Atty. Fe Delos Santos-Quiaoit

August 7, 1991 Atty. Fe Delos Santos-Quiaoit Jardine Davies Inc. Jardine Davies Building 222 Sen, Gil J. Puyat Avenue Makati, Metro Manila M a d a m : This refers to your letter of July 18, 1991, requesting opinion whether a company, whose securities are registered , can issue new shares, either out of unissued shares or by increasing its authorized capital stock, in exchange of shares of another company in order to acquire a majority ownership therein, without violating the pre-emptive right of the shareholders under Section 39 of the Corporation Code. Please be advised that the corporation may issue shares out of the remaining unissued shares provided such unissued shares have already been registered with the Commission. If the issuance will be taken out of an increase of capital stock, prior permit/license of the offering of stock must be secured from the commission. In all cases, unless denied in the articles of incorporation, or the issuance fall under any of the exceptions mentioned in Section 39 of the Corporation Code ,all existing stockholders of record are entitled to exercise their preemptive right to subscribe to the proposed issuance of shares in proportion to their present stockholdings. Likewise, considering that the payment for the issuance of the shares is in the form of property (shares of stock), the same is subject to the condition that such property is necessary or convenient in carrying out the corporate business of the issuing corporation (Section 62 Corporation Code), and considering further that the payment is not in the form of cash, the valuation thereof is subject to the approval by the Commission pursuant to the following provision of the Corporation Code: "Where the consideration is other than actual cash ,or consists of intangible property such as patents or copyrights, the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to the approval by the Securities and Exchange Commission ." (Section 62, Emphasis supplied) Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman