Corporation Law

RESTRICTIONS ON EXTENT OF FOREIGN OWNERSHIP

DOING BUSINESS

SHALL INCLUDE 1. soliciting orders, 2. service contracts, 3. opening offices, whether called "liaison" offices or branches; 4. a p p o i n t i n g r e p r e s e n t a t i v e s o r distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling 180 days or more; 5. participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and 6. any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization SHALL NOT INCLUDE 1. mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or 2. the exercise of rights as such investor; nor 3. having a nominee director or officer to represent its interests in such corporation; nor 4. a p p o i n t i n g a r e p r e s e n t a t i v e o r distributor domiciled in the Philippines which transacts business in its own name and for its own account;

EXPORT ENTERPRISE

• a manufacturing, processing or service (including tourism) enterprise, which exports 60% or more of its output, or • a trader which 1. purchases products manufactured domestically or 2. export 60% or more of such purchases UNLESS participation of non-Philippine nationals in the enterprise is • prohibited or limited to a smaller percentage by existing law and/or • limited to a smaller percentage by existing law and/or under the provisions of this Act.

NOTE:

The SEC or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign ownership in an enterprise additional to those provided in this Act:

P r o v i d e d , h o w e v e r, T h a t a n y enterprise seeking to avail of incentives under the Omnibus Investment Code of 1987

must apply for registration with the Board of Investments (BOI), which shall process such application for registration in accordance with the criteria for evaluation prescribed in said Code:

Provided, finally, That a non-Philippine national intending to engage in the same line of business as an existing joint venture in his application for registration with SEC. During the transitory period as provided in Section 15 hereof, SEC shall disallow registration of the applying non-Philippine national IF the existing joint venture enterprise, particularly the Filipino partners therein, can reasonably prove they are capable to make the investment needed for they are competing applicant.

Upon effectivity of this Act, SEC shall effect registration of any enterprise applying under this Act within fifteen ( 1 5 ) d a y s u p o n s u b m i s s i o n o f completed requirements

SEC REGISTRATION FOR CORPORATIONS AND PARTNERSHIPS

•certified copy of board resolution a. authorizing the establishment of Phil office b. designating Resident Agent c. stipulating that in absence of such agent or un cessation of Philippine Business, SEC shall receive summons and legal processes.

•

LIST C

shall contain the areas of investment in which existing enterprises • already serve adequately the needs of the economy and the consumer and • do not require further foreign investments, as determined by NEDA applying the criteria provided in Section 9 of this Act, approved by the President and p r o m u l g a t e d i n a P r e s i d e n t i a l Proclamation.

The Transitory Foreign Investment Negative List established in Sec. 15 hereof shall be replaced at the end of the transitory period by the first Regular Negative List to the formulated and recommended by the NEDA, following the process and criteria provided in Section 8 and 9 of this Act. The first Regular Negative List shall be published not later than sixty (60) days before the end of the transitory period provided in said section, and shall become immediately effective at the end of the transitory period. Subsequent Foreign Investment Negative Lists shall become effective fifteen (15) days after publication in two (2) newspapers of general circulation in the Philippines: Provided, however, That each Foreign Investment Negative List shall be prospective in operation and shall in no way affect foreign investments existing on the date of its publication.

A m e n d m e n t s t o L i s t B a n d C a f t e r promulgation and publication of the first Regular Foreign Investment Negative List at the end of the transitory period shall not be made more often than once every two (2) years.

Section 9. Determination of Areas of Investment for Inclusion in List C of the Foreign Investment Negative List. -Upon petition by a Philippine national engage therein, an area of investment may be recommended by NEDA for inclusion in List C of the Foreign Investment Negative List upon determining that it complies with all the following criteria:

a) The industry is controlled by firms owned at least sixty percent (60%) by Filipinos; b) Industry capacity is ample to meet domestic demand; c) Sufficient competition exists within the industry; d) Industry products comply with Philippine standards of health and safety or, in the absence of such, with international standards, and are reasonably competitive in quality with similar products in the same price range imported into the country; e) Quantitative restrictions are not applied on imports of directly competing products;

f) The leading firms of the industry substantially comply with environmental standards; and g) The prices of industry products are reasonable.

The petition shall be subjected to a public hearing at which affected parties will have the opportunity to show whether the petitioner industry adequately serves the economy and the consumer, in general, and meets the above stated criteria in particular. NEDA may delegate evaluation of the petition and conduct of the public hearing to any government agency having cognizance of the petitioner industry. The delegated agency shall make its evaluation report and recommendations to NEDA which retains the right and sole responsibility to determine whether to recommend to the President to promulgate the area of investment in List C of the Negative List. An industry or area of investment included in List C of the Negative List by Presidential Proclamation shall remain in the said List C for two (2) years, without prejudice to re-inclusion upon new petition, and due process.

S E C . 4 . S e c t i o n 9 o f t h e F o r e i g n Investments Act of 1991 is hereby amended to read as follows:

"SEC. 9. Investment rights of former naturalborn Filipinos. -For purposes of this Act, former natural-born citizens of the Philippines shall have the same investment rights of Philippine citizens in Cooperatives under Republic Act No. 6938,Rural Banks under Republic Act No. 7353,Thrift Banks and Private Development Banks under Republic Act No. 7906,and Financing Companies under Republic Act No. 5980 g) The term "Foreign Investments Negative List" or "Negative List" shall mean a list of areas of economic activity whose foreign ownership is limited to a maximum of forty ownership is limited to a maximum of forty percent (40%) of the equity capital of the enterprise engaged therein. The term "strategic industries" shall mean industries that are characterized by all of the following: a) Crucial to the accelerated industrialization of the country, b) Require massive capital investments to achieve economies of scale for efficient operations; c) Require highly specialized or advanced technology which necessitates technology transfer and proven production techniques in operations; d) Characterized by strong backward and forward linkages with most industries existing in the country, and e) Generate substantial foreign exchange savings through import substitution and collateral foreign exchange earnings through export of part of the output that will result with the establishment, expansion or development of the industry.

. These rights shall not e x t e n d t o a c t i v i t i e s r e s e r v e d b y t h e

Section 11. Compliance with Environmental Standards. -All industrial enterprises regardless of nationality of ownership shall comply with existing rules and regulations to protect and conserve the environment and meet applicable environmental standards.

Section 12. Consistent Government Action. -No agency, instrumentality or political subdivision of the Government shall take any action on conflict with or which will nullify the provisions of this Act, or any certificate or authority granted hereunder. S e c t i o n 1 3 . I m p l e m e n t i n g R u l e s a n d Regulations. -NEDA, in consultation with BOI, SEC and other government agencies concerned, shall issue the rules and regulations to implement this Act within one hundred and twenty (120) days after its effectivity. A copy of such rules and regulations shall be furnished the Congress of the Republic of the Philippines. Section 14. Administrative Sanctions. -A person who violates any provision of this Act or of the terms and conditions of registration or of the rules and regulations issued pursuant thereto, or aids or abets in any manner any violation shall be subject to a fine not exceeding One hundred thousand pesos (P100,000).

If the offense is committed by a juridical entity, it shall be subject to a fine in an amount not exceeding ½ of 1% of total paid-in capital but prepared by: ronie ablan AAA -BASTE / ATB Section 18. Effectivity. -This Act shall take effect fifteen (15) days after approval and publication in two (2) newspaper of general circulation in the Philippines.

SEC. 5. The Foreign Investments Act is further amended by inserting a new section designated as Section 10 to read as follows:

"SEC. 10. Other rights of natural-born citizen pursuant to the provisions of Article XII, Section 8 of the Constitution. -Any naturalborn citizen who has lost his Philippine citizenship and who has the legal capacity to enter into a contract under Philippine Laws may be a transferee of a private land up to a maximum area of five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land to be used by him for business or other purposes. In the case of married couples, one of them may avail of the privilege herein granted: Provided, That If both shall avail of the same, the total area acquired shall not exceed the maximum herein fixed. "In case the transferee already owns urban or rural land for business or other purposes, he shall be entitled to be a transferee of additional urban or rural land for business or other purposes which when added to those already owned by him shall not exceed the maximum areas herein authorized. "A transferee under this Act may acquire not more than two [2] lots which should be situated in different municipalities or cities anywhere in the Philippines: Provided, That the total land area thereof shall not exceed five thousand [5,000] square meters in the case of urban land or three [3] hectares in the case of rural land for use by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified form acquiring rural land and vice versa."

) ; f o r investment purposes T H E F F A R E D E E M E D PHILIPPINE NATIONAL UNDER RA7042

• a corporation organized under Phil Laws of which 60% of the capital stock outstanding and entitled to vote is owned and held by Filipino Citizens • a corporation organized abroad a n d r e g i s t e r e d a s d o i n g business in the Phil under Corp Code of which 100% of the capital stocks entitled to vote belong to Filipinos PROVIDED: 60% of the members of the BOD must be Filipino Citizens GRANDFATHER RULE is a method of determining the nationality of the corporation which in turn is owned by another corporation by breaking down the equity structure of the shareholders of the corp.

THIS APPLY ONLY WHEN

if the filipino equity is less than 60% of the outstanding capital of a corp that own shares in partially nationalized enterprise-at least 60% must be own by Filipinos FORMULA ewan:

• AS TO CRIMINAL LIABILITY; they cannot be held criminally liable under RPC, as corp is incapable of intent. likewise be held liable for spl, as criminal liability under special law is personal in nature. lastly, the penalty of imprisonment cannot be imposed. HOWEVER; for any violation of the Corp Code, it may result to their dissolution. ALSO; when a law specifically p r o v i d e s , a n d t h e y c a n b e prosecuted and if found to be liable, imposed upon them a penalty of fine.

• AS TO MORAL DAMAGES; generally, corporation cannot claim moral damages, as being an artificial being only, it does not have feelings and mental state, to claim mental sufferings. EXE: besmirched reputation, corporation may recover moral damages under Art. 2219 (7) if it was the victim of defamation.

CREATED BY OPERATION OF LAW

CONCESSION THEORY

corporation is an artificial creature without any existence until it has registered the imprimatur of the State acting according to law, through SEC. IN SHORT: the life of the corp is a concession made by the state.

FRANCHISE OF CORPORATION

PRIMARY, CORPORATE OR GENERAL FRANCHISE • the franchise to exist as a corporation • vested in: the individuals who compose the corporation and not in the corporation itself.

SPECIAL OR SECONDARY FRANCHISE • certain rights and privileges granted to the corporation upon on its existence • vested in: the corporation • can be conveyed or mortgaged under general power granted to corporation to dispose of its property EXE: such special or secondary franchises as are charged, with a public use. • subject to levy and execution sale

HOW CREATED

GENERAL LAW (Private Corp)

created under the provisions of Corp Code -by filing the appropriate AOI before the SEC.

SPECIAL LAW (Public Corp)

NOTE: a private corporation may be created by special law (as an exe to the rule) -GOCCs

RIGHT OF SUCCESSION

AS TO THE LEGAL STATUS

DE JURE CORP; corporation organized in accordance with the requirements of the law -strict and substantial compliance with the statutory reqs -right to exists cannot be successfully attacked, even by direct proceedings DE FACTO CORP; a corp where there exists a flaw in its incorporation.

-not substantial compliance, as it would result to a de jure corp. colorable compliance results in de facto corp.

-one which actually exists for all practical purposes as a corporation, but which has o legal right to corporate existence as against the State.

-attacked by direct proceedings.

REQ: 1. the existence of a valid law u n d e r w h i c h t m a y b e incorporated 2. an attempt in gf to incorporate 3. use of corporate powers minimum req of continued gf -i s s u a n c e o f c e r t i fi c a t e o f incorporation by the SEC CORPORATION BY ESTOPPEL; group of persons which holds itself out as a corp and enters into a contract with a third p e r s o n s o n t h e s t r e n g t h o f s u c h appearance, cannot be permitted to deny its existence in an action under said contract.

NOTE:

• t h e l i a b i l i t y o f t h o s e w h o assumes to act as a corporation knowing it to be without authority -liable as general partners

• the liability of those who are not aware of the defect -liable only to the extent of their investment • estoppel does not only apply to those who assumes the power of a corporation, it likewise apply to those w h o d e s p i t e o f t h e knowledge of the defects, impliedly assented to or took advantage to the contract it entered to with an ostensible corp.

CORPORATION BY PRESCRIPTION; a corporation that was not formally organized as such but has been duly recognized by immemorial usage as a corporation, with rights and duties maintainable at law. NON-STOCK CORP a corporation which does not issue stocks and does not distribute dividends to their members

When a change in the corporate name is approved, the Commission shall issue an ---> a m e n d e d c e r t i fi c a t e o f incorporation under the amended name. PROVIDED: That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) EXE: there are justifiable r e a s o n s f o r a n e a r l i e r extension -as may be determined by the Securities and Exchange Commission.

The same considerations provided for in this section, insofar as they may be applicable, may be used for the issuance of bonds by the corporation.

ie. Roman Catholic Church

AS TO EXISTENCE

STOCK CORP

AS TO INCORPORATION

DOMESTIC CORP; corporation formed, organized or existing under Phil Law FOREIGN CORP; a corp formed, organized or existing under any laws other than those of the Phil, and whose law allows Filipino Citizens and corp to do business in its own country or state.

8. the parent corp uses the property of the subsidiary as its own 9. the dir or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corp. 10. the formal legal req of the subsidiary was not observed.

NOTE: ownership of substantial portion of the OCS in a corp is not enough to apply the doctrine of piercing of veil.

REQUISITES TO JUSTIFY PIERCING OF VEIL 1. dominant control 2. such control used to commit fraud or wrong to perpetuate the violation of a statutory or other positive legal breach of duty, or a d i s h o n e s t a n d a n u n j u s t a c t i n contravention of the plaintiff's legal right 3. that said control and breach of duty must have proximately caused the injury or unjust loss complained of.

THERE IS DOMINANT CONTROL; when

• not mere stock control nor control of fi n a n c e s , B U T o f p o l i c y a n d business practice in respect of the transaction attacked; and • such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own.

INCORPORATORS

those mentioned in the AOI as originally forming and composing the corporation, • having signed the AOI; and • acknowledged the same before the notary public NUMBER: at least 5 but not more than 15 QUALIFICATIONS 1. must be natural person 2. they must be of legal age 3. majority must be a resident of the Phil 4. each must own or subscribe to at least 1 share.

FF NOT INCLUDED IN THE SYLLABUS

CORPORATORS; all the shs and members of a corporation including the incorporators who are still shs

SH AND MEMBERS;

• SHs are persons who hold or own shares in a stock coro • MEMBERS are those who compose the non-stock corp.

DIRECTORS; BOD as the governing body in a stock corp TRUSTEES; BOT as the governing body of a non-stock corp CORPORATE OFFICERS; they are the officers who are identified as such in the Corporation Code, the OI or the By-laws of the corp.

--------------------------------------------CORPORATE NAME

LIMITATIONS:

No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is 1. identical or deceptively or confusingly s i m i l a r t o t h a t o f a n y e x i s t i n g corporation, including internationally known foreign corporation though not used in the Phil. 2. to any other name already protected by law; or 3. is patently deceptive, confusing or contrary to existing laws, morals or public policy.

R E Q U I S I T E S I N A S S A I L I N G T H E

M I N I M U M C A P I T A L S T O C K A N D SUBSCRIPTION REQUIREMENT

Minimum capital stock required of stock corporations. SHALL NOT BE REQ: to have any minimum authorized capital stock EXE: as otherwise specifically provided for by special law, and subject to the provisions of the following section.

Amount of capital stock to be subscribed and paid for the purposes of incorporation.

AT THE TIME OF THE INCORPORATION -At least 25% of the authorized capital stock as stated in the articles of incorporation must be subscribed HOW MANY OF SUCH SUBSCRIBED ACS THAT MUST BE PAID at least 25% of the total subscription, PROVIDED HOWEVER THAT in no case shall the paid-up capital be less than P5,000.00 pesos.

the balance to be payable • on a date or dates fixed in the contract of subscription without need of call, or • in the absence of a fixed date or dates, upon call for payment by the board of directors:

CONTENTS OF AOI

• The name of the corporation; • The specific purpose or purposes for w h i c h t h e c o r p o r a t i o n i s b e i n g incorporated.

Where a corporation has more than one stated purpose, the articles of incorporation shall state which is the primary purpose and which is/are he secondary purpose or purposes: Provided, That a non-stock corporation may not include a purpose which would change or contradict its nature as such; • The place where the principal office of the corporation is to be located, which must be within the Philippines; • The term for which the corporation is to exist; • The names, nationalities and residences of the incorporators; • The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15) The following are grounds for such rejection or disapproval: 1. T h a t t h e a r t i c l e s o f i n c o r p o r a t i o n o r a n y amendment thereto is not substantially in accordance with the form prescribed herein; 2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, i m m o r a l , o r c o n t r a r y t o g o v e r n m e n t r u l e s a n d regulations; 3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/ or paid if false; 4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by e x i s t i n g l a w s o r t h e Constitution. 5. No articles of incorporation or amendment to articles of i n c o r p o r a t i o n o f b a n k s , banking and quasi-banking institutions, building and loan associations, trust companies a n d o t h e r fi n a n c i a l intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws shall be accepted or approved by the Commission UNLESS

accompanied by a f a v o r a b l e recommendation of t h e a p p r o p r i a t e government agency to the effect that such articles or amendment is in accordance with law.

prepared by: ronie ablan AAA -BASTE / ATB ex: for #1: hence, bawal yung permanent seat sa BOD for #2: in case of conflict between by-laws and AOI, AOI prevails for #4: kaya bawal when the court disallowed absolute rectification on right to transfer or which would violate the security of tenure of its employee by declaring their position as nonexistent.

BINDING EFFECTS

BY-LAWS IS BINDING not only to the corporation, but as well as on its shs, members, and those having direction, management and control of its affairs.

THIRD PERSON; is bound only when he has an actual knowledge of the by-laws of a corporation NOTE: the law does not require third persons to investigate the bylaws of a corp -as it merely provisions for the government of a corporation and notice ti them will not be presumed. CONTENTS OF BY LAWS 1. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees; 2. The time and manner of calling and conducting regular or special meetings of the stockholders or members; 3. The required quorum in meetings of stockholders or members and the manner of voting therein; 4. The form for proxies of stockholders and members and the manner of voting them; 5. T h e q u a l i fi c a t i o n s , d u t i e s a n d compensation of directors or trustees, officers and employees; 6. The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof; 7. The manner of election or appointment and the term of office of all officers other than directors or trustees; 8. The penalties for violation of the bylaws; 9. In the case of stock corporations, the manner of issuing stock certificates; and 10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs.

AMENDMENT OR REVISION

REQ:

1. The board of directors or trustees, by a majority vote thereof, and 2. the owners of at least a majority of the outstanding capital stock, or at least a majority of the members of a non-stock corporation, at a regular or special meeting duly called for the purpose (but shs may delegate this power to the BOD) 3. amendment or new by-laws shall be attached to the original by-laws in the office of the corporation, and a copy thereof, duly certified under oath by the corporate secretary and a majority of the directors or trustees, shall be filed with t h e S e c u r i t i e s a n d E x c h a n g e Commission the same to be attached to the original articles of incorporation and original by-laws.

POWER TO EXTEND OR SHORTEN CORPORATE TERM

A private corporation may extend or shorten its term as stated in the articles of incorporation when 1. approved by a majority vote of the board of directors or trustees 2. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: 3. ratified at a meeting by the stockholders representing at 2/3 of the OCS or by at 2/3 of the members in case of non-stock corporations.

IN CASE SHOULD

INSTANCES WHERE CONCURRENCE OF THE SHs ARE NECESSARY

2/3 OF OCS or MEMBERS

1. power to increase or shorten corporate term 2. increase or decrease corporate stock 3. increase or decrease bonded indebtedness 4. to deny pre-emptive right 5. sell, dispose, lease, encumber all or substantially all of corporate assets 6. to invest in another corp, business other than the primary purpose 7. to declare stock dividends 8. to amend AOI 9. to enter into management contract: if a. a sh/s representing the same interest of both the managing and the managed corporation owns or control more than 1/3 of the total OCS entitled to vote of the managing corp.; or b. a majority of the members of the OD of the managing corp also constitute a majority of the member of the BOD of the managed corp.

MAJORITY VOTE OF SHs or MEMBERS

1. to enter into management contract if any of the 2 instances mentioned above in #9 is absent. 2. to adopt, amend or repeal he by-laws FF MATTERS WHICH ARE VESTED SOLEY TO THE SHs 1. delegate to he board the powers to amend by-laws (2/3 OCS) 2. revoke the power of the board to amend the by-laws (MAJORITY)

POWER TO INCREASE OR DECREASE CAPITAL STOCK OR CREATE OR I N C R E A S E A N Y B O N D E D INDEBTEDNESS

NAURE: inherent power

REQUIREMENTS:

1. approved by a majority vote of the board of directors and, at a stockholder's meeting duly called for the purpose, 2/3 of the OCS or members for non-stock corpo shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. 2. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally. 3. A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders' meeting 4. 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 stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twentyfive (25%) percent of the subscription 5. that the rights of corporate creditors are not prejudice 6. a p p r o v a l o f t h e S e c u r i t i e s a n d Exchange Commission 3. in case of decrease; when such would amount to relieving existing subscribers from the obligation of paying for their unpaid subscription without a valuable consideration fir such release. 4. must follow the requirements... NOTE: what happen when the proposed increase of capital stock was not approved by the SEC, as to the additional subscription already paid by the stockholders -such shall be teated as deposit only on future subscription, and the corp shall hold the same in trust until the increase is approved.

1. by a majority vote of its board of directors or trustees, sell, lease, e x c h a n g e , m o r t g a g e , p l e d g e o r otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of m o n e y o r o t h e r p r o p e r t y o r consideration, as its board of directors or trustees may deem expedient, 2. vote of the stockholders representing at least 2/3 of OCS, or in case of nonstock corporation, by the vote of at least t o 2 / 3 o f t h e m e m b e r s , i n a stockholder's or member's meeting duly called for the purpose. NOTE: In nonstock corporations where there are no members with voting rights, the vote of at least a majority of the trustees in office will be sufficient 3. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: 4. must comply with the Bulk Sales Law NOTE: the requirement only applies only when the transaction involves sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, HENCE: IF NOT SUBSTANTIALLY ALL -ratificatory vote the SHs will ot be required

• if the interest of the interlocking director in one corporation is substantial (20% or more stockholding) and his interest in the other corporation or corporations is merely nominal:

REQ: 1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; 2. That the vote of such director or trustee was nor necessary for the approval of the contract; 3. That the contract is fair and r e a s o n a b l e u n d e r t h e circumstances; and

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by • the vote of the SHs representing at least 2/3of the OCS or of at 2/3 of the members in a meeting called for the purpose:

PROVIDED: 1. That full disclosure of the a d v e r s e i n t e r e s t o f t h e directors or trustees involved is made at such meeting: 2. That the contract is fair and r e a s o n a b l e u n d e r t h e circumstances.

CONTENTS OF THE CERTIFICATE

NOTE: with regard to the condition that at least 25% of the ACS must be subscribed, and 25% of which must be paid, -the 25% shall be based on the additional amount by which capital stock is increased, and not the total capital stock that is increased.

NO APPRAISAL RIGHT HERE;

for dissenting sh. RATION: • for increase in capital stock; it would defeat the purpose why this specific power is granted, that is, to raise funds for its operation • for decrease in capital stock; it would result in returning part of the investment of the sh, including those shs who dissented.

DEFINITIONS:

CORPORATE BOND; an obligation to pay a definite sum of money at a future tine at a fixed rate of interest, whether secured or unsecured, evidenced by a written debt instrument called a bond or debenture BONDED INDEBTEDNESS secured by mortgage of corporate property DEBENTURE serial obligation or notes issued on the basis of the general credit if the corporation.

POWER TO DENY PRE-EMPTIVE RIGHT

PRE-EMPTIVE RIGHT OF SHs IN A S T O C K C O R P O R AT I O N ; c a n b e exercised

TO SUBSCRIBE to all issues or disposition of shares of any class,

LIMITATIONS

1. that he can only use his pre-emptive right to subscribe to all issues in p r o p o r t i o n t o t h e i r r e s p e c t i v e shareholdings, 2. when such right is denied by the AOI or an amendment thereto: 3. not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares to be issued in good faith with the approval of the stockholders representing 2/3 of the OCS, in exchange for property needed for corporate purposes or in payment of a previously contracted debt. 4. shares that are being reoffered by the corporation after they were intially offered together with all the share 5. in non-stock corp 6. cannot be exercised twice on the same stock. ie. when the assignor have previously exercised their pre-emptive right to subscribe to new shares.

No voting trust agreement shall be entered into for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.

NOTE: The voting trustee or trustees may vote by proxy unless the agreement provides otherwise. excluding any appreciation or depreciation in anticipation of such corporate action. If within a period of sixty (60) days from the date the corporate action was approved by the stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by 3 disinterested persons,

PRE-EMPTIVE RIGHT OF THE SHs

the preferential right of shareholders to subscribe to all issues or disposition of shares of any class in proportion to their present shareholdings PURPOSE to enable the shareholders to retain his proportionate control in the corporation and to retain his equity in the surplus

PRE-EMPTIVE RIGHT

RIGHT OF FIRST REFUSAL

POWER TO SELL OR DISPOSE OF CORPORATE ASSETS

INSTANCES WHEN RATIFICATORY V O T E B Y T H E S H s W I L L O T B E REQUIRED:

to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and assets 1. if the same is necessary in the usual and regular course of business of said corporation 2. if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business. 3. does not involve all or subtsantially all of corporate assets

WHEN IT IS DEEMED TO INVOLVED ALL O R S U B S T A N T I A L L Y A L L O F CORPORATE ASSETS

the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.

NOTE: corporate assets and property, includes the goodwill of the corporation NOTE: if the merchandise comprise all or substantially all of corporate assets -its purchase by one buyer does not make it as a sale of substantially all of corporate assets.

-yung pencils, di pasok sa definition, rather it is a sale in the regular course of the business.

NOTE: when a publishing house decided to sell all of its machineries for publication, but such only comprise 25% of its total assets, it is still considered as sale of all or substantially all of its assets, as the machineries to be sold is necessary for the conduct of its business, and in selling the same, would make it impossible for the publishing house to continue its business.

t o c o l l e c t o r c o m p r o m i s e a n

indebtedness to the corp arising out of unpaid subscription in a delinquency sale and to purchase delinquent shares sold during the sale. 3. to pay dissenting or withdrawing shs entitled to payment of their shares

I N V E S T C O R P O R AT E F U N D S I N ANOTHER CORP OR FOR PURPOSES OTHER THAN THE PRIMARY PURPOSE

REQUIREMENTS

1. approved by a majority of the board of directors or trustees 2. ratified by the stockholders representing at least 2/3 of the OCS, or by at least 2/3 of the members in the case of nonstock corporations, at a stockholder's or member's meeting duly called for the purpose. 3. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally:

APPRAISAL RIGHT OF DISSENTING SHs -meron

1. must be exercised at reasonable hours no business day 2. the stockholder has not improperly used any information he secured through any previous examination 3. demand made in gf or for a legitimate purpose.

NOTE: when all of the requirements are present and refusal is unjustified, mandamus is a proper remedy.

WHEN SHs/ MEMBERS APPROVAL WOULD BE DISPENSED

the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation EXE: when dividends can be declared out of the capital 1. liquidating dividends; and 2. dividends from investment in wasting asset corporation WASTING ASSET CORPORATION corporations solely or principally engaged in the exploitation of "wasting assets" to distribute the proceeds derived from exploitation of their holdings such as mine, oil wells, patents and leaseholds, without allowance or deduction for depletion.

WHAT ARE THE ITEMS INCLUDED IN UNRESTRICTED RETAINED EARNINGS

ONLY; accumulated profits and gains realized out of the normal and continuous operation of the company AFTER DEDUCTING therefrom distributions of shs and transfer to capital stock or other accounts, and which is 1. not appropriated by its BOD from corporate expansion projects or programs 2. not covered by a restriction for dividend declaration under a loan agreement; and 3. not required to be retained under special circumstances obtaining in the corp such as when there is need for a special reserve for probable contingencies.

IN SHORT: bona fide income founded upon actual earnings or profit or the net income for the year based in the audited financial statements

those derived from transaction not associated with but incidental to or necessary in keeping the business for which the corp was organized. ie. pina rentahan yung isang kwarto ng SGV bldg.

PROVIDED: that this kind alone is not sufficient basis for dividends to be declared.

-still, there must be unrestricted retained earnings. to be deckared out of the retained earnings previously used to support their acquisition PROVIDED: the amount of such retained e a r n i n g s h a s n o t b e e n subsequently impaired by losses.

-as it would convert the corp into both a debtor and creditor for the same amount at the same time, or requiring it to take money or stock from one of its pockets and putting it in another, which is absurd.

W H O A R E E N T I T L E D T O T H E DIVIDENDS

the shs at the time the dividends are declared.

HENCE; should a sh transfer his share to another, after dividends has been declared on the said shares, the transferor is still entitled to the dividends N O T E : a f t e r d e c l a r a t i o n a n d t h e requirements mentioned above above are present -SHS may now demand for its payment.

FF UNREALIZED ITEMS AND ITEMS WHICH ARE NOT AVAILABLE FOR DIVIDEND DECLARATION

• share or equity in net income of the associate or joint venture.

ULTRA VIRES ACTS

acts committed outside the object which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law.

AS DISTINGUISHED FROM

ILLEGAL ACTS -ultra vires act are merely voidable which may be enforced by performance, ratification or estoppel.

-while illegal acts, void talaga and cannot be validated.

UNAUTHORIZED ACTS -or ultra vires acts of the officer. the act may be within the powers of the corporation but not within the powers of the particular officer.

-void ACTS THAT DO NOT COMPLY WITH THE FORMALITIES -when certain formalities prescribed by the AOI or BY-LAWS are not complied with.

-may be valid with respect to 3rd persons. ie. as to the by-laws.

EFFECTS OF ULTRA VIRES ACTS

AS TO EXECUTED CONTRACTS; court will not set-aside or interfere with such contracts (1) year until their successors are elected and qualified.

D O C T R I N E O F C E N T R A L I Z E D MANAGEMENT

BUSINESS JUDGMENT RULE questions of policy or management are solely to the honest decision of the officers and directors of the corp and the court are without authority to substitute their judgment for the judgment of the BOD.

SINCE; the BOD being the manager of the corp, as long as it act in gf, its action is not reviewable by the SEC.

TENURE

YEAR BUT MAY CONTINUE IN A HOLD-OVER CAPACITY; when

• when after the lapse of their 1 year term, no successor has been elected or qualified to the said position.

-shall hold office until an election is held and a qualified candidate is so elected.

-usually dito; merong pending election protest on the outcome of the annual election.

QUALIFICATIONS

1. own (in his own name, and not mere beneficial title)) at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation. Trustees of non-stock corporations must be members thereof. 2. majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines. 3. he must be of legal age 4. possess other qualifications as may be prescribed by the by-laws of the corp.

NOTE: Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director.

DISQUALIFICATIONS

No person convicted by final judgment 1. of an offense punishable by imprisonment for a period exceeding six (6)

A F T E R E L E C T I O N O F T H E DIRECTORS; they must

formally organize by the election of a 1. president, 2. who shall be a director, 3. a treasurer who may or may not be a director, 4. a secretary who shall be a resident and citizen of the Philippines, and 5. such other officers as may be provided for in the by-laws. (2) OTHERWISE: the absence of any provision in the by-laws fixing their compensation, the directors s h a l l n o t r e c e i v e a n y compensation, as such directors, EXE: for reasonable pre diems:

NOTE: Any two

A F T E R T H E E L E C T I O N O F T H E D I R E C T O R S , T R U S T E E S A N D OFFICERS

Provided, however, That any such compensation other than per diems may be granted to directors BY: the vote of the SHs representing at least a MAJORITY of the OCS at regular or special stockholders' meeting.

LIMITATION AS TO THE AMOUNT OF THE COMPENSATION

I n n o c a s e s h a l l t h e t o t a l y e a r l y compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year NOTE: per diem compensation which is reasonably excessive may be recovered by the shs or members' suit.

FIDUCIARY DUTIES AND LIABILITY RULES

FOLD DUTIES OF DIRECTORS

• DUTY OF OBEDIENCE; to direct the affairs of the corporation, only in accordance with the purpose for which tt was organized., as enjoined to them by law, AOI and the By-Laws • DUTY OF DILIGENCE; required to exercise due care in the performance of their functions (otherwise, they can be held liable for patently unlawful acts or the corp or gross negligence or bf in directing the affairs of the corp; jointly and severally)

• DUTY OF LOYALTY; a loyalty that is undivided and an allegiance that is influenced by no consideration other than the welfare of the corp. (see: self-dealing and interlocking directors and doctrine of corporate opportunity)

L I A B I L I T Y O F D I R E C T O R S O R TRUSTEES

C O N T R A C T S B Y S E L F -D E A L I N G DIRECTORS

SELF-DEALING DIRECTOR/TRUSTEES/ OFFICERS; defined

those who personally contract with the corporation in which they are directors.

RATION WHY DISCOURAGED

because of their fiduciary relation with the corp, there can be no real bargaining where the same is acting on both sides of the trade.

STATUS OF THE CONTRACT

VOIDABLE, at the option of such corporation.

NOTE: no need that the corp suffer any damages.

EXE: all the following conditions are present: 1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; 2. That the vote of such director or trustee was nor necessary for the approval of the contract; 3. That the contract is fair and reasonable under the circumstances; and 4. That in case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by • the vote of the SHs representing at least 2/3of the OCS or of at 2/3 of the members in a meeting called for the purpose:

PROVIDED: 1. That full disclosure of the a d v e r s e i n t e r e s t o f t h e directors or trustees involved is made at such meeting: 2. That the contract is fair and r e a s o n a b l e u n d e r t h e circumstances.

prepared by: ronie ablan AAA -BASTE / ATB THE AWESOME NOTES COMMERCIAL LAW CORPORATION CODE of 28 68

VALID; a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone EXE: in cases of fraud, and provided the contract is fair and r e a s o n a b l e u n d e r t h e circumstances

C O N T R A C T S B E T W E E N I N T E R -LOCKING DIRECTORS

WHO ARE INTERLOCKING DIRECTORS when one (some or all) of the directors in one corporation is (or are) a director in another corp.

D O C T R I N E O F C O R P O R A T E OPPORTUNITY

if there is presented to a corporate officer or director business opportunity which 1. corporation is financially able to undertake 2. from its nature, is in line with the corp business and is of practical advantage to it; AND 3. one in which the corporation has an interest or a reasonable expectancy

BOD/T's MEETING

DOCTRINE OF EQUALITY OF SHARES

where the AOI do not provide for any distinction of the shares of stocks, -all shares issued by the corp are presumed to be equal and enjoy the same rights and privileges and are also subject to the same liabilities. specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding five (5) years but shall automatically expire upon full payment of the loan.

PARTICIPATION IN THE MANAGEMENT

EFFECTS OF EXPIRATION OF TERM

Unless expressly renewed, • all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and • the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed canceled and new certificates of stock shall be reissued in the name of the transferors.

REQUIREMENT:

1. in writing and notarized, 2. specify the terms and conditions thereof.

A certified copy of such agreement

shall be filed with the corporation and with the SEC. 4. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made p u r s u a n t t o s a i d v o t i n g t r u s t agreement. 5. The certificate or certificates of stock covered by the voting trust agreement shall be canceled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement.

ABSENCE OF 1-3: ineffective and unenforceable NOTE: The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which shall be transferable in the same manner and with the same effect as certificates of stock.

RIGHT OF EXAMINATION OF THE SH

The voting trust agreement filed with the corporation shall be subject to examination by any stockholder of the corporation in the same manner as any other corporate book or record: P R O V I D E D , T h a t b o t h t h e transferor and the trustee or trustees may exercise the right of inspection of all corporate books and records in accordance with the provisions of this Code.

NOTE: Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in the voting trust agreement, and thereupon shall be bound by all the provisions of said agreement.

C A S E S W H E N S H s ' A C T I O N I S REQUIRED

COMPOSITION:

• one of whom shall be named by the stockholder, • another by the corporation, and • the third by the two thus chosen.

The findings of the majority of the appraisers shall be final, and their award shall be paid by the corporation within thirty (30)

WHO SHALL BEAR THE COST OF APPRAISAL

GEN RULE: by the corp EXE: shall be borne by the SH; when • the fair value ascertained by the appraisers is approximately the same as the price which the corporation may have offered to pay the stockholder In the case of an action to recover such fair value, all costs and expenses shall be assessed against the corporation, UNLESS: the refusal of the stockholder to receive payment was unjustified.

RIGHT TO INSPECT

PRE-EMPTIVE RIGHT ~ see page 17

RIGHT TO VOTE ~ see page 30; as to the limitation

RIGHT TO VITE OVER THE FF KINDS OF SHARES

WHEN NO VOTING RIGHT 1. delinquent shares 2. treasury shares; while in the hand of the treasury 3. fractional share 4. escrow shares; before the fulfillment of the condition NOTE: unpaid shares has right to vote, so long as it is not declared delinquent

S E Q U E S T E R E D S H A R E S ; T E S T WHERE PCGG MAY VOTE ON IT

• whether there is a prima facie evidence showing that the said shares are illgotten and thus belong to the state. • whether there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the OCGG while the main issue us pending with the SB.

HOWEVER; PCGG HAS NO RIGHT TO VOTE ON SAID SHARES; where -it involves funds of public character

R I G H T TO V O T E O F P L E D G O R , MORTGAGOR OR ADMINISTRATOR

In case of pledged or mortgaged shares in stock corporations, the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, UNLESS the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded on the appropriate corporate books.

Executors, administrators, receivers, and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members w i t h o u t n e e d o f a n y written proxy. (having legal title to the stocks of the deceased) NOTE: in non-stock corp dead member who are dropped from the roster in the manner and for the cause provided in the by-laws, are not to be counted in determining the requisite vote in corporate matters or the requisite quorum.

prepared by: ronie ablan AAA -BASTE / ATB

THE AWESOME NOTES

V O T I N G I N C A S E O F J O I N T OWNERSHIP OF STOCK

in order to vote the same, the consent of all the co-owners shall be necessary, UNLESS there is a written proxy, signed by all the co-owners, authorizing one or some of them or any other person to vote such share or shares:

PROVIDED, That when the shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.

NOTE: if no administrator is appointed to the estate of the deceased, the heirs of the deceased may represent the shares.

MANNER OF VOTING

REMEDIAL RIGHTS

INDIVIDUAL SUIT

those brought by the shareholder in his own name against the corporation when a wring is directly inflicted against him.

REPRESENTATIVE SUIT

those brought by the stockholder in behalf of himself and all other stockholder similarly situated when a wrong is committed against a group of stockholder DERIVATIVE SUIT those brought by one or more stockholder/ member in the name and in behalf of the corp to • redress wrongs committed against it, or • protect or vindicate corporate rights whenever the officials of the corp refuses to sue, or the ones to be sued, or has control of the corp.

REQUISITES

1. he was a sh or member at the time the acts or transaction subject of the action occurred and at the tine the action was filed. 2. he exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the AOI, by-laws, laws or rules governing the corp or partnership to obtain the relief he desires 3. no appraisal right are available for the act/s complained of; and 4. t h e s u i t i s n o t a n u i s a n c e o r harassment suit OBLIGATIONS OF STOCKHOLDER 1. liability to the corp for unpaid subscription 2. liability to the corp for interest in unpaid subscription if so required by the by-laws 3. liability to the creditors of the corp for unpaid subscription 4. liability for watered stocks 5. liability for dividends unlawfully paid 6. liability for failure to create corporation LIABILITY TO THE CORP FOR UNPAID SUBSCRIPTION ~ see discussion on Payment of Balance of Subscription

L I A B I L I T Y T O T H E C O R P F O R INTEREST IN UNPAID SUBSCRIPTION

Subscribers for stock shall pay to the corporation interest on all unpaid subscriptions FROM the date of subscription, IF so required by, and at the rate of interest fixed in the by-laws.

If no rate of interest is fixed in the by-laws, such rate shall be deemed to be the legal rate.

LIABILITY TO THE CREDITORS OF T H E C O R P F O R U N P A I D SUBSCRIPTION

LIABILITY FOR WATERED STOCK ~ see Sec. 65

L I A B I L I T Y F O R D I V I D E N D UNLAWFULLY PAID

LIABILITY FOR FAILURE TO CREATE CORPORATION

SUBSCRIPTION AGREEMENT

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed NOTWITHSTANDING the fact that the parties refer to it as a purchase or some other contract.

H O W D O E S O N E B E C O M E S A SHAREHOLDER OF A CORP

1. enter into a subscription contract with an existing coro (upon acceptance, deemed a sh, regardless on whether fully or partially paid the subscription) 2. purchase treasury shares from the corp 3. a c q u i r e s s h a r e s f r o m e x i s t i n g shareholders by sale or any other contract, or acquires shares by operation of law like succession.

KINDS OF SUBSCRIPTION CONTRACT

• P R E -I N C O R P O R A T I O N

CONSIDERATION FOR SUBSCRIPTION AGREEMENT

Consideration for the issuance of stock may be any or a combination of any two or more of the following: 1. Actual cash paid to the corporation; 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued; 3. Labor performed for or services actually rendered to the corporation; 4. Previously incurred indebtedness of the corporation; 5. Amounts transferred from unrestricted retained earnings to stated capital; and 6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.

Where the consideration is other than actual cash, or consists of intangible property such as patents of copyrights, the valuation thereof shall • initially be determined by the incorporators or the board of directors, • subject to approval by the SEC.

The issued price of no-par value shares may be fixed 1. in the AOI or 2. by the BOD pursuant to authority conferred upon it by the AOI or the bylaws, or 3. in the absence thereof, by the stockholders representing at least a MAJORITY of the OCS at a meeting duly called for the purpose.

STOCKS SHALL NOT BE ISSUED UNDER ANY OF THE FF INSTANCES

• for a consideration less than the par or issued price thereof. • in exchange for promissory notes or future service. THE FF ARE WATERED STOCKS; when issued 1. without consideration (bonus share) 2. as fully paid when the corp has received a lesser sum of money than its par or issued value (discounted share) 3. for consideration other than actual cash (property or services), the fair value of which is less than its par or issued value 4. as stock dividend when there are no sufficient retained earnings or surplus to justify it.

W H E N D I R E C TO R S S O L I D A R I LY LIABLE FOR WATERED STOCK

• consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash, valued in excess of its fair value, OR • who, having knowledge thereof, does not forthwith express his objection in writing and file the same with the corporate secretary, SOLIDARILY LIABLE WITH the stockholder concerned to the corporation and its creditors FOR the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. see pg. 165 memaid (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located. • the total amount due shall be credited as paid in full in the books of the corporation. • Title to all the shares of stock covered by the subscription s h a l l b e v e s t e d i n t h e corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code.

T R U S T F U N D D O C T R I N E F O R LIABILITY FOR WATERED STOCK

SITUS OF SHARES OF STOCK

FOR DOMESTIC CORP -it is the Philippines

CLASSES OF SHARE OF STOCK

SALE OF DELINQUENT SHARE

UNLESS • t h e d e l i n q u e n t S H p a y s t o t h e corporation

C A L L B Y R E S O L U T I O N O F T H E BOARD OF DIRECTOR

CERTIFICATE OF STOCKS

it is a written evidence of shares of stock but it is not the share itself.

NATURE

• serves only as a prima facie evidence of ownership and evidence can be presented to determine the real owner of the shares • delivery is essential for its issuance. • Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his attorney-infact or other person legally authorized to make the transfer.

R E Q U I R E M E N T S F O R V A L I D TRANSFER OF STOCK

1. the must be a delivery of the certificate 2. the share must be indorsed by the owner of his agent 3. to be valid and binding to the corp and 3rd persons, the transfer must be duly recorded in the books of the corp. 4. if the mode of transfer is not by delivery, but by deed of assignment, it must be recorded in the books of the corp 5. if made by the agent of the owner of the stocks or by a transferor other than the owner, there must be a spa granting such authority to transfer from the latter.

E F F E C T O F U N R E G I S T E R E D TRANSFER

• valid and binding as to the transferor and transferee • invalid as against 1. corp; unless notice has been given to the corp for the purpose of registration 2. corporate creditors, transferor is still liable 3. attaching or executing creditor of t h e t r a n s f e r o r, a s w e l l a s subsequent purchases in gf, WITHOUT notice of the transfer. • after the expiration of one (1) year from the date of the last publication, if no contest has been presented to said corporation regarding said certificate of stock, the right to make such contest shall be barred said corporation shall cancel in its books the certificate of stock which has been lost, stolen or destroyed and issue in lieu thereof new certificate of stock EXE: WHEN DESPITE OF PRIOR TO THE ONE YEAR PERIOD, CERTIFICATE OF STOCK MAY BE ISSUED the registered owner files a bond or other security in lieu thereof as may be required, effective for a period of one (1) year, for such amount and in such form and with such s u r e t i e s a s m a y b e satisfactory to the board of directors, in which case a new certificate may be issued even before the expiration of the one (1) year period provided herein:

EXE TO EXE: THAT IF

• a contest has been presented to said corporation or • an action is pending in court = regarding the ownership of said certificate of stock which has been lost, stolen or destroyed, the issuance of the new certificate of stock in lieu thereof shall be suspended UNTIL the final decision by the court regarding the ownership of said certificate of stock which has been lost, stolen or destroyed. NOTE: Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, no action may be brought against any corporation which shall have issued certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure abovedescribed.

SHARES OF STOCK

C O N T E N T S O F S T O C K A N D TRANSFER BOOKS

1. all stocks in the name of the shs alphabetically arranged 2. amount paid and unpaid on all stocks and the date of payment of any installment; 3. alienation, sale or transfer of stocks 4. other entries as the by-laws may prescribe if no newspaper is published in such place, then in a newspaper of general circulation in the Philippines, -after sending such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. • A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation.

PERSONS AUTHORIZED TO MAKE E N T R I E S I N T H E S T O C K A N D TRANSFER BOOK

AFTER ALL THE REQUIREMENTS ARE PRESENT

The SEC shall thereupon issue the certificate of dissolution.

VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED (QUASI-JUDICIAL PROCEEDING)

REQUIREMENTS 1. petition for dissolution shall be filed with the SEC 2. The petition shall be signed by a MAJORITY of its BOD or trustees or other officers having the management of its affairs, 3. verified by its president or secretary or one of its directors or trustees, and 4. shall set forth all claims and demands against it, and 5. that its dissolution was resolved upon by the affirmative vote of the SHs representing at least 2/3 of the OCS or by at least 2/3 of the members at a m e e t i n g o f i t s s t o c k h o l d e r s o r members called for that purpose.

IF THE PETITION IS SUFFICIENT IN FORM AND SUBSTANCE the Commission shall, by an order reciting the purpose of the petition, fix a date on or before which objections thereto may be filed by any person, which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order.

Before such date, a copy of the order shall be published • at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city where the principal office of the corporation is situated, or • if there be no such newspaper, then i n a n e w s p a p e r o f g e n e r a l circulation in the Philippines, and a a n a g e m e n t Committee or Rehabilitation Receiver 5. fraud in procuring Certificate of Registration 6. fraud or misrepresentation as to thr paid-up capital of the corp ( 25%-25% requirement) 7. serious mismanagement 8. failure to file required reports OTHER GROUNDS: 1. by expiration of corporate term 2. legislative dissolution 3. quo warranto suit against a de facto corp 4. minority shs' suit for dissolution on justifiable grounds 5. SEC dissolution, upon complaint and after notice and hearing, on the ff grounds: a. the corporation was illegally organized b. continuous inactivity for 5 years c. serious dissension in the corp prepared by: ronie ablan AAA -BASTE / ATB d. commission by the corp of illegal or ultra vires acts or violation of the code NOTE: if the shorten period arrives before the approval of the amended AOI by the SEC, -corp is only deemed dissolved from the time the SEC approved the amendment.

NOTE: the corp is deemed dissolved from the time the SEC amended AOI containing the shortened term, or upon the arrival of the shorten term following its approval.

EFFECTS OF DISSOLUTION 1. transfer of legal title to corporate properties in the shs who become co-owners thereof 2. corporation ceases as a body corporate to continue the business for which it was established 3. the shs are not prevented from conveying their respective shareholdings toward the creation of a new corp to continue the business of the old 4. a dissolved corp cannot be revived, H O W E V E R , t h o s e i n t e r e s t e d m a y reincorporate by re-filing the new AOI and by-laws 5. corporation continues as a bidy corporate for 3 years for purposes of winding-up or liquidation. only from the expiration of the 3 year period that the corp ceases to exist.

METHODS OF LIQUIDATION

AFTER DISSOLUTION it shall be continued as a body corporate for 3 YEARS after the time when it would have been so dissolved, PURPOSE OF THE 3 YEAR PERIOD 1. prosecuting and defending suits by or against it and 2. enabling it to settle and close its affairs, a. to dispose of and convey its property and b. to distribute its assets, DURING SUCH 3 YEAR PERIOD: CORP IS AUTHORIZED AND EMPOWERED TO Convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest.

all interest which the corporation had in the property terminates, 2. the legal interest vests in the trustees, and 3. the beneficial interest in the stockholders, members, creditors or other persons in interest.

AFTER WINDING UP OF CORPORATE AFFAIRS any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located.

R E Q F O R C O R P T O B E A B L E T O DISTRIBUTE ANY OF ITS ASSETS

LIQUIDATION EFFECTED BY THE BOD AND OFFICERS OF THE DISSOLVED CORP

NOTE: their authority is good only within -the 3 year period following the dissolution

L I Q U I D A T I O N E F F E C T E D B Y TRANSFERRING THE CORPORATE ASSETS TO A TRUSTEE OR RECEIVER

NOTE: available only within the 3 years period following the dissolution NOTE: if the 3 year period expires without appointing a trustee -the BOD/T may be permitted to continue as trustees by legal implication to complete the corporate liquidation -or the suit commenced during the 3 year period, upon its lapse, the counsel of record may be considered as a trustee... NOTE: if a trustee was appointed and commenced a suit -he may continue as trustee by legal implication and the suit even after the expiration of the 3 year period. as otherwise, it would allow corporate debtor to unjustly enrich himself at the expense of the dissolved corp.

BY MANAGEMENT COMMITTEE OR REHABILITATION RECEIVER

UPON APPOINTMENT OF MC OR RR

all actions for claims against the corp pending before any such tribunal or board shall ipso fact be suspended.

CLOSE CORPORATION

is a corporation whose AOI provide that 1. All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); 2. all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and 3. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.

V A L I D I T Y O F R E S T R I C T I O N S O N TRANSFER OF SHARES (PARANG RIGHT OF FIRST REFUSAL)

AMENDMENT OF AOI

Any amendment to the articles of incorporation which seeks to delete or remove • any provision required by this Title to be contained in the articles of incorporation or • to reduce a quorum or voting requirement stated in said articles of incorporation -shall not be valid or effective UNLESS approved by the affirmative vote of at least 2/3 of the OCS • whether with or without voting rights, or of such greater proportion of shares as may be specifically provided in the articles of incorporation • for amending, deleting or removing any of the aforesaid provisions, • at a meeting duly called for the purpose.

DEADLOCKS

Notwithstanding any contrary provision in the articles of incorporation or by-laws or agreement of stockholders of a close corporation, if the directors or stockholders are so divided r e s p e c t i n g t h e m a n a g e m e n t o f t h e corporation's business and affairs that the votes required for any corporate action cannot be obtained, with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally, THE SEC upon written petition by any stockholder, shall have the power -to arbitrate the dispute.

In the exercise of such power, the Commission shall have authority to make such order as it deems appropriate, including an order: 1. canceling or altering any provision contained in the articles of incorporation, by-laws, or any stockholder's agreement; 2. canceling, altering or enjoining any resolution or act of the corporation or its board of directors, stockholders, or officers; 3. directing or prohibiting any act of the corporation or its board of directors, stockholders, officers, or other persons party to the action; 4. requiring the purchase at their fair value of shares of any stockholder, either by the corporation regardless of the availability of unrestricted retained earnings in its books, or by the other stockholders; 5. appointing a provisional director; 6. dissolving the corporation; or prepared by: ronie ablan AAA -BASTE / ATB THE AWESOME NOTES COMMERCIAL LAW CORPORATION CODE of 52 68 7. g r a n t i n g s u c h o t h e r r e l i e f a s t h e circumstances may warrant.

PROVISIONAL DIRECTOR • an impartial person who is neither a stockholder nor a creditor of the corporation or of any subsidiary or affiliate of the corporation, and whose further qualifications, i f a n y, m a y b e d e t e r m i n e d b y t h e Commission. • is not a receiver of the corporation and does not have the title and powers of a custodian or receiver. Sec. 105. Withdrawal of stockholder or dissolution of corporation. -In addition and without prejudice to other rights and remedies available to a stockholder under this Title, any stockholder of a close corporation may, for any reason, compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock: Provided, That any stockholder of a close corporation may, by written petition to the Securities and Exchange Commission, compel the dissolution of such corporation whenever any of acts of the directors, officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted.

Sec. 100. Agreements by stockholders. -1. Agreements by and among stockholders e x e c u t e d b e f o r e t h e f o r m a t i o n a n d organization of a close corporation, signed by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and among such stockholders, if such be their intent, to the extent that such agreements are not inconsistent with the articles of incorporation, irrespective of where the provisions of such agreements are contained, except those required by this Title to be embodied in said articles of incorporation.

2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them.

3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall be invalidated as between the parties on the ground that its effect is to make them partners among themselves. 4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors: Provided, That such agreement shall impose on the stockholders who are parties thereto the liabilities for managerial acts imposed by this Code on directors. 5. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance.

D I S T R I B U T I O N O F A S S E T S U P O N DISSOLUTION

its assets shall be applied and distributed as follows:

• All liabilities and obligations of the corporation shall be paid, satisfied and discharged, or adequate provision shall be made therefore;

• Assets held by the corporation upon a condition requiring return, transfer or conveyance, and which condition occurs by reason of the dissolution, shall be returned, transferred or conveyed in accordance with such requirements;

• Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious, benevolent, educational or similar purposes, but not held upon a condition requiring return, transfer or conveyance by reason of the dissolution, s h a l l b e t r a n s f e r r e d o r conveyed to one or more corporations, societies or organizations ENGAGED in activities in the P h i l i p p i n e s s u b s t a n t i a l l y s i m i l a r t o t h o s e o f t h e dissolving corporation according to a plan of distribution adopted p u r s u a n t t o t h i s Chapter;

• Assets other than those mentioned in the preceding paragraphs, if any, shall be distributed in accordance with the provisions of the articles of incorporation or the by-laws,

• to the extent that the articles of incorporation or the by-laws, determine the distributive rights of -members, or -any class or classes of members, or • provide for distribution;

In any other case, assets may be distributed to such persons, societies, organizations or corporations, whether or not organized for profit, as may be specified in a plan of distribution adopted pursuant to this Chapter.

Sec. 95. Plan of distribution of assets. -A plan providing for the distribution of assets, not inconsistent with the provisions of this Title, may be adopted by a non-stock corporation in the process of dissolution in the following manner:

The board of trustees shall, by majority vote, adopt a resolution recommending a plan of distribution and directing the submission thereof to a vote at a regular or special meeting of members having voting rights. Written notice setting forth the proposed plan of distribution or a summary thereof and the date, time and place of such meeting shall be given to each member entitled to vote, within the time and in the manner provided in this Code for the giving of notice of meetings to members. Such plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the members having voting rights present or represented by proxy at such meeting. Chapter II -TRUSTEES AND OFFICERS Sec. 92. Election and term of trustees. -Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or bylaws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of their number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period.

No person shall be elected as trustee unless he is a member of the corporation. Unless otherwise provided in the articles of incorporation or the by-laws, officers of a nonstock corporation may be directly elected by the members. (n) Sec. 93. Place of meetings. -

The by-laws may provide that the members of a non-stock corporation may hold their regular or special meetings at any place even outside the place where the principal office of the corporation is located: Provided, That proper notice is sent to all members indicating the date, time and place of the meeting: and Provided, further, That the place of meeting shall be within the Philippines. (n) (3) c o n s e c u t i v e w e e k s i n a n e w s p a p e r o f g e n e r a l circulation in the Philippines. BUT: absorption of employees may be provided in the merger plan.

-hence, in its absence, the surviving corp cannot be judicially compelled to absorbed the employees of the nonsurviving corp.

B U T S H O U L D T H E Y W E R E

ABSORBED -they are treated as a new employees. hence, Union Shoo Agreement will apply to the,. NOTE: in merger or consolidation, approval of the creditors are not required LIMITATIONS prepared by: ronie ablan AAA -BASTE / ATB Sec. 77. Stockholder's or member's approval. -Upon approval by majority vote of each of the board of directors or trustees of the constituent corporations of the plan of merger or consolidation, the same shall be submitted for approval by the stockholders or members of each of such corporations at separate corporate meetings duly called for the purpose. Notice of such meetings shall be given to all stockholders or members of the respective corporations, at least two (2) weeks prior to the date of the meeting, either personally or by registered mail. Said notice shall state the purpose of the meeting and shall include a copy or a summary of the plan of merger or consolidation. The affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be necessary for the approval of such plan. Any dissenting stockholder in stock corporations may exercise his appraisal right in accordance with the Code: Provided, That if after the approval by the stockholders of such plan, the board of directors decides to abandon the plan, the appraisal right shall be extinguished. Any amendment to the plan of merger or consolidation may be made, provided such amendment is approved by majority vote of the respective boards of directors or trustees of all the constituent corporations and ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members of each of the constituent corporations. Such plan, together with any amendment, shall be considered as the agreement of merger or consolidation. (n) Sec. 4. Corporations created by special laws or charters. -Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable.

Sec. 5. Corporators and incorporators, stockholders and members. -Corporators are those who compose a corporation, whether as stockholders or as members. Incorporators are those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. Corporators in a stock corporation are called stockholders or shareholders. Corporators in a non-stock corporation are called members.

Sec. 6. Classification of shares. -The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-par value shares of stock. Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par value. The board of directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission. Shares of capital stock issued without par value shall be deemed fully paid and nonassessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends. A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements. Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share. Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters: 1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws; 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; 4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation or other corporations; prepared by: ronie ablan AAA -BASTE / ATB THE AWESOME NOTES COMMERCIAL LAW CORPORATION CODE of 66 68 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation. Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights. Sec. 7. Founders' shares. -Founders' shares c l a s s i fi e d a s s u c h i n t h e a r t i c l e s o f incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. The five-year period shall commence from the date of the aforesaid approval by the Securities and Exchange Commission.

Sec. 8. Redeemable shares. -Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. They may be purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions as may be stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing said shares.

Sec. 9. Treasury shares. -Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.

Sec. 18. Corporate name. -Sec. 20. De facto corporations. -The due incorporation of any corporation claiming in good faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding. Sec. 21. Corporation by estoppel. -All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. On who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.

Sec. 22. Effects on non-use of corporate charter and continuous inoperation of a corporation.-If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. However, if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least five (5) years, the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation. This provision shall not apply if the failure to organize, commence the transaction of its businesses or the construction of its works, or to continuously operate is due to causes beyond the control of the corporation as may be determined by the Securities and Exchange Commission.

FORMALITY

EXEMPTED SECURITIES

• Any security issued or guaranteed by the 1. Government of the Philippines, or 2. by any political subdivision or agency thereof, or 3. by any person controlled or supervised by, and acting as an instrumentality of said Government.

• Any security issued or guaranteed by the 1. government of any country with which the Philippines maintains diplomatic relations, or 2. by any state, province or political subdivision thereof on the basis of reciprocity:

PROVIDED, That the Commission may require compliance with the form and content for disclosures the Commission may prescribe.

• Certificates issued by a receiver or by a trustee in bankruptcy d u l y a p p r o v e d b y t h e p r o p e r adjudicatory body.

• Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the 1. Office of the Insurance Commission, 2. H o u s i n g a n d L a n d U s e R u l e Regulatory Board, or 3. the Bureau of Internal Revenue.

• Any security issued by a bank except its own shares of stock.

NOTE:

The Commission may, by rule or regulation after public hearing, add to the foregoing any class of securities IF IT FINDS that the enforcement of this Code with respect to such securities is not necessary in the public interest and for the protection of investors.

EXEMPT TRANSACTIONS

• At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in -> insolvency or bankruptcy.

• By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder selling of offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provision of this Code, to liquidate a bonafide debt, a security pledged in good faith as security for such debt.

• An isolated transaction in which any security is 1. sold, 2. offered for sale, 3. subscription or delivery by the owner therefore, or by his representative for the owner's account, PROVIDED: not being made in the course of repeated and successive transaction of a like character by such owner, or on his account by such representative and such owner or representative not being the underwriter of such security.

• The distribution by a corporation actively engaged in the business authorized by its AOI, of securities to 1. its stockholders or 2. other security holders = as a stock dividend or other distribution out of surplus.

• The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.

• The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, when the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale.

• The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion entitling the holder of the security surrendered in exchange to make such conversion:

PROVIDED, That the security so surrendered 1. has been registered under this Code or was, when sold, 2. exempt from the provision of this Code, and 3. that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall within the class of securities entitled to registration under this Code.

Upon such conversion the par value of the security surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold.

• Broker 's transaction, executed upon customer's orders, on any registered Exchange or other trading market.

• Subscriptions for shares of the capitals stocks of a corporation 1. prior to the incorporation thereof or 2. in pursuance of an increase in its authorized capital stocks under the Corporation Code, PROVIDED 1. no expense is incurred, or 2. no commission, compensation or remuneration is paid or given in connection with the sale or disposition of such securities, and 3. o n l y w h e n t h e p u r p o s e f o r soliciting, giving or taking of such subscription is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its authorized, capital increase.

• The exchange of securities by the issuer with the existing security holders exclusively, PROVIDED no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

• The sale of securities by an issuer to fewer than 20 persons in the Philippines during any 12 month period.

• The sale of securities to any number of the following qualified buyers: 1. Bank; 2. Registered investment house; 3. Insurance company;

Section 14. Amendment to the Registration Statement. -14.1. If a registration statement is on its face incomplete or inaccurate in any material respect, the Commission shall issue an order directing the amendment of the registration statement. Upon compliance with such order, the amended registration statement shall become effective in accordance with the procedure mentioned in Subsection 12.6 hereof.

14.

2. An amendment filed prior to the effective date of the registration statement shall recommence the forty-five (45) day period within which the Commission shall act on a registration statement. An amendment filed after the effective date of the registration statement shall become effective only upon such date as determined by the Commission.

14.3. If any change occurs in the facts set forth in a registration statement, the issuer shall file an amendment thereto setting forth the change.

14.4. If, at any time, the Commission finds that the registration statement contains any false statement or omits to state any fact required to be stated therein or necessary to make the statements therein not misleading, the Commission may conduct an examination, and, after due notice and hearing, issue an order suspending the affectivity registration statement. If the statement is duly amended, the suspension order may be lifted.

14.5. In making such examination the Commission or any officer or officers designated by it may administer oaths and affirmations and shall have access to, and may demand the production of, any books, records or documents relevant to the examination. Failure of the issuer, underwriter, or any other person to cooperate, or his obstruction or refusal to undergo an examination, shall be a ground for the issuance of a suspension order.

Section 13. Rejection and Revocation of Registration of Securities. -1 3 . 1 . T h e C o m m i s s i o n m a y r e j e c t a registration statement and refuse registration of the security there-under, or revoke the affectivity of a registration statement and the registration of the security there-under after the due notice and hearing by issuing an order to such effect, setting forth its finding in respect thereto, if it finds that:

(a) The issuer:

(i) Has been judicially declared insolvent;

(ii) Has violated any of the provision of this Code, the rules promulgate pursuant thereto, or any order of the Commission of which the issuer has notice in connection with the offering for which a registration statement has been filed (iii) Has been or is engaged or is about to engage in fraudulent transactions;

(iv) Has made any false or misleading representation of material facts in any prospectus concerning the issuer or its securities;

(v) Has failed to comply with any requirements that the Commission may impose as a condition for registration of the security for which the registration statement has been filed; or (b) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statements of a material fact required to be stated therein or necessary to make the statement therein not misleading; or (c) The issuer, any officer, director or controlling person performing similar functions, or any under writer has been convicted, by a competent judicial or administrative body, upon plea of guilty, or otherwise, of an offense involving moral turpitude and /or fraud or is enjoined or restrained by the Commission or other competent or administrative body for violations of securities, commodities, and other related laws.

For the purposes of this subsection, the term "competent judicial or administrative body" shall include a foreign court of competent jurisdiction as provided for under Rules of Court.

13.2. The Commission may compel the production of all the books and papers of such issuer, and may administer oaths to, and examine the officers of such the issuer or any other person connected therewith as to its business and affairs.

13.3. If any issuer shall refuse to permit an examination to be made by the Commission, its refusal shall be ground for the refusal or revocation of the registration of its securities.

13.4. If the Commission deems its necessary, it may issue an order suspending the offer and s a l e o f t h e s e c u r i t i e s p e n d i n g a n y investigation. The order shall state the grounds for taking such action, but such order of suspension although binding upon the persons notified thereof, shall be deemed confidential, and shall not be published. Upon the issuance of the suspension order, no further offer or sale of such security shall be made until the same is lifted or set aside by the Commission. Otherwise, such sale shall be void.

13.5. Notice of issuance of such order shall be given to the issuer and every dealer and broker who shall have notified the Commission of an intention to sell such security.

13.6. A registration statement may be withdrawn by the issuer only with the consent of the Commission.

Section 15. Suspension of Registration. -15.1. If at any time, the information contained in the registration statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect, or the sale or offering for sale of the security registered thereunder may work or tend to work a fraud, the Commission may require from the issuer such further information as may in its judgement be necessary to enable the Commission to ascertain whether the registration of such security should be revoked on any ground specified in this Code. The Commission may also suspend the right to sell and offer for the sale such security pending further investigation, by entering an order specifying the grounds for such action, and by notifying the issuer, underwriter, dealer or broker known as participating in such offering.

15.2. The refusal to furnish information required by the Commission may be a ground for the issuance of an order of suspension pursuant to Subsection 15.1. Upon the issuance of any such order and notification to the issuer, underwriter, dealer or broken know as participating in such offering, no further offer or sale of any such security shall be made until the same is lifted or set aside by the Commission. Otherwise such sale shall be void.

1 5 . 3 . U p o n i s s u a n c e o f a n o r d e r o f suspension, the Commission shall conduct a hearing. If the Commission determines that the sale of any security should be revoked is shall issue an order prohibiting sale of such security.

15.4. Until the issuance of a final order, the suspension of the right to sell, though binding upon the persons notified there of, shall be deemed confidential, and shall not be published, unless it shall appear that the order of suspension has been violated after notice. If, however, the Commission finds that the sale of the security will neither be fraudulent nor result in fraud, it shall forthwith issue an order revoking the order of suspension, and such security shall be restored to its status as a registered security as of the date of such order of suspension.

1. WASH SALES To create a false or misleading appearance of active trading in any listed security traded in an Exchange of any other trading market (Exchange)

• By effecting any transaction in such security which involves no change in the beneficial ownership thereof;

• By entering an order or orders for the purchase or sale of such security with the knowledge that a simultaneous order or orders of substantially the same size, time and price, for the sale or purchase of any such security, has or will be entered by or for the same or different parties; or

• By performing similar act where there is no change in beneficial ownership.

2. To affect, alone or with others, a securities or transactions in securities that: (I) Raises their price to induce the purchase of a security, whether of the same or a different class of the same issuer or of controlling, controlled, or commonly controlled company by others; or (II) Creates active trading to induce such a purchase or sale through manipulative devices such as marking the close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices.

3. To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purpose of sale of such security. • MARKING THE CLOSE; buying and selling securities at the close of the market in effect to alter the closing price of the security • PAINTING THE TAPE; engaging in a series of transaction that are reported publicly to give the impression of activity or price movement in a security • SQUEEZING THE FLOAT; taking advantage of a shortage of securities in the market by controlling demand side, and exploiting market congestion during such shortages in a way as to create artificial prices • HYPE AND DUMP; engaging in buying activity at increasingly higher prices and then selling the securities in the market at higher prices • IMPROPER MATCHED ORDERS; engaging in transactions where both the buy and sell orders are entered at the same time with the same price and quantity by different but colluding parties • BOILER ROOM OPERATIONS; a wellorganized operation where in a room, there would be well-trained salesmen operating over several phones and using high-pressure sales talks to get investors to invest in securities offered. • SCALPING; where a person, like an investment advisor, purchases securities for his own account before recommending that security, and then sells the share at a profit upon the rise in the market price following the recommendation. • DAISY CHAIN; a pattern of fictitious trading activity by a group of persons who lures innocent people into the scheme • FLIPPING; operated where one office buys a particular stock for customers, while another office simultaneously recommend that its customers sell the stock, with the stock being shifted from one office to another, and the firm makes a profit, and the broker earn their commissions. • other similar operations or devices Section 25. Regulation of Option Trading. -No member of an Exchange shall, directly or i n d i r e c t l y e n d o r s e o r g u a r a n t e e t h e performance of any put, call, straddle, option or privilege in relation to any security registered on a securities exchange.

The terms "put", "call", "straddle", "option", or "privilege" shall not include any registered warrant, right or convertible security.

DEFINITIONS

• PUT; an option or promise to sell • CALL; an option or promise to buy • STRADDLE; an option to buy and sell

FRAUDULENT TRANSACTIONS

It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: 1. Employ any device, scheme, or artifice to defraud; 2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or 3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person.

NOTE: not mere negligence. A purchase or sale of a security of the issuer made by an • insider defined in Subsection 3.8, or • such insider's spouse or relatives by affinity or consanguinity within the second degree, legitimate or commonlaw, SHALL BE PRESUMED to have been effected while in possession of material nonpublic information IF 1. transacted after such information came into existence but prior to dissemination of such information to the public and 2. the lapse of a reasonable time for market to absorb such information:

INSIDER TRADING

EXE: that this presumption shall be rebutted upon a showing by the purchaser or seller that h e w a s a w a r e o f t h e m a t e r i a l nonpublic information at the time of the purchase or sale.

WHO IS INSIDER 1. the issuer; 2. a director or officer (or any person performing similar functions) of, or a person controlling the issuer; 3. a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public; 4. A government employee, director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or 5. a person who learns such information by a communication from any forgoing insiders with knowledge that the person from whom he learns the fact is an insider prepared by: ronie ablan AAA -BASTE / ATB INFORMATION IS MATERIAL NON-PUBLIC; when 1. It has not been generally disclosed to the public and would likely affect the market p r i c e o f t h e s e c u r i t y a f t e r b e i n g disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or 2. would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security.

It shall be unlawful for any insider to communicate material nonpublic information about the issuer or the security to any person who, by virtue of the communication, becomes an insider as defined in Subsection 3.8, where the insider communicating the information knows or has reason to believe that such person will likely buy or sell a security of the issuer whole in possession of such information.

27.4. (a) It shall be unlawful where a tender offer has commenced or is about to commence for:

(i) Any person (other than the tender offeror) who is in possession of material nonpublic information relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person knows or has reason to believe that the information is nonpublic and has been acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of such issuer; and

(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, and any insider of such issuer to communicate material nonpublic information relating to the tender offer to any other person where such communication is likely to result in a violation of Subsection 27.4 (a)(I).

(b) For purposes of this subsection the term "securities of the issuer sought or to be sought by such tender offer" shall include any securities convertible or exchangeable into such securities or any options or rights in any of the foregoing securities.

TENDER OFFER RULE

Any person or group of persons acting in concert who INTENDS TO ACQUIRE at least 15% of any class of any equity security of a listed corporation of any class of any equity security of a corporation 1. with assets of at least 50M and 2. having two 200 or more stockholders 3. at least 100 shares each or who intends to acquire at least 30% of such equity

• over a period of 12 months Where the securities offered exceed that which person or group of persons is bound or willing to take up and pay for, the securities that are subject of the tender offers shall be taken up us nearly as may be pro data, disregarding fractions, according to the number of securities deposited to each depositor.

The provision of this subject shall also apply to securities deposited within ten (10) days after notice of increase in the consideration offered to security holders, as described in paragraph (e) of this subsection, is first published or sent or given to security holders.

Where any person varies the terms of a tender offer or request or invitation for tenders before the expiration thereof

by increasing the consideration offered to holders of such securities, such person shall pay the increased consideration to each security holder whose securities are taken up and paid for whether or not such securities have been taken up by such person before the variation of the tender offer or request or invitation.

It shall be lawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made in the light of the circumstances under which they are made, not mis-leading, or to engaged to any fraudulent, deceptive or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation for any security holders in opposition to or in favor of any such favor of any such offer, request, or invitation. The Commission shall, for the purposes of this subsection, define and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive and manipulative.

RULES ON PROXY SOLICITATION

Section 20. Proxy solicitations. -20.1. Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission;

PROXY MUST BE 1. in writing, 2. signed by the stockholder or his duly authorized representative and 3. file before the scheduled meeting with the corporate secretary.

PROXY IS VALUD ONLY • for the meeting for which it is intended. UNLESS; contrary so stated. • for a period longer than five (5) years at one time.

20.4. No broker or dealer shall give any proxy, consent or any authorization, in respect of any security carried for the account of the customer, to a person other than the customer, without written authorization of such customer.

20.5. A broker or dealer who holds or acquire the proxy for at least ten percent (10%) or such percentage as the commission may prescribe of the outstanding share of such issuer, shall submit a report identifying the beneficial owner of ten days after such acquisition, for its own account or customer, to the issuer of security, to the exchange where the security is traded and to the Commission. 22.1. Device and maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (a) Transactions and access to assets are pursuant to management authorization; (b) Financial statements are provided in conformity with generally accepted accounting principles that are adopted by the Accounting standards council and the rules promulgated by the Commission with the regard to the preparation of the financial statements; and (c) Recorded assets are compared with existing assets at reasonable intervals and differences are reconciled.

Section 23. Transactions of Directors officers and Principal Stockholders. -23.1. Every person who is directly or indirectly the beneficial owner of more than ten per centum (10%) of any class of any equity security which satisfies the requirements of subsection 17.2, or who is a director or an officer of the issuer of such security, shall file, at the time either such requirement is first satisfied or after ten days after he becomes such a beneficial owner, director, or officer, a statement form the Commission and, if such security is listed for trading on an exchange, also with the exchange of the amount of all the equity security of such issuer of which he is the beneficial owner, and within ten days after the close of each calendar month thereafter, if there has been a change in such ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month.

23.2. For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director or officer by reason of his relationship to the issuer, any profit realized by him from any purchase or sale, or any sale or purchase, of any equity security of such issuer within any period of less than (6) months unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention of holding the security purchased or of not repurchasing the security sold for a period exceeding six (6) months. Suit to recover such profit may be instituted before the Regional Trial Court by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty (60) days after request or shall fail diligently to prosecute the same thereafter, but not such shall be brought more than two years after the date such profit was realized. This Subsection shall not be construed to cover any transaction were such beneficial owner was not such both time of the owner or the sale, or the sale of purchase, of the security involved, or any transaction or transactions which the Commission by rules a n d r e g u l a t i o n s m a y e x e m p t a s n o t comprehended within the purpose of this subsection.

23.3. It shall be unlawful for any such beneficial owner, director or officer, directly or indirectly, to sell any equity security of such issuer if the person selling the principal: (a) Does not own the security sold: or (b) If owning the security, does not deliver not deliver it against such sale within 20 days thereafter, or does not within five days after such sale deposit in the mails or the unusual channels of transportation; but no person shall be deemed to have violated this subsection if he proves not withstanding the exercise of good faith he was unable to make such delivery in such time, or that to do so would cause undue inconvenience or expense.

23.4. The provisions of subsection 23.2 shall not apply to any purchase and sale, or sale and purchase, and the provisions of Subsection 23.3 shall not apply to any sale, of an equity security not then or thereafter held by him and an investment account, by a dealer in the ordinary course of his business and incident to the establishment or maintenance by him of a primary or secondary market, otherwise than on an Exchange, for such security. The Commission may, by such rules and regulations as it deems necessary or appropriate in the public interest, define and prescribe terms and conditions with respect to securities held in an investment account and transactions made in the ordinary course of business and incident to the establishment or maintenance of a primary or secondary market.

CIVIL LIABILITIES

Section 56. Civil Liabilities on Account of False Registration Statement. 56.1. Any person acquiring a security, the registration statement of which or any part thereof contains on its effectivity an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make such statements not misleading, and who suffers damage, may sue and recover damages from the following enumerated persons, unless it is proved that at the time of such acquisition he knew of such untrue statement or omission:

(a) The issuer and every person who signed the registration statement:

(b) Every person who was a director of, or any other person performing similar functions, or a partner in, the issuer at the time of the filing of the registration statement or any part, supplement or amendment thereof with respect to which his liability is asserted; (c) Every person who is named in the registration statement as being or about to become a director of, or a person performing similar functions, or a partner in, the issuer and whose written consent thereto is filed with the registration statement;

(d) Every auditor or auditing firm named as having certified any financial statements used in connection with the registration statement or prospectus.

(e) Every person who, with his written consent, which shall be filed with the registration statement, has been named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement, report, or valuation, which purports to have been prepared or certified by him.

(f) Every selling shareholder who contributed to and certified as to the accuracy of a portion of the registration statement, with respect to that portion of the registration statement which purports to have been contributed by him.

(g) Every underwriter with respect to such security. 56.2. If the person who acquired the security did so after the issuer has made generally available to its security holders an income statement covering a period of at least twelve (12) months beginning from the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such income statement, but such reliance may be established without proof of the reading of the registration statement by such person.

Section 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports. 57.1. Any person who:

(a) Offers to sell or sells a security in violation of Chapter III, or (b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code, by the use of any means or instruments of transportation or communication, by means of a prospectus or other written or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall fail in the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security. 57.2. Any person who shall make or cause to be made any statement in any report, or document filed pursuant to this Code or any rule or regulation thereunder, which statement as at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person who, not knowing that such statement was false or misleading, and relying upon such statement shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading.

Section 58. Civil Liability of Fraud in Connection with Securities Transactions. -Any person who engages in any act or transaction in violation of Sections 19.2, 20 or 26, or any rule or regulation of the Commission thereunder, shall be liable to any other person who purchases or sells any security, grants or refuses to grant any proxy, consent or authorization, or accepts or declines an invitation for tender of a security, as the case may be, for the damages sustained by such other person as a result of such act or transaction.

Section 59. Civil Liability for Manipulation of Security Prices. -Any person who willfully participates in any act or transaction in violation of Section 24 shall be liable to any person who shall purchase or sell any security at a price which was affected by such act or transaction, and the person so injured may sue to recover the damages sustained as a result of such act or transaction.

Section 60. Civil Liability with Respect to Commodity Futures Contracts and Pre-need Plans. -60.1. Any person who engages in any act or transactions in willful violation of any rule or regulation promulgated by the Commission under Section 11 or 16, which the Commission denominates at the time of issuance as intended to prohibit fraud in the offer and sale of pre-need plans or to prohibit fraud, manipulation, fictitious transactions, undue speculation, or other unfair or abusive practices with respect to commodity future contracts, shall be liable to any other person sustaining damages as a result of such act or transaction.

60.2. As to each such rule or regulation so denominated, the Commission by rule shall prescribe the elements of proof required for recovery and any limitations on the amount of damages that may be imposed.

Section 61. Civil Liability on Account of Insider Trading. -61.1. Any insider who violates Subsection 27.1 and any person in the case of a tender offer who violates Subsection 27.4 (a) (I), or any rule or regulation thereunder, by purchasing or selling a security while in possession of material information not generally available to the public, shall be liable in a suit brought by any investor who, contemporaneously with the purchase or sale of securities that is the subject of the violation, purchased or sold securities of the same class unless such insider, or such person in the case of a tender offer, proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him. 61.2. An insider who violates Subsection 27.3 or any person in the case of a tender offer who violates Subsection 27.4 (a), or any rule or regulation thereunder, by communicating material nonpublic information, shall be jointly and severally liable under Subsection 61.1 with, and to the same extent as, the insider, or person in the case of a tender offer, to whom the communication was directed and who is liable under Subsection 61.1 by reason of his purchase or sale of a security.

Section 62. Limitation of Actions. -62.1. No action shall be maintained to enforce any liability created under Section 56 or 57 of this Code unless brought within two (2) years after the discovery of the untrue statement or the omission, or, if the action is to enforce a liability created under Subsection 57.1 (a), unless, brought within two (2) yeas after the violation upon which it is based. In no event shall an such action be brought to enforce a liability created under Section 56 or Subsection 57.1 (a) more than five (5) years after the security was bona fide offered to the public, or under Subsection 57.1 (b0 more than five (5) years after the sale. 62.2. No action shall be maintained to enforce any liability created under any other provision of this Code unless brought within two (20 years after the discovery of the facts constituting the cause of action and within five (5) years after such cause of action accrued.

Section 63. Amount of Damages to be Awarded. -63.1. All suits to recover damages pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court, which shall have exclusive jurisdiction to hear and decide such suits. The Court is hereby authorized to award damages in an amount not exceeding triple the amount of the transaction plus actual damages.

Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence or wantonness in the violation of this Code or the rules and regulations promulgated thereunder.

The Court is also authorized to award attorney's fees not exceeding thirty percentum (30%) of the award.

63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be jointly and severally liable for the payment of damages. However, any person who becomes liable for the payment of such damages may recover contribution from any other person who, if sued separately, would have been liable to make the same payment, unless the former was guilty of fraudulent representation and the latter was not.

63.3. Notwithstanding any provision of law to the contrary, all persons, including the issuer, held liable under the provisions of Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to the total liability adjudged herein. In no case shall the principal stockholders, directors and other officers of the issuer or persons occupying similar positions therein, recover their contribution to the liability from the issuer. However, the right of the issuer to recover from the guilty parties the amount it has contributed under this Section shall not be prejudiced.

Section 64. Cease and Desist Order. -64.1. The Commission, after proper investigation or verification, motu proprio or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

64.2. Until the Commission issue a cease and desist order, the fact that an investigation has been initiated or that a complaint has been filed, including the contents of the complaint, shall be confidential. Upon issuance of a cease and desist order, the Commission shall make public such order and a copy thereof shall be immediately furnished to each person subject to the order. 64.3. Any person against whom a cease and desist order was issued may, within five (5) days from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen (15) resolution thereof shall be made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall automatically be lifted. 3.2. "Issuer" is the originator, maker, obligor, or creator of the security.

3.3. "Broker" is a person engaged in the business of buying and selling securities for the account of others.

3.4. "Dealer" means many person who buys sells securities for his/her own account in the ordinary course of business.

3.5. "Associated person of a broker or dealer" is an employee therefor whom, directly exercises control of supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial.

3.6. "Clearing Agency" is any person who acts as intermediary in making deliveries upon payment effect settlement in securities transactions.

3.7. "Exchange" is an organized market place or facility that brings together buyers and sellers and executes trade of securities and/or commodities. . 3.9. "Pre-need plans" are contracts which provide for the performance of future services of or the payment of future monetary considerations at the time actual need, for which plan holders pay in cash or installment at stated prices, with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the Commission may from time to time approve.

3.10. "Promoter" is a person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor.

3.11. "Prospectus" is the document made by or an behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through registration statement filed with the Commission.

3 . 1 2 . " R e g i s t r a t i o n s t a t e m e n t " i s t h e application for the registration of securities required to be filed with the Commission.

3.13. "Salesman" is a natural person, employed as such as an agent, by a dealer, issuer or broker to buy and sell securities.

3.14. "Uncertificated security" is a security evidenced by electronic or similar records.

3 . 1 5 . " U n d e r w r i t e r " i s a p e r s o n w h o guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company.

CHAPTER II S E C U R I T I E S A N D E X C H A N G E COMMISSION

Section 4. Administrative Agency. -4.1. This Code shall be administered by the Security and Exchange Commission (hereinafter referred to as the "Commission") as a Collegial body, composed of a chairperson and (4) Commissioners, appointed by the President for a term of (7) seven years each and who shall serves as such until their successor shall have been appointed and qualified. A Commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his/her 4.2. The Commissioners must be natural-born citizens of the Philippines, at least forty (40) years of age for the Chairperson and at least t h i r t y -fi v e ( 3 5 ) y e a r s o f a g e f o r t h e Commissioners, of good moral character, or unquestionable integrity, of known probity and patriotism, and with recognized competence in social and economic disciplines: Provided, That the majority of Commissioners, including the Chairperson, shall be members of the Philippine Bar. 4.5. The Commission shall hold meetings at least once a week for the conduct of business or as often as may be necessary upon the call of the Chairperson or upon the request of (3) Commissioners. The notice of the meeting shall be given to all Commissioners and the presence of three (3) Commissioners shall constitute a quorum. In the absence of the Chairperson, the most senior Commissioner shall act as presiding officer of the meeting. 4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department of office of the Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter and supplement any rule or regulation.

The commission may review upon its own initiative or upon the petition of any interested party any action of any department or office, individual Commissioner, or staff member of the Commission. (c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;

(d) Regulate, investigate or supervise the activities of persons to ensure compliance;

(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs;

(f) Impose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant thereto;

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulation and orders;

(h) Enlist the aid and support of and/or deputized any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and function under its Code;

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;

(j) Punish for the contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court;

(k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision;

(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the prepared by: ronie ablan AAA -BASTE / ATB cases before it, subject to the provisions of existing laws;

(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnership or associations, upon any of the grounds provided by law; and (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

5.2. The Commission's jurisdiction over all cases enumerated under section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over the cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payment/rehabilitation cases filed as of 30 June 2000 until finally disposed. Section 6. Indemnification and Responsibilities of Commissioners.-6.1. The Commission shall indemnify each Commissioner and other officials of the Commission, including personnel performing supervision and examination functions for all cost and expenses reasonably incurred by such persons in connection with any civil or criminal actions, suits or proceedings to be liable for gross negligence or misconduct. In the event of settlement or compromise, indemnification shall be provided only in connection with such matters covered by the settlement as to which the Commission is advised by external counsel that the persons to be indemnified did not commit any gross negligence or misconduct. The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the Commission in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Commissioner, officer or employee to repay the amount advanced should it ultimately be determined by the Commission that he/she is not entitled to be indemnified as provided in this subsection.

6.2. The Commissioners, officers and employees of the Commission who willfully violate this Code or who are guilty of negligence, abuse or acts of malfeasance or fail to exercise extraordinary diligence in the performance of their duties shall be held liable for any loss or injury suffered by the Commission or other institutions such as a result of such violation, negligence, abuse, or m a l f e a s a n c e , o r f a i l u r e t o e x e r c i s e extraordinary diligence. Similar responsibility shall apply to the Commissioners, officers and employees of the Commission for (1) the disclosure of any information, discussion or resolution of the Commission of a confidential nature, or about the confidential operations of the Commission unless the disclosure is in connection with the performance of official functions with the Commission or prior authorization of the Commissioners; or (2) the use of such information for personal gain or to the detriment of the government, the Commission or third parties: Provided, however, That any data or information required to be submitted to the President and/or Congress or its appropriate committee, or to be published under the provisions of this Code shall not be considered confidential.

Section 7. Reorganization. -7.1. To achieve the goals of this Code, consistent with the Civil Service laws, the Commission is hereby authorized to provide for its reorganization, to streamline its structure and operations, upgrade its human resource component and enable it to more efficiently and effectively perform its functions and exercise its power under this Code. 7.2. All positions of the Commissions shall be governed by a compensation and position classification system and qualification standards approved by the Commission based on comprehensive job analysis and audit of actual duties and personal responsibilities. The compensation plan shall be comparable with the prevailing compensation plan in the Bangko Sentral ng Pilipinas and other government financial institutions and shall be subject to periodic review by the Commission no more than once every two (2) years without prejudice to yearly merit review or increases based on productivity and efficiency. The Commission shall, therefore, be exempt from laws, rules, and regulations on compensation, position classification and qualifications standards. The Commission shall, however, endeavor to make its system conform as closely as possible with the principles under the Compensation and Position Classification Act of 1989 (Republic Act. 6758, as amended promulgate rules and regulations involving commodity futures contracts to protect investors to ensure the development of a fair and transparent commodities market.

CHAPTER IV REGULATION OF PRE-NEED PLANS

Section 16. Pre-Need Plans. -No person shall sell or offer for sale to the public any pre-need plan except in accordance with rules and regulations which the Commission shall prescribe. Such rules shall regulate the sale of pre-need plans by, among other things, requiring the registration of pre-need plans, licensing persons involved in the sale of pren e e d p l a n s , r e q u i r i n g d i s c l o s u r e s t o prospective plan holders, prescribing advertising guidelines, providing for uniform accounting system, reports and recording keeping with respect to such plans, imposing c a p i t a l , b o n d i n g a n d o t h e r fi n a n c i a l responsibility, and establishing trust funds for the payment of benefits under such plans.

CHAPTER V REPORTORIAL REQUIREMENTS

Section 17. Periodic and Other Reports of Issuer. 17.1. Every issuer satisfying the requirements in Subsection 17.2 hereof shall file with the Commission:

(a) Within one hundred thirty-five (135) days, after the end of the issuer's fiscal year, or such other time as the Commission may prescribe, an annual report which shall include, among others, a balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year, certified public accountant, an a management discussion and analysis of results of operation; and (b) Such other periodical reports for interim fiscal periods and current reports on significant developments of the issuer as the Commission may prescribe as necessary to keep current information on the operation of the business and financial condition of the issuer.

17.2. The reportorial requirements of Subsection 17.1 shall apply to the following:

(a) An issuer which has sold a class of its securities pursuant to a registration under section 12 hereof: Provided however, That the obligation of such issuer to file reports shall be suspended for any fiscal year after the year such registration became effective if such issuer, as of the first day of any such fiscal year, has less than one hundred (100) holder of such class securities or such other number as the Commission shall prescribe and it notifies the Commission of such;

(b) An issuer with a class of securities listed for trading on an Exchange; and (c) An issuer with assets of at least Fifty million pesos (50,000,000.00) or such other amount as the Commission shall prescribe, and having two hundred (200) or more holder each holding at least one hundred (100) share of a class of its equity securities: Provided, however, That the obligation of such issuer to file report shall be terminate ninety (90) days after notification to the Commission by the issuer that the number of its holders holding at least one hundred (100) share reduced to less than one hundred (100).

17.3. Every issuer of a security listed for trading on an Exchange a copy of any report filed with the Commission under Subsection 17.1. hereof. 1 7 . 4 . A l l r e p o r t s ( i n c l u d i n g fi n a n c i a l statements) required to be filed with the Commission pursuant to Subsection 17.1 hereof shall be in such form, contain such information and be filed at such times as the Commission shall prescribe, and shall be in lieu of any periodical or current reports or financial statements otherwise required to be filed under the Commission shall prescribe.

17.5. Every issuer which has a class of equity securities satisfying any of the requirements in Subsection 17.2 shall furnish to each holder of such equity security an annual report in such form and containing such information as the Commission shall prescribe. 17.6. Within such period as the Commission may prescribe preceding the annual meeting of the holders of any equity security of a class entitled to vote at such meeting , the issuer shall transmit to such holders an annual report in conformity with subsection 17.5. Section 18. Reports by five per centum (5%) Holders of Equity Securities. -18.1. In every case in which an issuer satisfies the requirements of Subsection 17.2 hereof any person who acquires directly or indirectly the beneficial ownership of more than five of per centum (5%) of such class or in excess of such lesser per centum as the Commission by rule may prescribe, shall, within ten (10) days after such acquisition or such reasonable time as fixed by the Commission, submit to the issuer of the securities, to the Exchange where the security is traded, and to the Commission a sworn statement containing the following information and such order information as the Commission may require in the public interest or for the protection of investors. all other person by whom or on whose behalf the purchases are effected; in the event the beneficial owner is a juridical person, the of business of the beneficial owner shall also be reported;

(b) If the purpose of the purchases or prospective purchases is to acquire control of the business of the issuer of the securities, any plans or proposals which such persons may have that will effect a major change in its business or corporate structure;

(c) The number of shares of such security which are beneficially owned, and the number of shares concerning which there is a right to acquire, directly or indirectly, by; (i) such person, and (ii) each associate of such person, giving the background, identity, residence, and citizenship of each such associate; and ( d ) I n f o r m a t i o n a s t o a n y c o n t r a c t s , arrangements, or understanding with any person with respect to any securities of the issuer including but not limited to transfer, joint ventures, loan or option arrangements, puts or call guarantees or division of losses or profits, or proxies naming the persons with whom such contracts, arrangements, or understanding have been entered into, and giving the details thereof.

18.2. If any change occurs in the facts set forth in the statements, an amendment shall be transmitted to the issuer, the Exchange and the Commission.

18.3. The Commission, may permit any person to file in lieu of the statement required by subsection 17.1 hereof, a notice stating the name of such person, the shares of any equity securities subject to Subsection 17.1 which are owned by him, the date of their acquisition and such other information as the commission may specify, if it appears to the commission that such securities were acquired by such person in the ordinary course of his business and were not acquired for the purpose of and do not have the effect of changing or influencing the control of the issuer nor in connection with any transaction having such purpose or effect. 28.2. No registered broker or dealer shall employ any salesman or any associated person, and no issuer shall employ any salesman, who is not registered as such with the Commission.

28.3. The Commission, by rule or order, may conditionally or unconditionally exempt from subsection 28.1 and 28.2 any broker, dealer, salesman, associated person of any broker or dealer, or any class of the foregoing, as it deems consistent with the public interest and the protection of investors.

28.4. The Commission shall promulgate rules and regulation prescribing the qualifications for registration of each category of applicant, which shall, among other things, require as a condition for registration that:

(a) If a natural person, the applicant satisfactorily pass a written examination as to his proficiency and knowledge in the area of activity for which registration is sought;

(b) In the case of a broker or dealer, the applicant satisfy a minimum net capital as prescribed by the Commission, and provide a bond or other security as the Commission may prescribe to secure compliance with the provisions of this Code; and (c) If located outside of the Philippines, the applicant files a written consent to service of process upon the Commission pursuant to Section 65 hereof.

28.5. A broker or dealer may apply for registration by filing with the Commission a written application in such forms and containing such information and documents concerning such broker or dealer as the Commission by rule shall prescribe.

28.6. Registration of a salesman or of an associated person of a registered broker or dealer may be made upon written application filed with the Commission by such salesman or associated person. The application shall be separately signed and certified by the registered broker or dealer to which such salesman or associated person is to become affiliated, or by the issuer in the case of a salesman employed appointed or authorized solely by such issuer. The application shall be in such form and contain such information and documents concerning the salesman or associated person as the Commission by rule shall prescribe. For purposes of this Section, a salesman shall not include any employee of an issuer whose compensation is not determined 2 8 . 7 . A p p l i c a t i o n s fi l e d p u r s u a n t t o S u b s e c t i o n s 2 8 . 5 a n d 2 8 . 6 s h a l l b e accompanied by a registration fee in such reasonable amount prescribed by the Commission.

28.8. Within thirty (30) days after the filing of any application under this Section, the Commission shall by order: (a) Grant registrations if it determines that the requirements of this Section and the qualifications for registrations set forth in its rules and regulations have been satisfied ; or (b) Deny said registration.

28.9. The names and addresses of all persons approved for the registration as brokers, dealers, associated persons or salesman and all orders of the Commission with respect thereto shall be recorded in a Register of Securities Market Professionals kept in the office of the Commission which shall be open to public inspection.

28.10. Every person registered pursuant to this Section shall file with the Commission, in such form as the Commission shall prescribe, information necessary to keep the application for registration current and accurate, including in the case of a broker or dealer changes in salesmen, associated persons and owners thereof.

28.11. Every person registered pursuant to this Selection shall pay to the Commission an annual fee at such time and in such reasonable amount as the Commission shall prescribe. Upon notice by the Commission that such annual fee has not been paid as required, the registration of such person shall be suspended until payment has been made.

28.12. The registration of a salesman or associated person shall be automatically terminated upon the cessation of his affiliation with said registered broker or dealer or with an issuer in the case of a salesman employed, appointed or authorized by such issuer. Promptly following any such cessation of affiliation, the registered broker or dealer, issuer as the case may be, shall file with the Commission a notice of separation of such salesman or associated person. (a) Has willfully violated any provision of this Code, any rule, regulation or order made hereunder, or any other law administered by the Commission, or in the case of a registered broker, dealer or associated persons has failed to supervise, with a view to preventing such violation, another person who commits such violation;

(b) Has willfully made or caused to be made a materially false or misleading statement in any application for registration or report filed with t h e C o m m i s s i o n o r a s e l f -r e g u l a t o r y organization, or has willfully omitted to state any material fact that is required to be stated therein;

(c) Has failed to satisfy the qualifications or requirements for registration prescribed under Section 28 and the rules and regulations of the Commission promulgated thereunder;

(d) Has been convicted, by a competent judicial or administrative body of an offense i n v o l v i n g m o r a l t u r p i t u d e , f r a u d , embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real state or insurance laws;

(e) Is enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities, banking, real state or insurance activities or from willfully violating laws governing such activities;

(f) Is subject to an order of a competent judicial or administrative body refusing, revoking or suspending any registration, licensed or other permit under this Code, the rules and regulations promulgated thereunder, any other law administered by the Commission;

(g) Is subject to an order of a self-regulatory organization suspending or expelling him from membership or participating therein or from association with a member or participant thereof;

(h) Has been found by a competent judicial or administrative body to have willfully violated any provisions of securities, commodities, banking, real state or insurance laws, or has w i l l f u l l y a i d e d , a b e t t e d , c o u n s e l e d , commanded, induced or procured such violation; or (i) Has been judicially declared insolvent.

For purposes of this subsection, the term "competent judicial or administrative body" shall include a foreign court of competent jurisdiction and a foreign financial regulator.

(a)

In case of charges against a salesman or associated person, notice thereof shall also be given the broker, dealer or issuer employing such salesman or associated person.

(b) Pending the hearing, the Commission shall have the power to order the suspensions of such broker's, dealers, associated person's or salesman's registration: Provided, That such order shall state the cause for such suspension. Until the entry of a final order, the suspension of such registration, though binding upon the persons notified thereof, shall be deemed confidential, and shall not be published, unless it shall appear that the order of suspension has been violated after notice.

29.3. The orders of the Commission refusing, revoking, suspending or placing limitations on a registration as herein above provided, together with its findings, shall be entered in t h e R e g i s t e r o f S e c u r i t i e s M a r k e t Professionals. The suspension or revocation of the registration of a dealer or broker shall also automatically suspend the registration of all salesmen and associated persons affiliated with such broker or dealer. The order of the Commission refusing, revoking, suspending or placing limitations on a registration as herein above provided, together with its findings, shall be entered in the Register of Securities Market Professionals. The suspension or revocation of the registration of a dealer or broker shall also automatically suspend the registration of a dealer or broker shall also automatically suspend the registration of all salesmen and associated persons affiliated with such broker or dealer. 29.4. It shall be sufficient cause for refusal, revocation or suspension of a broker's or dealer's registrations, if any associated person thereof or any juridical entity controlled by such associated person has committed any act or omission or is subject to any disability enumerated in paragraphs (a) through (i) of Subsection 29. I hereof.

Section 30. Transactions and Responsibility of Brokers and Dealers. -30.1 No brokers or dealer shall deal in or otherwise buy or sell, for its own account or for its own account or for the account of customers, securities listed on an Exchange issued by any corporation where any stockholders, director, associated person or salesman, or authorized clerk of said broker or dealer and all the relatives of the foregoing within the fourth civil degree of consanguinity or affinity, is at the same time holding office in said issuer corporation as a director, president, vice-president, manager, treasurer, comptroller, secretary or any office trust and responsibility, or is a controlling of the issuer. 30.2. No broker or dealer shall effect any transaction in securities or induce or attempt to induce the purchase or sale of any security except in compliance with such rules and regulations as the Commission shall prescribe to ensure fair and honest dealings in securities and provide financial safeguards and other standards for the operations of brokers and dealers, including the establishments of minimum net capital requirements, the acceptance of custody and use of securities of customers, and the carrying and use of deposits and credit balances of customers.

Section 31. Development of Securities Market Professionals. -The Commission in joint undertaking with self regulatory organizations, organizations and associations of finance professionals as well as private educational and research institute shall undertake or facilitate/organize continuing training, conferences/seminars, updating programs, research and developments as well as technology transfer at the latest and advance trends in issuance and trading of securities, derivatives, commodity trades and other financial instruments, as well as securities markets of other countries.

No broker, dealer, salesman or associated person of a broker or dealer, singly or in concert with any other person, shall make, create or operate, or enable another to make, create or operate, any trading market, otherwise than on a registered Exchange, for the buying and selling of any security, except in accordance with rules and regulations the Commission may prescribe. registered Exchange. Such self-regulatory organization must provide a centralized marketplace for trading and must satisfy requirements comparable to those prescribed for registration of Exchanges in Section 33 of this Code.

Section 33. Registration of Exchanges. -33.1. Any Exchange may be registered as such with the Commission under the terms and conditions hereinafter provided in this Section and Section 40 hereof, by filing an application for registration in such form and containing such information and supporting documents as the Commission by rule shall prescribe, including the following:

(a) An undertaking to comply and enforce by its members with the provisions of this Code, its implementing rules and regulations and the rules of the Exchange;

(b) The organizational charts of the Exchange, rules of procedure, and a list of its officers and members;

(c) Copies of the rules of the Exchange; and (d) An undertaking that in the event a member firm becomes insolvent or when the Exchange shall have found that the financial condition of its member firm has so deteriorated that it cannot readily meet the demands of its customers for the delivery of securities and/or payment of sales proceeds, the Exchange shall, upon order of the Commission, take over the operation of the insolvent member firm and immediately proceed to settle the member firm's liabilities to its customers. 33.2. Registrations of an Exchange shall be granted upon compliance with the following provisions:

(a) That the applicant is organized as a stock corporation: Provided, That any registered Exchange existing prior to the effectivity of this Code shall within one (1) year reorganize as a s t o c k c o r p o r a t i o n p u r s u a n t t o a demutualization plan approved by the Commission;

(b) That the applicant is engaged solely in the business of operating an exchange: Provided, however, That the Commission may adopt rules, regulations or issue an order, upon application, exempting an Exchange organized as a stock corporation and owned and controlled by another juridical person from the restriction.

(c) Where the Exchange is organized as a stock corporation, that no person may beneficially own or control, directly or indirectly, more than five percent (5%) of the voting rights of the Exchange and no industry or business group may beneficially own or control, directly or indirectly, more than twenty percent (20%) of the voting rights of the Exchange: Provided, however, That the Commission may adopt rules, regulations or issue an order, upon application from this prohibition where it finds that such ownership or control will not negatively impact on the exchange's ability to effectively operate in the public interest.

(d) The expulsion, suspension, or disciplining of a member and persons associated with a member for conduct or proceeding inconsistent with just and equitable principles of fair trade, and for violations of provisions of this Code, or any other Act administered by the Commission, the rules, regulations and orders thereunder, or the rules of the Exchange;' (e) A fair procedure for the disciplining of members and persons associated with members, the denial of membership to any person seeking to be a member, the barring of any person from association with a member, and the prohibition or limitation of any person from association with member, and the prohibition or limitation of any person from access to services offered by the Exchange;

(f) That the brokers in the board of the Exchange shall comprise of not more than forty-nine percent (49%) of such board and shall proportionately represent the Exchange membership in terms of volume/value or trade and paid up capital, and that any natural person associated with a juridical entity that is a member for this purpose; Provide, That any registered Exchange existing prior to the affectivity of this Code shall immediately comply with this requirement;

(g) For the board of the Exchange to include in its composition (1) the president of the Exchange, and (ii) no less than fifty one percent (51%) of the remaining members of the board to be comprised of three (3) independent directors and persons who represent the interests of issuers, investors, and other market participants, who are not associated with any broker or dealer or member of the Exchange for a period of two (2) years prior to his/her appointment. No officer or employee of a member, its subsidiaries or affiliates or related interests shall become an independent director: Provided, however, That the Commission may by rule, regulation, or order upon application, permit the exchange organized as a stock corporation to use a different governance structure: Provided, further, That the Commission is satisfied that the Exchange is acting in the public interest and is able to effectively operate as a self-regulatory organization under this Code: Provided, finally, That any registered exchange existing prior to (h) The president and other management of the Exchange to consist only of persons who are not members and are not associated in any capacity, directly or indirectly with any broker or dealer or member or listed company of the Exchange: Provided, That the Exchange may only appoint, and a person may only serve, as an officer of the exchange if such person has not been a member or affiliated with any broker, dealer, or member of the Exchange for a period of at least two (2) years prior to such appointment;

(i) The transparency of transactions on the Exchange;

(j) The equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system which the Exchange operates or controls;

(k) Prevention of fraudulent and manipulative acts and practices, promotion of just and equitable principles of trade, and, in general, protection of investors and the public interest; and (l) The transparent, prompt and accurate clearance and settlement of transactions effected on the Exchange.

CHAPTER IX EXCHANGES AND OTHER SECURITIES TRADING MARKETS

Section 32. Prohibition on Use of Unregistered Exchange; Regulation of Over-the-Counter Markets. -32.1. No broker, dealer, salesman, associated person of a broker or dealer, or Exchange, directly or indirectly shall make use of any facility of an Exchange in the Philippines to effect any transaction in a security, or to report such transaction, unless such Exchange is registered as such under Section 33 of this Code.

If the Commission finds that the applicant

Exchange is capable of complying and enforcing compliance by its members, and persons associated with such members, with the provisions of this Code, and the rules of the Exchange, and that the rules of Exchange are fair, just and adequate, the Commission shall cause such Exchange to be registered. If, after notice due and hearing, the Commission finds otherwise, the application shall be denied. (90) days after the filing of the application the Commission may issue an order either granting or denying registration as an Exchange, unless the Exchange applying for registration shall withdraw its application or shall consent to the Commission's deferring action on its application for a stated longer period after the date of filing. The filing with the Commission of an application for registration by an Exchange shall be deemed to have taken place upon the receipt thereof. Amendments to an application may be made upon such terms as the Commission may prescribe.

Within ninety

33.5. Upon the registration of an Exchange, it is shall pay a fee in such amount and within such period as the Commission may fix. 33.6. Upon appropriate application in accordance with the rules and regulations of the Commission and upon such terms as the Commission may deemed necessary for the protection of investors, an exchange may withdraw its registration or suspend its operations or resume the same.

Section 34. Segregation and Limitation of functions of Members, Broker and Dealers. -34.1. It shall be unlawful for any memberbroker of an Exchange to effect any transaction on such Exchange for its own account, the account of an associated person, or an account with the respect to which it or an associated person thereof exercises the investment discretion: Provided, however, That this Section shall not make unlawful- 34.2. In all instances where the member-broker effects a transaction on an Exchange for its own account or the account of an associated person or an account with the respect to which it exercises investment discretion, it shall disclose to such customer at or before the completion of the transaction it is acting for its own account: Provided, further, That this fact shall be reflected in the order ticket and the confirmation slip. 34.3. Any member-broker who violates the provisions of this Section shall be subject to the administrative sanctions provided in Section 54 of this Code.

Section 35. Additional Fees of Exchanges. -In addition to the registration fee prescribed in Section 33 of this Code, every Exchange shall pay to the Commission, on a semestral basis on or before the tenth day of the end of the end of every semester of the calendar year, a fee in such an amount as the Commission shall prescribe, but not more than onehundredth of one per centum (1%) of the aggregate amount of the sales of securities transacted on such Exchange during the preceding calendar year for the privilege of doing business, during the preceding calendar year or any part thereof. protection of investors and the public interest so requires, summarily to suspend trading in any listed security on any Exchange or other trading market for a period not exceeding thirty (30) days but not exceeding ninety (90) days: Provided, however, That the Commission promptly following the issuance of the order of suspension, shall notify the affected issuer of the reasons for such suspension and provide such issuer with an opportunity for hearing to determine whether the suspension should be lifted. (2) or more Exchanges or other trading markets exist, the Commission may require and enforce uniformity of trading regulations in and/or between or among said Exchanges or other trading markets.

Wherever two

In addition to the existing Philippine

Stock Exchange, the Commission shall have the authority to determine the number, size and location of stock Exchanges, other trading markets and commodity Exchanges and other similar organizations in the light of national or regional requirements for such activities with the view to promote, enhance, protect, conserve or rationalize investment.

36.4. The Commission, having due regard to the public interest, the protection of investors, the safeguarding of securities and funds, and maintenance of fair competition among brokers, dealers, clearing agencies, and transfer agents, shall promulgate rules and regulations for the prompt and accurate clearance and settlement of securities transactions. 36.5. (a) The Commission may establish or facilitate the establishment of trust funds which shall be contributed by Exchanges, brokers, dealers, underwriters, transfer agents, salesmen and other persons transacting in securities, as the Commission may require, for the purpose of compensating investors for the extraordinary losses or damage they may suffer due to business failure or fraud or mismanagement of the persons with whom they transact, under such rules and regulations as the Commission may from time to time prescribe or approve in the public interest.

