Facebook Sets Charges over Restricted Stock Units, Zuck and Key People Not Selling

We have granted restricted stock units (RSUs) to our employees, including our named executive officers, and members of our board of directors. RSUs granted prior to January 1, 2011 (Pre-2011 RSUs) under our 2005 Stock Plan vest upon the satisfaction of both a service condition and a liquidity condition. The liquidity condition will be satisfied six months following our initial public offering (IPO). Under settlement procedures applicable to these awards, we are permitted to deliver the underlying shares within 30 days before or after the date on which the liquidity condition is satisfied. We disclosed in the prospectus relating to our IPO that this date would occur between 151 to 180 days after May 17, 2012. We currently expect that two trading days following the announcement of our third quarter 2012 financial results, we will vest and settle outstanding Pre-2011 RSUs for which the service condition has been satisfied and that are held by employees who are employed by Facebook through October 15, 2012. We currently expect to announce our third quarter results on October 23, 2012, which would result in an expected vesting and settlement date of October 25, 2012. The shares would be eligible for sale in the public markets as of market open on October 29, 2012, as described further below.

On the vesting and settlement date, we plan to withhold and remit income taxes at applicable minimum statutory rates based on the closing price of our common stock on the trading day immediately prior to the vesting and settlement date. We currently expect that the average of these withholding tax rates will be approximately 45%.

To settle these RSUs, assuming an approximate 45% tax withholding rate, we anticipate that we will net settle the awards by delivering an aggregate of approximately 124 million shares of common stock to holders of Pre-2011 RSUs and withholding an aggregate of approximately 101 million shares of common stock. The 101 million shares that are withheld by us as a result of the net settlement of Pre-2011 RSUs will no longer be considered for accounting purposes to be issued and outstanding, thereby reducing our shares outstanding used to calculate earnings per share. These 101 million shares will become eligible for granting as new awards or shares underlying new awards under our 2012 Equity Incentive Plan.

Assuming the price of our common stock at the time of settlement was equal to $19.09, the closing price of our Class A common stock on August 30, 2012, we estimate that the aggregate tax obligation for the settlement of these RSUs would be approximately $1.9 billion. The amount of this obligation will vary depending on the closing price of our shares on the trading day immediately preceding the vesting and settlement date, the actual tax withholding rates at that time, and changes in the number of our then-current employees holding Pre-2011 RSUs as of October 15, 2012. We intend to fund these tax withholding and remittance obligations by using our existing cash and borrowings from our credit facilities. We currently do not expect to conduct any offering of our equity securities near the initial RSU settlement date to fund this obligation, nor do we currently expect to conduct an offering in connection with the expiration of "market stand-off" or "lock-up" restrictions in the fourth quarter of 2012.

We understand that two of our non-employee directors, Marc Andreessen and Donald Graham, intend to satisfy taxes incurred in connection with the vesting or settlement of their RSU awards by effecting sales of our common stock. Any such sales will be conducted through Rule 10b5-1 Plans adopted in accordance with our securities trading policies. Other than such tax-related sales, Mr. Andreessen and Mr. Graham have no present intention to sell any shares of our common stock held by them personally.

As of the date of this report, Mark Zuckerberg has not adopted a Rule 10b5-1 Plan and has informed us that he has no intention to conduct any sale transactions in our securities for at least 12 months. Mr. Zuckerberg currently holds in aggregate approximately 444 million shares of Class B common stock as well as 60 million shares of Class B common stock issuable upon the exercise of an option.