Castillo, Laman, Tan & Pantaleon

September 3, 1986 Castillo, Laman, Tan & Pantaleon Singapore Airlines Building 138 H. V. De la Costa Street Salcedo Village, Makati, MM Attention : Atty . Elpidio C . Zamora, Jr . Gentlemen: This relates to your letters, dated May 27, and August 9, 1986, requesting the confirmation of this Commission that your client, Landmark Agribusiness Corporation, may issue or grant stock option sans amendment of its corporate charter. LexLib The facts presented are as follows: The duly approved articles of incorporation of Landmark Agribusiness Corporation does not contain a specific provision authorizing the board of directors to issue or grant stock option. The corporation applied for a P2,500,000 agribusiness loan with Pilipinas Bank under the Loan Program of the Guarantee Fund For Small and Medium Enterprises (GFSME). Among the lending guidelines is that borrower shall make available to GFSME a stock option equivalent to 30% of the subscribed capital stock of the borrower. In order to meet said requirement, the stockholders of Landmark Agribusiness Corporation, at a meeting held sometime in March 1985, resolved by the vote of 2/3 of the outstanding capital stock to grant a stock option in favor of GFSME to accomplish its corporate purposes. Hence, this present request for confirmation that Landmark Agribusiness Corporation may grant stock option without the necessity for amendment of the articles of incorporation inserting a provision therein expressly granting the board of directors such authority. In relation thereto, "an option is a contract wherein the corporation grants in favor of someone the right to buy certain number of its securities (usually common shares) at a fixed price within a specified period of time," Ballantine & Sterling, California Corporation Laws, Vol. 1, (1982 ed.), sec. 135.01 (1), pp, 7-111 to 7-112. "A corporation may grant options to purchase or subscribe for shares of any class or series. The grant may be made either in connection with the issue, subscription or sale of any of its securities, or independently." (Ibid) The issuance of options constitutes the issuance of a security for securities law purposes. Accordingly, as in connection with any issuance of securities, the need to register or qualify the issuance must be considered. (Ballantine, Supra., sec, 135.03, pp, 7-116 to 7-117). Thus, in the interest and for the protection of investors the Commission pursuant to the powers vested in it under existing laws, particularly C.A. No. 83, (now: The Revised Securities Act) RA No. 1143 and P.D. 902-A, promulgated the "Rules Governing The Grants of Stock Option." Henceforth, no corporation shall grant or issue any stock option unless approval thereof is first secured from the Commission. Quoted hereunder is Section 3, par.(c) of our Rules Governing the Grants of Stock Option: "In considering petitions for the grant of stock options, the Commission shall be guided by the following: xxx xxx xxx (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." (emphasis supplied) The word "or" is a disjunctive that marks an alternative which generally correspond to the word "either". (Crawford, Statutory Construction and Interpretation, sec. 188, p. 322, citing Dodd v. Independent Stove & Furnace Co. (Mo.) 51 SW (2) 114; and others. Considering the foregoing, we therefore confirm your position that the resolution of the stockholders of Landmark Agribusiness Corporation, owning 2/3 of the outstanding capital stock, will suffice to authorize the board of directors to grant or issue the proposed stock option in favor of GFSME. It is, however, emphasized that no stock option shall be actually granted without securing prior approval of the Commission pursuant to our "Rules Governing the Grants of Stock Option". You may, therefore, pursue your pending application for stock option with our Brokers and Exchanges Department. However, please be advised that if at the time of granting the stock option or at anytime thereafter, the unissued shares of Landmark Agribusiness Corporation is not enough to satisfy the option right, if and when the right is exercised by GFSME, the additional number of shares required to be issued upon the exercise of the options must be authorized by an amendment of the articles of incorporation of Landmark Agribusiness Corporation, increasing its authorized capital stock. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Acting Chairman