When establishing a phantom stock plan, some issuers may erroneously believe that the only available exemption is the limited offering exemption in Section 25102(f) of the Corporations Code. While the “F” exemption is a viable option for some issuers, some of the conditions (such as preexisting relationship or financial experience) can present insurmountable problems for others.
Fortunately, the Commissioner has by rule adopted an exemption just for phantom stock plans. These are plans whereby an issuer allocates to its employees or employees of its parent or its subsidiaries “units” that represent the right eventually to receive cash (but not stock) measured by dividends paid on shares of the issuer’s capital stock or the market value of shares of the issuer (or both). Rule 260.105.5 is an exemption from the qualification provisions of the Section 25110 only. This means that any resales of or changes in the rights, preferences, privileges or restrictions in phantom stock units are not exempted by the rule.