Atty. Jose A. Osana

May 8, 2003 SEC OPINION NO. 20-03 Atty. Jose A. Osana SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City S i r : This refers to your letters dated April 1 and 8, 2003 finally disclosing information vital to the formulation of our position on your query which we addressed in SEC Opinion No. 9, Series of 2003 dated March 21, 2003. In your April 1, 2003 letter, you reiterated your query if stockholders comprising less than 1% of the total capital stock who failed to attend a special meeting to decrease capital stock can be considered "prima facie" to have consented to the resolution approving the decrease in capital stock for the purpose of returning capital to one specific stockholder. In your succeeding letter dated April 8, 2003, you disclosed that the company involved is Cosmos Bottling Corporation (CBC). You further inquired whether CBC may be considered to have complied with the requirement of consent of all stockholders when all the stockholders present and representing more than 99% of the outstanding capital stock approved the proposal to decrease the Authorized Capital Stock and returned the capital to Atlantic Industries (AI) while the remaining stockholders representing less than 1% failed to attend such meeting despite due notice and publication. Your request is based on an SEC Opinion dated August 7, 1998 that requires the consent of all stockholders in case of a return of capital to any stockholder. cHaADC Let us start first with the first clarificatory query. We cannot confirm that non-attendance to the special meeting to decrease capital stock as "prima facie" consent in the aforementioned decrease. Our explanation follows the same reasoning we have stated in SEC Opinion No. 9, Series of 2003 (see first paragraph of page 2). Stockholders who received notice of the meeting but were absent shall be bound by all resolutions voted upon during the said meeting wherein a quorum was present and regularly convened in compliance with law and the by-laws but should not be considered as joining the majority in their decision. At best, they are bound. Anent the second clarificatory question, whether CBC can be considered to have complied with the requirement of consent of all stockholders when all the stockholders present and representing more than 99% of the outstanding capital stock approve the proposal to decrease the Authorized Capital Stock, it is our view that they have "substantially complied". Our policy requiring consent of all stockholders is based on the ruling that "[u]nless the statute authorizing a reduction of capital stock provides otherwise, or clearly implies otherwise, the reduction must operate equally on all stockholders or, at least, on all holders of the same class of stock (18A Am. Jur 2d (1985) 478, quoting Theis v. Durr, 125 Wis 651, 104 NW 985) The reduction must be so effected that the right of the individual stockholder to a proportionate voice in the conduct of the affairs of the corporation and the equitable interest in its property which the stock gives him when he becomes a stockholder, are preserved, unless the statute in effect at the time the stockholder obtains his stock prescribes otherwise ( Idem, quoting Page v. American & British Mfg. Co., 129 App Div 346, 113 NYS 734 ). Where the reduction is to be effected by acquiring stocks from stockholders who desire to sell, the stock must be acquired ratably from all stockholders who desire to sell without giving preference to anyone" ( Idem, quoting Iback v. Elevator Supplies Co. 118 NJ Eq 90. 177 A 458 ). DEHaTC We would impose the consent of all stockholders under normal circumstances, specially in closely held corporations. However, given that CBC is a widely held corporation where there seems to be a statistical impossibility of getting all to attend special meetings and consent to the decrease, even with utmost diligence, we have to relax the rule. In CBC's case, you represent that there are less than 1% who did not attend the meeting despite due notice and publication, we find the same impressed with reasonableness to merit substantial compliance. Likewise, you represent that the decrease shall be undertaken to return the entire shareholdings of AI amounting to P1,411,577,280. The return of capital shall be in the form of trademark amounting to P208,511,618.32. The excess of the par value of the Common shares of AI over the value of the trademarks shall be recognized in the books of CBC as an increase in Stockholders Equity in the form of additional paid-in capital. As a result, the remaining stockholders' percentage of ownership shall increase and their equity shall likewise increase in view of the additional paid in capital arising from such return of capital. We therefore find the same not inimical to the interest of the stockholders. Because this opinion is based upon the representations made to this office in your letters, it should be noted that any different facts or conditions might require a different conclusion. Furthermore, this view only expresses this Office's position on the issue of the "consent of all stockholders in a decrease of capital stock" and does not purport to express any approval on the planned decrease of authorized capital stock. This opinion likewise does not take into consideration the opinion of creditors and its implication on the Trust Fund Doctrine. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel