[1] Whether the requirement of “a person who has held office or has held office for at least two years” under Article 340-4(1) of the Commercial Act should be met when a person retires or retires from office for reasons not attributable to himself/herself (affirmative)

[2] Where an officer or employee of an unlisted corporation who has been granted a stock option voluntarily retires or retires from his/her office on the grounds not attributable to him/her, the case holding that a stock option cannot be exercised under the above provision unless he/she satisfies the minimum requirements for his/her office, unless he/she satisfies such requirements

[1] Article 340-4(1) of the Commercial Act and Article 542-3(4) of the former Securities and Exchange Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635, Aug. 3, 2007; hereinafter “former Securities and Exchange Act”) and its contents maintain differentiatedness in the requirements for exercising stock options, and each of the above Acts and subordinate statutes clearly differs in the language and text of the requirements “for more than two years of office or employment”, unlisted corporations, listed corporations, venture businesses are subject to granting stock options, scope of granting stock options, etc. The stock option system is a system that attempts to faithfully perform their duties by inducing the increase of corporate value caused by the fulfillment of the duties of officers and employees. When determining the requirements for exercising stock options under Article 340-4(1) of the Commercial Act, it shall not be interpreted that the requirements for retirement or special resolution under Article 542-3(4) of the former Securities and Exchange Act or Article 40-4(1) of the Commercial Act are not applicable until the retirement or general meeting of shareholders.

[2] In a case where an executive officer or employee of an unlisted corporation who has been granted a stock option voluntarily retired from his/her office due to reasons not attributable to him/her, whether he/she can exercise the stock option regardless of the minimum holding of office under Article 340-4(1) of the Commercial Act, the case holding that even in such a case, a stock option may not be exercised unless he/she satisfies the minimum holding of office.

[1] Article 189-4 of the former Securities and Exchange Act (repealed by Act No. 8635 of Aug. 3, 2007, Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act), Article 36-9 (2) of the former Enforcement Rule of the Securities and Exchange Act (repealed by Ordinance No. 885 of Aug. 4, 2008, Article 2 of the Addenda to the Enforcement Rule of the Financial Investment Services and Capital Markets Act), Articles 340-2 (1), 340-3 (2), 340-4 (1) and (4), 340-5, 542-3 (4), Article 9 (5) of the Enforcement Decree of the Commercial Act, Article 16-3 of the former Enforcement Decree of the Financial Investment Services and Capital Markets Act / [2] Article 189-4 of the former Securities and Exchange Act (repealed by Ordinance of the Prime Minister No. 8635 of Aug. 3, 2007, Article 284) of the Enforcement Rule of the former Act

Plaintiff

Sicacom Co., Ltd. (Law Firm Sejong, Attorneys Kim-soo et al., Counsel for the plaintiff-appellant)

Seoul Central District Court Decision 2010Na20821 Decided October 5, 2010

The judgment of the court below is reversed, and the case is remanded to the Seoul Central District Court Panel Division.

The grounds of appeal are examined.

The stock option system was introduced for the first time in the name of Article 189-4 of the former Securities and Exchange Act (amended by Act No. 5254, Jan. 3, 1997) to a stock-listed corporation and an Association-registered corporation. Article 16-3 of the former Act on Special Measures for the Promotion of Venture Businesses as amended by Act No. 5607, Dec. 30, 1998; Article 340-2 through 340-5 of the former Commercial Act (amended by Act No. 6086, Dec. 31, 1999; Article 340-4(1) of the former Enforcement Decree of the Securities and Exchange Act (amended by Act No. 3406, Apr. 1, 200) provides for the stock option of 20 or more of the former Enforcement Decree of the Securities and Exchange Act (amended by Act No. 34065, Dec. 16, 200).

In light of the legislative history of the stock option such as above, Article 340-4(1) of the Commercial Act and Article 542-3(4) of the former Securities and Exchange Act, the former Securities and Exchange Act and Article 542-3(4) of the Commercial Act maintain differentiatedness in the requirements for exercising stock option, each of the above statutes clearly differs in terms of the literal differences in the requirements for “not less than two years of office or employment”, unlisted corporations, listed corporations, venture businesses are subject to granting stock option, granting limit, etc., and the stock option system intends to faithfully perform their duties by inducing the increase of corporate value caused by the fiduciary duty of officers and employees, and the provisions of the Commercial Act have the characteristics of organization law that affect many interested parties, such as shareholders and creditors of the company. In determining the requirements for exercising stock option under Article 340-4(1) of the Commercial Act, it cannot be applied to the former Securities and Exchange Act and Article 542-3(4) of the Commercial Act subsequent to its contents, and even if the articles of incorporation or a special resolution of the general meeting of shareholders, the retirement is not allowed for retirement or retirement.

Unlike these legal principles, the first instance court, as cited by the lower court, judged that, in the instant case where Article 340-4(1) of the Commercial Act applies to an unlisted corporation and its officers and employees, who were granted stock options, can exercise their stock options as they are, regardless of the minimum requirements for holding office, in cases where they retire or retire in secret due to reasons not attributable to them, and the lower court determined to the effect that it cannot be deemed that the minimum requirements for holding office cannot be mitigated in cases of retirement or retirement which is not attributable to a contract granting stock options between the articles of incorporation and the company and its officers and employees. In so determining, the first instance court and the lower court erred by misapprehending the legal principles on the requirements for exercising stock options under Article 340-4(1) of the Commercial Act, thereby adversely affecting the conclusion of the judgment.

Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Young-chul (Presiding Justice)