Batangas Sugar Central, Inc.

May 14, 1990 Batangas Sugar Central, Inc. Balayan, Batangas Attention : Mr . Ricardo T . Diaz Gentlemen: This refers to your letter dated March 14, 1990, requesting opinion on the following queries relative to the proposed increase of capital stock of your corporation from P10 Million to P50 Million, to wit: 1. Assuming that the proposed increase had been approved by the Board and Stockholders pursuant to the procedures laid down by law, can the Board of Directors initially make a call for additional subscription of shares of stock worth P10 Million only which is equivalent to 25% of such authorized increase in BSC's capital stock instead of P40 Million, the latter being the amount of the authorized increase, or should the call be for the whole amount of P40 Million? 2. Are the stockholders who exercised their preemptive rights still eligible to subscribe to the shares of stock not subscribed and bought by the other stockholders who waived their preemptive rights? In other words, are they included in the term "any interested persons" acceptable to the corporation to whom such shares may be offered for sale or subscription. 3. Supposing said stockholders can still subscribe to said shares waived by the other stockholders and they cannot agree as to the proportion which each of them may subscribe (with some insisting that it be still in proportion to their respective stockholdings), who will resolve the impasse or disagreement and how should it be done? Anent your first query, the pertinent provision of the Corporation Code provides: "SECTION 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness . . . . Provided that the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate showing that at least twenty five (25%) percent of such increased capital has been subscribed and that at least twenty-five percent (25%) of the amount subscribed has been paid either in actual cash to the corporation or property the valuation of which is equal to twenty-five (25%) percent of the subscription: . . ." The aforecited provision requires that at least 25% of the proposed increased must be subscribed and 25% of the subscription must be paid. Applying the law in your case, at least P10 Million of the proposed increase of P40 Million must be subscribed and P2.5 Million must be paid. Relative to your second query, stockholders who had already exercised their preemptive rights to subscribe to the increase of capital stock are included in the phrase " any interested persons" mentioned in our previous letter, who may be allowed to subscribe to the remaining shares which should have pertained to the non-subscribing stockholders. Regarding your third query, the Commission had previously ruled that if the shares corresponding to one stockholder are not subscribed or purchased by him, it does not follow that said shares should again be offered on the pro-rata basis to stockholders who took advantage of their right of preemption. This is because as long as they exercise their preemptive rights, their relative and proportionate voting strength in the corporation will not be affected adversely. Thus, the shares may be offered to non-stockholders of record on a first come first serve basis without violating the preemptive rights of the stockholders. But 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 Opinion dated September 24, 1974, addressed to Atty. Salvador P. De Guzman, Jr. ). In case of disagreement among the interested stockholders, the same should be resolved by the board of directors in a manner that is fair to all concerned. LibLex Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner