to file within the period prescribed by statute does not vitiate the exemption.  Stats. 2001 ch 58 § 1.

When must the filing be made?  The statute requires that a notice of transaction must be filed no later than 30 days after the initial issuance of any security under the plan.  If the issuer fails to do so, the issuer must file the notice within 15 days after it discovers its dereliction.

With this background in mind, let’s turn to Facebook, Inc.  Recently, I came across this Business Insider article by Owen Thomas entitled “MYSTERY: Someone Got $239 Million In Facebook Shares in February“.   Mr. Thomas discusses a filing made by Facebook with the Department of Corporations in February.  It turns out that the filing was made with respect to options to purchase 10 million shares of Class B Common Stock under Facebook’s 2005 Stock Plan.  It is unclear why Facebook decided it was required to make this filing.  According to Facebook’s most recent pre-effective amendment to its registration statement (No. 6), securities have been previously granted under its 2005 Stock Plan.  Also, a review of Facebook’s filings on CalEASI reveals that Facebook had already filed a notice of transaction with respect to the plan.

This story is also a reminder that many filings with the Department of Corporations are readily available on the Internet through CalEASI.  In fact, I found 48 separate items filed by Facebook with the DOC.  While these filings do not provide much detail, they do provide information about transaction values.  Thus, these filings may provide a window into a company’s assessment of the value of its shares.  Companies may also want to take these reported valuations into account for both SEC and IRS purposes.

For more about CalEASI, see “California’s Big EASI“.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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