Meralco Industrial Engineering Services Corporation

December 14, 1984 Meralco Industrial Engineering Services Corporation Lopez Building, Ortigas Avenue Pasig, Metro Manila Attention : Mr . Marcelo M . Fernando Corporate Secretary Gentlemen: This refers to your letter dated November 6, 1984, explaining the additional subscription of P2,500,000.00 issued by the above-named corporation without prior authority from the Commission. You alleged that the 25,000 shares worth P2,500,000.00 was issued on March 31, 1982 to MERALCO, a stockholder of the corporation. Since the same was sold exclusively to its stockholder, you believe that the issuance constitutes an exempt transaction under Section 6 (4) of the Revised Securities Act, hence, request for exemption is not necessary. In connection therewith Section 6 (4) of the Revised Securities Act provides: "SECTION 6. Exempt transactions . The requirement of registration under subsection (a) of Section four of this Act shall not apply to the sale of any security in any of the following transaction. xxx xxx xxx (4) . . . or the issuance of additional capital stock of a corporation sold or distributed by it among its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale or distribution of such increased capital stock . (Emphasis supplied) The term "additional capital stock" as used in the aforecited provision refers to an increase in capital stock and not to the issuance of additional shares from the unissued but authorized capital stock of the corporation. This interpretation is supported by the use of the term " increased capital stock " in the last sentence of the provision. On the basis of the foregoing the instant transaction is not considered exempt " per se ". The corporation, therefore, in issuing P2,500,000.00 worth of its unissued capital stock without exemption therefrom secured from this Commission, has violated the Revised Securities Act. As to the penalty for such violation the SEC Rules and Regulations Prescribing Penalties for Issuance of Shares Without Prior Permit provides, to wit: "To regulate the sale of securities, by virtue of the powers vested in this Commission under existing laws particularly Section 4 of Commonwealth Act No. 83, as amended, otherwise known as the Securities Act (now BP No. 178, otherwise known as the Revised Securities Act), in relation to Republic Act No. 1143, and more recently, under the provisions of Presidential Decree No. 902-A, the following schedule of fines for the issuance of shares without prior permit is hereby promulgated: 1st violation 2/10 of 1% of the aggregate par or issue value of the securities issued but in no case to be less than P200.00 or more than P20,000.00". (emphasis supplied) xxx xxx xxx Thus, pursuant to the aforecited Rules and Regulations, the corporation is hereby ordered to pay the amount of P5,000.00 as penalty for said violation. llcd Early compliance herewith is requested. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman