Roco & Buñag Law Offices

April 20, 1988 Roco & Buag Law Offices 4th Flr., A. Soriano Bldg. 8776 Paseo de Roxas, Makati Metro Manila Attention : Atty . Jose Mario C . Buag Gentlemen : This refers to your letter, dated April 5, 1988, requesting the opinion of this Commission on the query posed therein affecting your client, San Miguel Corporation (SMC). cdll It appears therein that San Miguel Corporation (SMC) desires to grant a stock option in favor of its employees. Section 2(g) of SEC Rule BED No. 902-A-3 reads as follows: ". . . 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. . . ." (emphasis supplied). The word "or" is a disjunctive that marks an alternative which generally corresponds to the word "either". (Crawford, Statutory Construction & Interpretation, sec. 188). Accordingly, where the grantee of a stock option plan is an employee of the corporation, payment thereon may be done through a planned payroll deduction scheme. In this connection, your query is: May an employee stock Purchase Plan ('Plan') provide that a participant acquires ownership of shares subscribed to by him upon subscription even before completion of the downpayment required of him under Section 2(g) of SEC Rule BED No. 902-A-3 which downpayment will be paid under a 'planned payroll deduction scheme'? " An option to subscribe to additional original issue of stock becomes a valid and binding contract upon acceptance of the option . (4 Fletcher, Cyc. Corp., 1985 rev. vol., sec. 1370). It may be stated in this connection that subscription to stock in a corporation in effect makes the subscriber a stockholder. (Fletcher, Supra., sec. 1378, at 27, citing Reagan v. Midland Parking Co., 298 F500, Fletcher, Cyc. Corp., sec. 522, 1st ed.). In the light of a valid and binding subscription, a subscriber becomes entitled to the rights and privileges of a stockholder even though he had not paid for his shares under the subscription agreement. (Bielenski v. Miller, 118 NH 26, 382 A2d 357, cited in Fletcher, Supra., sec. 1375 at 29). "In the absence of an express provision to the contrary, payment is not necessary to make one a stockholder with all the rights and subject to all the liabilities of a stockholder." (11 Fletcher, Cyc. Corp., 1986 rev. vol., sec. 5182 at 390). In other words, actual payment is not a requisite to make one a stockholder unless the subscription agreement otherwise provides, or there is a constitutional, statutory or charter provision to the contrary . (4 Fletcher, sec. 1375, at 28). Thus, the Commission, in its previous opinions had ruled that in cases of additional subscription, the board of directors, in the honest and reasonable exercise of the discretionary powers vested in the them by the charter and by-laws of the corporation, may fix the amount that would constitute a sufficient down payment thereon. (Letters to Britanico, Panganiban, Benitez, Africa & Linsangan Law Offices, August 9, 1984; Paredes, Poblador, Nazareno, Azada & Tomacruz Law Offices, dated November 6, 1970 ; and others). In this regard subsequent subscription should be distinguished from pre-incorporation subscription and subscription to an increase in capital stock under Sections 13 and 38, respectively, of the Corporation Code, where initial payment is explicitly required. Except, therefore, in those two (2) instances, the Board has the authority to determine the amount as the time and manner of payment of such subscription. (SEC Opinions, Supra.). Hence, our answer to your query is in the affirmative. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman