In the Matter of LBC Express Holdings, Inc.

April 11, 2017 SEC-MSRD ORDER NO. 14, S. 2017 IN THE MATTER OF LBC EXPRESS HOLDINGS, INC. RE: APPLICATION FOR REGISTRATION OF SECURITIES ORDER This refers to the application for the registration of up to Sixty-nine million, one hundred one thousand (69,101,000) common shares of LBC Express Holdings, Inc. (the "Company") with a par value of P1.00 per share. In relation to this, a Registration Statement ("RS") was initially filed by the company on December 1, 2016. The same was amended on several dates, specifically, January 11, March 08, and March 21 of 2017. HTcADC After a review of the latest RS filed with the Commission, the Commission En Banc in its meeting held on March 28, 2017 resolved to REJECT the said RS relative to the registration of the company's securities for its failure to disclose or represent accurately and/or completely the following material information required to be disclosed in the RS, to wit: 1. Legal proceedings against the control persons of the Company or the Aranetas as required by the Part IV par. (4) (b) of "Annex C" as amended of the Securities Regulation Code ("SRC") and their implementing rules and regulations; and 2. Disclosure on the status of listing application of the Company with the Philippine Stock Exchange. thus, making the RS not in compliance with the requirements of Sections 8 and 12 of the SRC and their implementing rules and regulations. Section 8.1 The 2015 SRC Rule 12.1 sets forth the requirements applicable for registration statement, among others, and provides the information required to be disclosed under this Rule. SEC Form 12-1 (Registration Statement under the SRC), includes among the items which need to be reported by a publicly listed company and refer to Part IV par. (4) (b) of "Annex C" of the Amended IRR for guidance on the information that needs to n "(4) Involvement in Certain Legal Proceedings Describe any of the following events that occurred during the past five (5) years that are material to an evaluation of the ability or integrity of any director, any nominee for election as director, executive officer, underwriter or control person of the registrant: (a) Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) ny conviction by final judgment, including the nature of the offense, in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding , domestic or foreign, excluding traffic violations and other minor offenses; . . ." (emphasis given) Further, Paragraph 3.1.12 of the SRC Rules defines "material fact/information" as follows: "Material fact or information is any fact or information that may result in a change in the market price or value of any of the Issuer's securities, or may potentially affect the investment decision of an investor." (Emphasis supplied) Furthermore, SRC Rule 14 provided a non-exhaustive list of information and events of what constitutes material fact or information, to wit: 14.1. For purposes of this Rule, material information shall include, but not be limited to, the following: 14.1.1. Any event or transaction which increases or creates a risk on the investments or on the securities covered by the registration ; (Emphasis ours) xxx xxx xxx Also, it bears noting that the SRC IRR even has a "catch all" provision wherein applicant companies are mandated to add "such further material information" to those expressly required to be included in a report. Rule 72.1.9 provides: "Rule 72.1.9 Additional Information In addition to the information expressly required to be included in a registration statement or report, there shall be added such further material information , if any, in the light of the circumstances under which they are made not misleading ." (Underscoring supplied) This Rule finds solid support in Section 12.2 of the SRC which states that "In promulgating rules governing the content of any registration statement (including any prospectus made a part thereof or annexed thereto), the Commission may require . . . x x x . . . additional information or documents . . . x x x . . . depending on the necessity thereof or their applicability . . . x x x . . ." (Underscoring supplied) This Department, in the course of its review of the company's RS, discovered that there are pending cases filed by the Bangko Sentral ng Pilipinas and Philippine Deposit Insurance Corporation against the control persons ("Araneta's") of the Company. These cases have not been disclosed in the prospectus part of the RS. It also comes to the knowledge of this Department that the listing application of the company with the Philippine Stock Exchange ("PSE") was deferred due to the issue of "Suitability" under the PSE Rule, among others. To recall, on March 8, 2017, the company submitted its revised prospectus in response to our letter-comment dated February 22, 2017. Upon evaluation, we found that the revised prospectus is still not compliant with the SRC and its IRR and its Annex C, as amended. This Department issued another comment letter dated March 17, 2017 directing the company to again revise its prospectus and indicate under the sections on Legal Proceedings and Certain Legal Proceedings all the legal proceedings and cases involving the company, its subsidiaries and/or affiliates, and control persons as required under the SRC, its IRR, and its Annex C, as amended. We likewise required the company to submit a duly notarized certificate executed by the company's President or any other equally competent officer, authorized to sign and bind the company, attesting that all material information are completely and accurately disclosed in the latest submission of the amended prospectus on or before 12 noon of March 20, 2017 so that it will be included in the next En Banc Meeting. On March 21, 