Mr. Alfredo C. Antonio

March 23, 1998 Mr. Alfredo C. Antonio Development Bank of the Philippines Makati City P.O. Box 1996 S i r : This refers to your letter dated March 16, 1996 relative to the proposed rehabilitation/privatization plan of Al-Amanah Islamic Investment Bank (AAIIBP) requesting the following: 1. Request for opinion on: ( a ) whether the proposal to conduct a public bidding for the pre-emptive rights shares ( that are allocated for the National Government and its agencies that are expected to be waived ) ahead of the private stockholders' complete exercise of pre-emptive rights violates applicable laws in pre-emptive rights offering, and ( b ) whether the private stockholders, who fully exercised their pre-emptive rights, are entitled to a right of first refusal on any pre-emptive rights shares waived by the National Government, other government agencies and other private stockholders. LLpr 2. Request for a certificate of exemption from SEC registration requirements under the Revised Securities Act (RSA) for the AAIIBP's sale and issuance of shares contemplated under the proposed Rehabilitation Plan. Relative to the issue on " pre-emptive right ", the pertinent provision of the Corporation Code provides: "SECTION 39. Power to deny pre-emptive right . All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective share holdings, unless such right is denied by the articles of incorporation or any amendment thereto: provided, That such pre-emptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to share to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a previously contracted debt." (Emphasis supplied) Thus, as a general rule, all stockholders of record shall enjoy a pre-emptive right to subscribe to all issues or disposition of shares of a corporation in proportion to their respective shareholdings, unless such right is denied in the articles of incorporation or the issuance falls under any of the exceptions enumerated in the above provision . A perusal of AAIIBP's corporate charter, RA 6848, the law creating it, disclosed that "pre-emptive right" is expressly granted to its existing stockholders. Section 8 thereof provides thus: "SECTION 8. Classification of Shares : Its Features . ... Anyone of the shareholders may exercise its pre-emptive right to consolidate ownership of the outstanding shares as hereinafter increased: ...." (Emphasis supplied) It is quite clear from the above provision that the intention of the law creating the AAIIBP is to give its existing stockholders the prior right over other persons to own the shares of stock of the Bank. We therefore believe that in case the national government or its agencies waive their right to subscribe the shares available to them, the proposed "public bidding" of the offered shares prior to the exercise of the pre-emptive right of the existing stockholders, contradicts the above provision of RA 6848. Relative to the second issue raised pertaining to "pre-emptive right" the Commission had occasions to opine that if the shares corresponding to one stockholder are not subscribed or purchased by him, it is not necessary that said shares should again be offered on a pro-rata basis to the stockholders who took advantage of their right or pre-emption. This is because for as long as they exercised their pre-emptive rights, their relative and proportionate voting strength in the corporation will not be affected adversely. The shares may thus be offered to non-stockholders of record on a first come first served basis without violating the pre-emptive rights of the stockholders. However, the Commission, considers it a sound corporate practice to offer always the remaining shares to interested stockholders of record whenever practical and feasible before offering them to third parties. ( SEC Opinions dated 9/24/74 ; 5/14/90; 12/6/94 ) this corporate policy is being adopted in the above-cited Section 8 of RA 6848 as can be gleaned from the use of the phrase " to consolidate ownership of the outstanding shares ",in which case, it should not be disregarded. Please be advised, however, that the foregoing opinion does not preclude judicial interpretation and/or application of the law should the issue be raised or litigated in the proper forum. The interpretation of the above provision of RA 6848 is not the sole prerogative of the SEC as there are other government agencies more directly responsible for their proper interpretation, particularly the Department of Justice or Office of the Government Corporate Counsel, which under PD 1415, is the principal law office of all government-owned or controlled corporations created by special law. llcd Regarding your request for exemption from the registration requirements under the Revised Securities Act (RSA), please be advised that under Section 5 (a-3) thereof, shares of stocks of " banking institutions " are exempt per se from registration. The RSA provides thus: "SECTION 5. Exempt securities . (a) Except as expressly provided, the requirement of registration under Section four of this Act shall not apply to any of the following classes of securities: xxx xxx xxx 3. Any security issued or guaranteed by any banking institutions authorized to do business in the Philippines, the business of which is substantially confined to banking or financial institution licensed to engage in quasi-banking, and supervised by the Central Bank. ..." (Emphasis supplied) Accordingly, registration under the RSA of the shares of stock of AAIIBP with the SEC is not necessary. The philosophy behind the exemption is that the issuance of securities by a " banking institution " is already supervised and regulated by the Bangko Sentral. Thus, it is suggested that you communicate directly with that Office for further information as to its requirements for the issuance of shares of stock by a banking institution. Very truly yours, (SGD.) PERFECTO R. YASAY, JR. Chairman