Mr. Narmo P. Noblejas

January 2, 1996 Mr. Narmo P. Noblejas Philippine National Bank PNB Financial Centre Roxas Blvd.,Metro Manila S i r : This refers to your letter December 26, 1995 requesting opinion on the following queries relative to the Governments' plan to privatize the Philippine National Bank (PNB). prcd 1. When should the Bank's stockholders elect its new set of members of their Board of Directors: when the proposed Articles of Incorporation and By-laws are submitted to the stockholders for their approval which the Bank Management intends to do in a special stockholders' meeting to be called for this particular purpose come January or February 1996 or should the election be done in the annual meeting of the stockholders after the Securities and Exchange Commission (SEC) had issued the Bank's certificate of incorporation? In this connection, should the Bank set its annual stockholders' meeting on the third Tuesday of April 1996 as provided for in Section 4.2 of the Bank's proposed By-laws in the assumption that the SEC would have approved the same by March of 1996? 2. Can the Bank submit for approval by the stockholders in the annual stockholders' meeting where the new members of the Board of Directors would be elected, the proposal to increase its capital stock even if implementation of said increase would be done at some future date within the year or the year after said stockholders' meeting? Since there is a continuity of the corporate existence of the PNB even after its privatization as opined in our previous opinion dated December 22, 1995 addressed to Atty. Waldo Q. Flores, the incumbent members of the Board elected/appointed under E.O. No. 80 may act as the " incorporating directors " for purposes of registration with the SEC. However, after registration, the "incorporating directors" should call an organizational meeting to elect the " regular directors ". The Corporation Code provides thus: "SECTION 14. Contents of articles of incorporation . All corporations organized under this Code shall file with the Securities and Exchange Commission articles of incorporation in any of the official languages, duly signed and acknowledged by all of the incorporators, containing substantially the following matters, except as otherwise prescribed by this Code or by special law; xxx xxx xxx; 7. The names, nationalities and residences of the persons who shall act as directors or trustees until the FIRST REGULAR DIRECTORS or trustees are duly elected and qualified in accordance with this Code ; ..." (Emphasis provided) The above provision is explicit that the " incorporating directors " shall only act as directors until the first " regular directors " are duly elected and qualified in accordance with the provisions of the Corporation Code .Hence, after registration with the SEC, PNB should call an organizational meeting to elect the " regular Board " in the manner prescribed under Section 24 of the Corporation Code, the date to be determined by the incorporating directors. Thereafter, the regular directors shall be elected annually on the date fixed by the corporate by-laws approved in accordance with the Corporation Code. Relative to your second query, Section 38 of the Corporation Code provides: "SECTION 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness . No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at a stockholders' meeting duly called for the purpose ,two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating or increasing of any bonded indebtedness and of the time and place of the stockholders' meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to b considered, must be addressed to each stockholder at his place of residence as shown on a books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally. ..." (Emphasis supplied) The above provision requires that written notice stating the purpose, time and place of the meeting increasing the capital stock must be sent to each stockholder of record. Thus, for as long as the required written notice is complied with, a proposed increase of capital stock may be submitted to the stockholders for consideration during an annual stockholders meeting. However, such increase of capital stock, pursuant to Section 38 of the Corporation Code quoted hereunder, shall become effective only after approval by the SEC. "Any increase or decrease in the capital stock of the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission . ... From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its Certificates of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare." (Emphasis supplied) Take note further that under Section 17 of Corporation Code, no amendment to the articles of incorporation of banks shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the Bangko Sentral to the effect that such amendment is in accordance with law. cdlex Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner