Rules Governing the Grants of Stock Options

February 25, 1977 RULES GOVERNING THE GRANTS OF STOCK OPTIONS In the interest and for the protection of investors, the Commission, pursuant to the powers vested in it under existing laws, particularly the Revised Securities Act , Republic Act No. 1143, and PD No. 902-A, hereby promulgates the following rules: LexLib SECTION 1. Henceforth, no corporation shall grant or issue any stock option unless approval thereof is first secured from the Securities and Exchange Commission. A stock option is a privilege granted to a party to subscribe to a certain portion of the unissued capital stock of a corporation within a specified period and under the terms and conditions of the grant, exercisable by the grantee at any time within the period granted. SECTION 2. Application for authority to issue any stock option shall be in the form of a petition under oath signed by the President of the Corporation or any other official thereof authorized by the Board of Directors to so act, stating among others the following: a) Name of the corporation; b) Address or principal office of the corporation; c) Purpose or purposes of the corporation, in capsulized form, as enumerated in the purpose clause, Articles of Incorporation. d) A listing of the members of the board of directors, executive officers and other officials performing technical functions. e) A listing of persons in whose favor such grant or issuance of options are to be made indicating the number of shares to be given to each, or if this could not yet be ascertained, then the formula to be used in determining such number of shares, and at how much per share the same shall be disposed of. f) Reasons for such grant or issuance, attaching therewith three copies of the board resolution authorizing the same. g) A detailed statement as to the plan or scheme by which said option shall be exercised; Provided, however, that no exercise of the right of the option shall be valid unless accompanied by the payment of not less than 40% of the total price of the shares so purchased the same to be properly receipted for by the corporate treasurer, except where the grantee is an employee or officer who is not a director of the corporation in which case only 25% of the total price shall be required, or allow a planned payroll deduction scheme. (The initial payment stated herein shall not be required if the options shall be for compensation or payment of services already rendered. h) Such other data or information which the applicant believes necessary to support its petition or which the Commission may require. SECTION 3. In considering petitions for the issuance of stock options, the Commission shall be guided by the following: a) Stock options granted to stockholders ratably in proportion to their shareholdings may be allowed. b) Stock options granted to employees or officials who are not members of the board may also be allowed after a review of the scheme since it would be in consonance with the policy of the government to widen corporate base and to distribute corporate profits wider and more equitably. c) Stock options granted to persons who are not stockholders may be granted only upon a showing that the Board has been duly authorized to grant the same by its charter or by a resolution of the stockholders owning at least two-thirds of all the outstanding capital stock voting or non-voting excluding treasury stock. d) Stock options granted to directors or managing groups and its officers must be approved in a stockholders' meeting by stockholders owning at least two-thirds of all the outstanding capital stock voting or non-voting, excluding treasury stock. Certification by the corporate secretary as to the number of shares represented in said meeting and the number of votes cast for or against the grant of optional rights to the directors or managing groups and its officers shall be submitted. e) Exercise of options must be done within a period of three years from approval thereof unless sooner terminated by the Commission. In meritorious cases, where the exercise of options could not be done within three years, the same, upon approval by the Commission, may be extended f) No transfers of the right to an option shall be made without the approval of the Commission. g) In cases of grants under sub-sections (b), (c), and (d), the Commission shall determine the reasonableness of the plan, scheme, compensation or consideration. h) Transferable stock options are registrable . SECTION 4. Upon filing of such petition for authority to issue stock options, the applicant/petitioner shall pay to the Treasury of the Philippines a fee of one-tenth of one per cent of the maximum aggregate price at which such shares are to be sold; Provided, that if the stock option is granted as compensation for +1% legal research fee services already rendered, the fee shall be computed upon the basis of the total amount for said services; and NOTICE of such filing shall be immediately published by the applicant/petitioner in two newspapers of general circulation in the Philippines, one published in English and another in Pilipino, once a week for two consecutive weeks, reciting among others, that an application/petition for authority to issue stock options has been filed with it, and that the aforesaid application/petition, as well as the papers attached thereof, are open to inspection during business hours by interested parties; and copies thereof, photostat or otherwise, shall be furnished to any interested party at such reasonable charge as the Commission may prescribe. Proof of said publication must be submitted to the Commission before it could act on application or petition. Ten days after publication of said Notice, the Commission shall act on said petition/application. SECTION 5. Every corporation granting rights or options shall maintain an Options Registry Book to be pre-stamped by the Commission, where all options granted including transfers are recorded showing name of person to whom granted, basis or authority for such grant, date granted, number of shares, price per share date exercised, total cost and OR No. SECTION 6. Any circumvention of these rules by allowing any person to subscribe to so many shares as would make him a stockholder owns at least 5% of the total subscribed capital stock at a price below the current market price, if the same is above par shall be considered and treated as stock option and said subscriber must be required to tender payment thereof to the corporation of at least 75% of the total price of said subscription; Provided, that said subscription shall not be transferable until after the balance of the subscription is fully paid. If shares are to be disposed of or sold, the price of the shares should not be lower than par or less than 80% of the market price at the time of exercise, or if there is no transaction at the time of exercise, then the last asked price whichever is higher; Provided further, that if the shares are not listed, the 80% referred to shall be based on book value. SECTION 7. Any corporation found violating these rules shall be penalized by a fine of not less than Five Thousand Pesos or revocation of the registration of its securities or both in the discretion of the Commission; Provided, that if the violation is committed by a corporation whose shares are not registered under the Securities Act, said violation shall be penalized by a fine of not less than Three Thousand Pesos and/or revocation of its corporate charter, pursuant to P.D. No. 902-A. SECTION 8. All corporations which have granted or issued options prior to but are to be exercised after the effectivity of these rules and to be exercised are required to report the same to the Securities and Exchange Commission within thirty days after these Rules shall have become effective, showing: a) Name of issuer; b) Address or principal office of the corporation; c) Listing of the members of the board of directors, executive officers and other officials performing technical functions at the time of the granting or issuance of said stock options, and d) A listing of the person or persons in whose favor such grant or issuance of options were made indicating the number of shares given to each, at how much per share the same have been disposed of and the date such option rights have been exercised. SECTION 9. Commission approval of stock options to multi-national development financing institutions shall not be required, provided that the grant or issuance of said stock options shall be approved by the stockholders owning or representing at least a majority of the subscribed capital stock of the corporation, and a certified copy of the stock option plan or agreement shall be submitted to the Commission within thirty (30) calendar days from the date of execution thereof. The notice of the meeting at which grant or issuance of said stock options shall be presented for consideration and approval by the stockholders shall indicate briefly the name of the grantee of the stock option, the consideration therefor, the duration of the option, and, if readily determinable, the number of shares covered by the option and the exercise price thereof. SECTION 10. All rules and regulations, circulars, orders and rulings contrary to, or inconsistent with any of the foregoing provisions, are hereby repealed or modified accordingly. SECTION 11. These rules shall be known and cited as SEC Rule BED No. 902A-3 and shall take effect immediately after the completion of its publication in at least two newspapers of general circulation in the Philippines. This Rules shall also be published in the Official Gazette. cdlex (SGD.) ANGEL L. LIMJOCO, JR. Chairman