GABBY

(1:11:01- 1:37:00)

Not Subject to Tender Offer

1. Purchase of securities taken from the unissued capital stock of corporation. Remember we
have the authorized capital stock and subscribed capital stock. The difference between
subscribed and authorized is the so called unissued portion of the authorized capital stock.
The shares is to be taken from that portion of authorized capital stock is not subject to tender
offer, as long as the acquirer or subscriber does not own 50 percent or more of the equity
securities of the public company. If more than 50 percent then it is subject to tender offer.

2. Purchase of subscription of shares in case of increase of capital stock regardless of the number
of shares acquired by reason of increase is not subject to tender offer. Why? Because
subscribers have the pre-emptive right to subscribe to this shares.

3. Foreclosure of mortgage. So a creditor or mortgagee can foreclose a mortgage regardless of

number of shares and regardless of the percentage it will own in the public company without
having to make an offer to SH to buy their shares. Otherwise you input a penalty on the
remedies of the mortgagee from foreclosing the mortgage.

4. Purchase on privatization undertaken by the Government of the Philippines. Privatization- it

make a GOCC into a private corporation. Example: UCPB is a public bank. So if the shares is
sold to investors. Let’s say the BDO, then the latter says that it will not acquire the bank unless
I have control, but the acquirer/investor is not subject to tender offer. Otherwise the
privatization plan of the government will never be implemented.

5. Rehabilitation. For example, the receiver recommends that the best way to rehabilitate the
debtor is to invite third party investor or white knight to be a SH in the company. But if a white
knight says that I will buy the company but with veto power or I need to buy 35% or 51%then
that will be subject to tender offer. Here, the debtor cannot be rehabilitated if he is subjected
to tender offer.

6. Open Market-shares acquired through stock exchange

7. Merger or Consolidation

Remember when I told you about Equitable Bank bought about 72% OCS of PCI bank the SEC required us
to make a tender offer because it amounted to more than 50% of PCI Bank, a public company. There are
2 reasons cited why we should not be subject to a tender offer. First, at that time it is not in the law but
only an implementing regulation. Second, if you force us to buy the remaining shares of the minority or
38%, we will be violating a Gen Banking Law limitation on the investment on equity of a bank to another
bank. But these reasons will no longer hold because tender offer is already part of the SRC.
 If you may ask me, the law says 50% within 12 month period and 30% regardless of its period. How come
it is not increased to 35%? The SEC has the power to increase the threshold limit. So pursuant to the rule
making power of the SEC to increase the threshold number to 35%, no more than 50% of the mandatory
tender offer transaction.

Short Swing Transaction

What is Short Swing Transaction? Basically it is the sale and purchase of the securities within a 6-month
period by a director, officer, SH owning more than 10% of a public company. And any profit arising from
this transaction inures to the benefit the issuer to prevent the unfair use of the inside information of the
director, officer or SH. The issuer has the right to get the profits. So a SH may request the corporation to
recover the short swing profit if the corporation does not act within 60 days from demand then the SH
may file an action to recurve the profits in behalf the corporation as long as it is not beyond 2 yrs from
the time of the transaction. This is different from insider trading. In insider trading, it covers the
constructive insider while in this case, it only covers the director, officer or SH of a public company. So if
the lawyer of the company buy and sell shares, he is not required to

Are there exemptions, or cases when the profits will not inure to an issuer?

1. When the transactions done by dealers in securities, why? Because the dealers in securities are engaged
in the business in buying and selling shares;

2. If the buying and selling done to liquidate a bona fide debt in good faith.

Proxy Solicitation

When you solicit proxy from the public, you need to file a Proxy Statement, which disclose your intention
to solicit a proxy from the public.

If a broker holding shares in the account of customer gives the proxy to another. What are the
requirements? He must get the written consent of the beneficial holders before he can give the proxy.

What are the limitations for the issuance of proxy for company?

1. Must be in writing
2. Signed by the SH
3. Filed with corporate secretary before the SH meeting
4. Valid only for meeting intended unless general in nature
5. Broker must obtain the written consent

Q: Which court or agency that has jurisdiction with regard to admission or rejecting proxy RTC or SEC?

A: GSIS v CA (2009); SEC v CA (2014). It depends, the SC said that if the proxies are used in election of
directors, then it is an election contest, then it is cognizable by the RTC. Otherwise, it is the SEC which has
jurisdiction.
Q: What are the remedies available to SEC in case of violation of the SRC?

A: 1. Administrative Remedies
a. Cease and desist order (CDO)
b. Sanctions against directors, officers to disqualify them

2. Criminal Remedies
May file a complaint before the DOJ against those who violated the SRC

3 provisions in SRC related to the issuance of CDO

 Sec 5.1-CDO is issued to prevent grave and irreparable injury to the public in case of fraud
 Section 53.3-
 Section 64.1- if the act to be performed constitute fraud which cause grave and irreparable injury

Manila Holders Case

SC said that the CDO can be issued motu proprio upon SEC internal examination and investigation that
it cause grave injury to the investing public.

GSIS v. CA (GSIS, LOPEZ and MERALCO)

GSIS engaged our services to wrest control of MERALCO from the Lopez Family. It is simple, you need
to have more directors than the Lopez family. Lopez family have about 41 % and GSIS have 44%, but
the Lopez family gets proxies every year, so they end up having more seats. I suggested that we need
to find a way to disqualify the proxies to gain control of MERALCO. There are proxy regulations that
were not complied by the Lopez Family. Remedy is to restrain the use of the proxy.
Next question is where do we get the CDO or injunction? You can file it in the principal office of the
GSIS. It is an intercorporate controversy which is the same with the civil action where venue is the
residence of the complainant. We file an action with RTC Pasay. After we filed the action, we
withdrew it and filed a petition with the SEC. Those proxies are void because it did not comply with
the requirements.
Next question, when do you send the CDO? After the quorum is certified by the Corporate Secretary
in a meeting.
SC said that the proxies in connection with the election of directors, RTC has jurisdiction. So we
should have filed it before the RTC not the SEC.