2017, the company, through the Legal Counsel of the Underwriter, belatedly filed its revised prospectus indicating therein the directive of the Department to disclose the specified information/deficiencies stated in our March 17, 2017 letter. It also submitted a certification under oath signed by Mr. Enrique Rey, Jr., Director, Acting Chief Financial Officer, and Acting Treasurer of the Company that all material information in relation to the company, which are known to the company and required to be disclosed in the prospectus pursuant to the requirements of the SRC, and its IRR in connection with the company's application for registration of the Offer Shares, are completely and accurately disclosed in the latest submission of the amended prospectus. In addition, the company provided as annex to the revised prospectus the status of their listing application with the PSE. However, the company failed to accurately and completely disclose the material information pertaining to the listing application on the previous issuances by the company, including the LBC private placement transactions. The Company stated that ". . . Consistent with the policy of the Philippine Stock Exchange, Inc. ("PSE") that listed companies should undertake a follow-on offering before any backdoor listing application is approved, the application covering the foregoing private placement transactions are currently being reviewed by the PSE." This representation is contrary to the information we obtained from PSE through its letter-reply dated March 13, 2017 in response to our March 6, 2017 letter seeking comment/s from it, stating that: (i) on December 2, 2016, LBC refiled its listing application with the Exchange; (ii) in a letter dated January 5, 2017, the Exchange confirmed that LBC's listing application covering Follow-on offering, backdoor listing shares, are deemed voluntarily withdrawn effective August 15, 2016; (iii) LBC's request to process the listing application covering the investment shares, and the Public Shares, the Exchange denied the said request in light of Civil Case No. 15-1258 filed by PDIC against LBCEI, LBCDC, LBC Properties, and certain members of the Araneta Group; (iv) the ongoing proceeding raised serious concerns with regard to LBC's compliance with the PSE Suitability Rule; (v) the Exchange decided to defer the processing of the listing application covering the Investment shares, the Public shares, the Backdoor listing shares and follow-on offering, pending the resolution of the said suitability issues; (vi) in letter received by the exchange on January 25, 2017, LBC requested the exchange to reconsider its decision and to commence the processing of all its applications; and (vii) at present, the Exchange is reviewing the merits of LBC's request for reconsideration. The above response of PSE contravenes the representation of the company in the prospectus as it did not discuss accurately and completely the status of its listing application. Moreover, the disclosure on the legal proceedings involving LBC Properties, Inc. and the control person or the Aranetas was still not disclosed in the revised prospectus. In view of the company's representation that it is compliant with all the requirements prescribed by SRC and its IRR and Annex C, we required the company to submit a Certification from its Corporate Secretary that Mr. Enrique Rey, Jr. is authorized to sign the certification issued regarding the completeness of information submitted on March 21, 2017. The Corporate Secretary's Certificate was submitted on March 27, 2017. In the meantime, on March 28, 2017, the date the relative memorandum was presented to the Commission En Banc, the Department received from the company, at 11:25 a.m. on even date, an undertaking to disclose in its Prospectus all legal proceedings against members of the Araneta Family who comprise the majority shareholders of LBC Development Corporation, specifically, Mr. Juan Carlos G. Araneta, Mr. Santiago G. Araneta, Mr. Fernando G. Araneta, and Ms. Monica G. Araneta. Said information was included in the memorandum and was discussed during the presentation. Nonetheless, after considering all the information and circumstances surrounding the application for registration of company's securities, including the belatedly submitted undertaking, the Commission En Banc ruled that the RS of the subject company did not meet the requirements of Sections 8 and 12 primarily, and the other applicable sections of the SRC and their rules and regulations. It should be stressed that material misrepresentation by way of omission, in whole or in part, of the above mentioned information in the Company's prospectus is very significant considering that the purpose of the registration requirements is to provide the investing public full, accurate and timely information so that these investors will make an informed decision. It has also to be emphasized that the duty imposed upon publicly listed companies by the SRC and its IRR is to promptly, accurately, and fully disclose all material information which may affect the price or value of the shares and thereby guide the investors in their decision whether to buy, sell or hold the securities. Accordingly, the non-disclosure of the pending legal proceedings against the Aranetas and of the actual status of the application for listing with PSE of the company's shares, will distort the value of the shares of the company and the investment decision of investors. WHEREFORE, premises considered, the Registration Statement of LBC Express Holdings, Inc. filed on March 21, 2017 is hereby REJECTED. SO ORDERED. April 11, 2017, Pasay City. (SGD.) VICENTE GRACIANO P. FELIZMENIO, JR. Director Footnotes n Note from the Publisher: Copied verbatim from the official document.