CLARIFICATION ON RESTRIC-TIONS ON TRANSFER OF EM-PLOYEES' SHARES

09/01/2002

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Under the Company Law, there are four ways in which a company's employees may acquire shares from the company:

Under Article 167-1, the company buys back its own shares (as treasury stock), and trans-fers them to employees.

Under Article 167-2, the company concludes stock option agreements with employees, un-der which an employee may subscribe a specified number of shares in the company at an agreed price within a certain period. On concluding such an agreement, the company issues a stock warrant to the employee.

Under Article 240, if the company decides by resolution to convert distributable bonus into capital, then bonus due to employees under the company's articles of incorporation may be issued as new shares.

Under Article 267, when a company issues new shares, it must normally reserve 10 to 15% of them for subscription by its employ-ees.

When employees acquire shares from a company in any of the above four ways, may the company restrict their right to dispose of the shares? Ac-cording to the explanation of the Ministry of Economic Affairs. Article 276 Paragraph 6 of the Company Law provides that when employ-ees exercise the right to purchase new shares under Article 276, the company may specify a period of up to two years within which employ-ees may not transfer the shares. However, Arti-cle 267 Paragraph 7 provides that no such re-striction may be imposed when new shares are issued to employees who exercise stock options under Article 167-2.

Further, when treasury stock is transferred to employees under Article 167-1, or bonus is dis-tributed as new shares under Article 240 Para-graph 4, this is different in nature from a com-pany's issuing new shares after an injection of capital, and Article 267 Paragraph 6 does not apply. Therefore, in accordance with the prin-ciple of free transfer of shares under Article 163 Paragraph 1 of the law, a company may not ar-bitrarily set a time period restrict employees' right to dispose of their shareholdings.