Mr. Fernando C. Santico

October 1, 1981 Mr. Fernando C. Santico President, CESO Financing, Inc. c/o Administrative Office Malacaang, Manila Sir : This has reference to your letter dated September 3, 1981, wherein you presented the following queries: 1.(a). May stockholders enumerated in the articles of incorporation subscribe for additional shares out of the unissued shares, and if so the requirements and the necessary fees therefor. Under Section 39 of the Corporation Code of the Philippines, 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 shareholdings unless such right is denied by the articles of incorporation or an amendment thereto. The term "stockholders" referred to therein includes stockholders at the time of incorporation as well as those whose names appear in the stock and transfer book on the date of the meeting authorizing the issuance. Although issuance of shares out of the unissued portion of its capital stock to its stockholders constitutes an exempt transaction under Sec. 6, paragraph (d) of the Securities Act, an exemption therefor has to be secured first. The Commission, pursuant to Section 5, paragraph (b) of the Securities Act, has outlined the following procedures and requirements relative thereto. 1. A letter-petition signed by the president or his authorized agent requesting exemption from registration and/or licensing of the securities to be sold or disposed of stating the names of the particular purchasers and number of shares, the issue value thereof, and the nature of consideration whether cash or property. 2. Copy of the resolution of the Board of Directors, authorizing the issuance of shares applied for. 3. If the consideration for the issuance of shares is in property, submit the following: (a) Deed of Assignment and if it is a real property, the copy of said deed of assignment duly stamped by the Register of Deeds of the province where the property is located; and (b) the valuation report of a licensed realtor. 4. Waiver of non-subscribing stockholders. 5. Remittance of exemption fee for an amount equivalent to one-tenth of one percent of the aggregate par or issued value of the securities to be issued but not less than P100.00 or more than P20,000.00. 1.(b). Would such subscription require the consent of the other stockholders. Since the power to issue shares of stock in a corporation is not one of those expressly granted to the stockholders under the Corporation Code, such additional issuance/subscription does not need prior approval by the stockholders. It is only necessary that there be appropriate resolution of the board of directors authorizing the additional issuance of the shares. 2.(a) Is the corporation authorized to accept subscription aside from the original subscribers but to qualified persons enumerated under Sec. 2, Article II of your By-Laws. Even if the purchasers thereof are non-stockholders but are close business associates of the stockholders or their relatives who are aware of the nature of the business of the corporation and do not exceed 20 persons, the Commission may grant exemption from issuance of shares in which case, the procedure and requirements mentioned earlier shall be followed. But where the purchasers exceed 20 in number, registration and/or licensing of your securities with this Office in accordance with Section 4 of the Securities Act is necessary. 2.(b) May waiver of pre-emptive rights be dispensed with, or if not, may the Board of Directors exercise said waiver in behalf of all stockholders of the corporation or may waiver by stockholders owning majority shares be enough. Section 39 of the Corporation Code of the Philippines, provides, in part: " 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 shareholdings, unless such right is denied by the articles of incorporation or amendment thereto ...". Thus, unless specifically denied in the articles of incorporation, all stockholders have the pre-emptive right to subscribe to such additional issuance. Consequently, the waivers of non-subscribing stockholders are necessary. Being a personal right, such waiver should be executed individually by the stockholders concerned or he may authorize somebody to execute the same for and in his behalf by way of a special power of attorney. Please be guided accordingly. prcd Very truly yours, (SGD.) ROSARIO N. LOPEZ Associate Commissioner