(b) The Commission may, having due regard to the public interest or the protection of investors, regulate, supervise, examine, suspend or otherwise discontinue such and other similar funds under such rules and regulations which the Commission may promulgate, and which may include taking custody and management of the fund itself as well as investments in and disbursements from the funds under such forms of control and supervision by the Commission as it may from time to time require. The authority granted to the Commission under this subsection shall also apply to all funds established for the protection of investors, whether established by the Commission or otherwise.

Section 37. Registration of Innovative and Other Trading Markets. -The Commission, having due regard for national economic development, shall encourage competitiveness in the market by promulgating within six (6) months upon the enactment of this Code, rules for the registration and licensing of innovative and other trading markets or Exchanges covering, but not limited to, the issuance and trading of innovative securities, securities of s m a l l , m e d i u m , g r o w t h a n d v e n t u r e enterprises, and technology-based ventures pursuant to Section 33 of this Code.

Section 38. Independent Directors. -Any corporation with a class of equity securities listed for trading on an Exchange or with assets in excess of Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders, at least of two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities or which has sold a class of equity securities to the public pursuant to an effective registration statement in compliance with Section 12 hereof shall have at least two (2) independent directors or such independent directors shall constitute at least twenty percent (20%) of the members of such board whichever is the lesser. For this purpose, an "independent director" shall mean a person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgement in carrying out the responsibilities of a director.

CHAPTER X REGISTRATION, RESPONSIBILITIES AND OVERSIGHT OF SELF-REGULATORY ORGANIZATIONS

Section 39. Associations of Securities Brokers, and Dealers, and Other Securities Related Organizations. -39.1. The Commission shall have the power to register as a self-regulatory organization, or otherwise grant licenses, and to regulate, supervise, examine, suspend or otherwise discontinue, as a condition for the operation of organizations whose operations are related to or connected with the securities market such as but not limited to associations of brokers and dealers, transfer agents, custodians, fiscal and paying agents, computer services, news disseminating services, proxy solicitors, statistical agencies, securities rating agencies, and securities information processor which are engaged in business of: (a) Collecting, processing, or preparing for distribution or publication, or assisting, participating in, or coordinating the distribution or publication of, information with respect to transactions in or quotations for any security; or (b) Distributing or publishing, whether by means of a ticker tape, a communications network, a terminal display device, or otherwise, on a current and continuing basis, information with respect to such transactions or quotations. The Commission may prescribe rules and regulations which are necessary or appropriate in the public interest or for the protection of investors to govern self-regulatory organizations and other organizations licensed or regulated pursuant to the authority granted in Subsection 39.1 including the requirement of cooperation within and among, and electronic integration of the records of, all participants in the securities market to ensure transparency and facilitate exchange of information.

39.2. An association of brokers and dealers may be registered as a securities association pursuant to Subsection 39.3 by filing with the Commission an application for registration in such form as the Commission, by rule, may prescribe containing the rules of the association and such other information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors.

An association of brokers and dealers

shall not be registered as a securities association unless the Commission determines that:

(a) The association is so organized and has the capacity to be able to carry out the purposes of this Code and to comply with, and to enforce compliance by its members and persons associated with its members, with the provisions of this Code, the rules and regulations thereunder, and the rules of the association.

( b ) T h e r u l e s o f t h e a s s o c i a t i o n , notwithstanding anything in the Corporation

Code to the contrary, provide that:

(i) Any registered broker or dealer may become a member of the association;

(ii) There exist a fair representation of its members to serve on the Board of Directors of the association and in the administration of its affairs, and that may any natural person associated with a juridical entity that is a member shall himself be deemed to be a member for this purpose;

(iii) The Board of Directors of the association includes in its composition:

(a) The president of the association and (b) Person who represent the interests of the issuer and public investors and are not associated with any broker or dealer or member of the association; that the president and other management of the association not be a member or associated with any broker, dealer or member of the association;

(iv) For the equitable allocation of reasonable dues, fees, and other charges among member and issuers and other persons using any facility or system which the association operates or controls;

(v) For the prevention of fraudulent and manipulative acts and practices, the promotion of just and equitable principles of trade, and, in general, the protection of investors and the public interest;

(vi) That its members and persons associated with its members shall be appropriately disciplined for violation of any provision of this Code, the rules and regulations thereunder, or the rules of the association;

(vii) That a fair procedure for the disciplining of members and persons associated with members, the denial of membership to any person seeking membership therein, the barring of any person from becoming associated with a member thereof, and the prohibition or limitation by the association of any person with respect to access to services offered by the association or a member thereof.

(a) A registered securities association

shall deny membership to any person who is not a registered broker or dealer.

(b) A registered securities association may deny membership to, or condition the membership of, a registered broker or dealer if such broker or dealer:

(i) Does not meet the standards of financial responsibility, operational capability, training, experience or competence that are prescribe by the rules of the association; or (ii) Has engaged, and there is a reasonable likelihood it will again engage, in acts or practices inconsistent with just and equitable principles of fair trade.

(c) A registered securities association may deny membership to a registered broker or dealer not engage in a type of business in which the rules of the association require members to be engaged: Provided, however, That no registered securities association may deny membership to a registered broker or dealer by reason of the amount of business done by the broker or dealer.

A registered securities association may examine and verify the qualifications of an (d) A registered securities association may bar a salesman or person associated with a broker or dealer from being employed by a member or set conditions for the employment of a salesman or associated if such person:

(i) Does not meet the standards of training, experience, or competence that are prescribe by the rules of the association; or (ii) Has engage, and there is a reasonable likelihood he will again engage, in acts or practices inconsistent with just and equitable principles of fair trade.

A registered securities association may examine and verify the qualifications of an applicant to become a salesman or associated person employed by a member in accordance with the procedures establish by the rules of the association. A registered association also may require a salesman or associated person employed by a member to be registered with the association in accordance with the procedures prescribed in the rules of the association.

39.5. In any proceeding by a registered securities association to determine whether a person shall be denied membership, or barred from association with a member, the association shall provide notice to the person under review of the specific grounds being considered for denial, afford him an opportunity to defend against the allegations, and keep a record of the proceedings. A determination by the association to deny membership shall be supported by a statement setting forth the specific grounds on which the denial is based.

Section 40. Powers with Respect to Self-Regulatory Organizations. -40.1. Upon the filing of an application for registration as an Exchange under Section 33, a registered securities association under Section 39, a registered clearing agency under Section 42, or other self-regulatory organization under this Section, the Commission shall have ninety (90) days within which to either grant registration should be denied. In the event proceedings are instituted, the Commission shall have two hundred seventy (270) days within which to conclude such proceedings at which time it shall, by order, grant or deny such registration. 40.2. Every self-regulatory organization shall comply with the provision of this Code, the rules and regulations thereunder, and its own rules, and enforce compliance therewith, notwithstanding any provisions of the Corporation Code to the contrary, by its members, persons associated with its members of its participants.

(a) Each self-regulatory organization

shall submit to the Commission for prior approval any proposed rule or amendment thereto, together with a concise statement of the reason and effect of the proposed amendment (b) Within sixty (60) days after submission of a proposed amendment, the Commission shall, by order, approve the proposed amendment. Otherwise, the same may be made effective by the self-regulatory organization.

(c) In the event of an emergency requiring action for the protection of investors, the maintenance of fair and orderly markets, or the safeguarding of securities and funds, a selfregulatory organization may put a proposed amendment into effect summarily; Provided however, That the copy of the same shall be immediately submitted to the Commission.

40.4. The Commission is further authorized, if after making appropriate request in writing to a self-regulatory organization that such organization effect on its own behalf specified changes in its rules and practices and, after due to notice and hearing it determines that such changes have not been effected, and that such changes are not necessary, by the rule or regulation or by order, may alter, abrogate or supplement the rules of such self-regulatory organization in so far as necessary or appropriate to effect such changes in respect of such matters as:

(a) Safeguards in respect of the financial responsibility of members and adequate provision against the evasion of financial responsibility through the use of corporate forms or special partnerships; 40.5. The Commission, after due notice and hearing, is authorized, in the public interest and to protect investors:

(a) To suspend for a period not exceeding twelve (12) months or to revoke the registration of a self-regulatory organization, or to censure or impose limitations on the activities, functions, and operations of such selforganization, if the Commission finds that such a self-regulatory organization has willfully violated or is unable to comply with any provision of this Code or of the rules and regulations thereunder, or its own or has failed to enforce compliance therewith by a member of, person associated with a member, or a participant in such self-regulatory organization;

(b) To expel from a self-regulatory organization any member thereof or any participant therein who is subject to an order of the Commission under Section 29 of this Code or is found to have willfully violated any provision of this Code or suspend for a period not exceeding twelve (12) months for violation of any provision of this Code or any other laws administered by the Commission, or rules and regulations thereunder, or effected, directly or indirectly, any transaction for any person who, such member or participant had reason to believe, was violating in respect of such transaction any of such provisions; and (c) To remove from the office or censure any officer or director of a self-regulatory organization if it finds that such officer or director has violated any provision of this Code, any other law administered by the Commission, the rules or regulations thereunder, or the rules of such self-regulatory organization, abused his authority, without reasonable justification or excuse has failed to enforce compliance with any of such provisions. 40.6. (a) A self-regulatory organization is authorized to discipline a member of or participant in such self-regulatory organization, or any person associated with a member, including the suspension or expulsion of such member or participant, and the suspension or bar from being associated with a member, if such person has engage in acts or practices inconsistent with just and equitable principles of fair trade or in willful violation of any provision of the Code, any other law administered by the Commission, the rules or regulations thereunder, or the rules of the selfregulatory organization. In any disciplinary proceeding by a self-regulatory organization (other than a summary proceeding pursuant to paragraph (b) of this subsection) the selfregulatory organization shall bring specific charges, provide notice to the person charged, afford the person charged with an opportunity to defend against the charges, and keep a record of the proceedings. A determination to impose a disciplinary sanction shall be supported by a written statement of the offenses, a summary of the evidence presented and a statement of the sanction imposed.

(b) A self-regulatory organization may summarily: (I) Suspend a member, participant or person associated with a member who has been or is expelled or suspended from any other self-regulatory organization; or (ii) Suspend a member who the self-regulatory organization finds to be in such financial or operating difficulty that the member or participant cannot be permitted to continue to do business as a member with safety to i n v e s t o r s , c r e d i t o r s , o t h e r m e m b e r s , participants or the self-regulatory organization: Provided, That the self-regulatory organization immediately notifies the Commission of the action taken. Any person aggrieved by a summary action pursuant to this paragraph shall be promptly afforded an opportunity for a hearing by the association in accordance with the provisions of paragraph (a) of this subsection. The Commission, by order, may stay a summary action on its own motion or upon application by any person aggrieved thereby, if the Commission determines summarily or after due notice and hearing (which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that a stay is consistent with the public interest and the protection of investors. 40.7. A self-regulatory organization shall promptly notify the Commission of any disciplinary sanction on any member thereof or participant therein, any denial of membership or participation in such organization, or the imposition of any disciplinary sanction on a person associated with a member or a bar of such person from becoming so associated. Within thirty (30) days after such notice, any aggrieved person may appeal to the Commission from, or the Commission from, or the Commission on its own motion within such period, may institute review of, the decision of the self-regulatory organization, at the conclusion of which, after due notice and hearing (which may consist solely of review of th e r e c o r d b e fo r e th e s e l f-r e g u l a to r y prepared by: ronie ablan AAA -BASTE / ATB organization), the Commission shall affirm, modify or set aside the sanction. In such proceeding the Commission shall determine whether the aggrieved person has engaged or omitted to engage in the acts and practices as found by the self-regulatory organization, whether such acts and practices constitute willful violations of this Code, any other law administered by the Commission, the rules or regulations thereunder, or the rules of the selfregulatory organization as specified by such organization, whether such provisions were applied in a manner consistent with the purposes of this Code, and whether, with due regard for the public interest and the protection of investors the sanction is excessive or oppressive.

40.8. The powers of the Commission under this Section shall apply to organized exchanges and registered clearing agencies.

CHAPTER XI A C Q U I S I T I O N A N D T R A N S F E R O F S E C U R I T I E S A N D S E T T L E M E N T O F TRANSACTION IN SECURITIES

Section 41. Prohibition on Use of Unregistered Clearing Agency. -It shall be unlawful for any broker, dealer, salesman, associated person of a broker or dealer, or clearing agency, directly or indirectly, to make use of any facility of a clearing agency in Philippines to make deliveries in connection with transaction in securities or to reduce the number of settlements of securities transactions or to allocate securities settlement responsibilities or to provide for the central handling of securities so that transfers, loans and pledges and s i m i l a r t r a n s a c t i o n c a n b e m a d e b y bookkeeping entry or otherwise to facilitate the settlement of securities transactions without physical delivery of securities certificates, unless such clearing agency is registered as such under Section 42 of this Code or is exempted from such registration upon application by the clearing agency because, in the opinion of the Commission, by reason of the limited volume of transactions which are settled using the clearing agency, it is not practicable and not necessary or appropriate in the public interest or for the protection of investors to require such registration.

Section 42. Registration of Clearing Agencies. -42.1. Any clearing agency may be registered as such with the Commission under the terms and conditions hereinafter provided in this Section, by filing an application for registration in such form and containing such information and supporting documents as the Commission by rule shall prescribe, including the following:

(a) An undertaking to comply and enforce compliance by its participants with the provisions of this Code, and any amendments thereto, and the implementing rules or regulations made or to be made thereunder, and the clearing agency's rules;

(b) The organizational charts of the Exchange, its rules of procedure, and list of its officers and participants;

(c) Copies of the clearing agency's rules. 42.2. No registration of a clearing agency shall be granted unless the rules of the clearing agency include provision for:

(a) The expulsions, suspension, or disciplining of a participant for violations of this Code, or any other Act administered by the Commission, the rules, regulations, and orders thereunder, or the clearing agency's rules;

(b) A fair procedure for the disciplining of participants, the denial of participation rights to any person seeking to be a participant, and the prohibition or limitation of any person from access to services offered by the clearing agency;

(c) The equitable allocation of reasonable dues, fees, and other charges among participants;

(d) Prevention of fraudulent and manipulative acts and practices, promotion of just and equitable principles of trade, and, in general, protection of investors and the public interest;

(e) The transparent, prompt and accurate clearance and settlement of transactions in securities handled by the clearing agency; and (f) The establishment and oversight of a fund to guarantee the prompt and accurate clearance and settlement of transaction executed on an exchange, including a requirement that members each contribute an amount based on their and a relevant percentage of the daily exposure of the (4) largest trading brokers which adequately reflects trading risks undertaken or pursuant to another formula set forth in Commission rules or regulations or order, upon application: Provided, however, That a clearing agency engaged in the business of securities depository shall be exempt from this requirement.

42.3. In the case of an application filed pursuant to this section, the Commission shall grant registration if it is finds That the requirements of this code and the rules and regulations thereunder with respect to the applicant have been satisfied, and shall deny registration if it does not make such finding. 42.4. Upon appropriate application in accordance with the rules and regulations of prepared by: ronie ablan AAA -BASTE / ATB the Commission and upon such terms as the Commission may deem necessary for the protection of investors, a clearing agency may withdraw its registration or suspend its operation or resume the same.

Section 43. Uncertificated Securities. -Notwithstanding Section 63 of the Corporation Code of the Philippines: 43.1. A corporation whose securities are registered pursuant to this Code or listed on securities exchange may:

(a) If so resolved by its Board of Directors and agreed by a shareholder, investor or securities intermediary, issue shares to, or record the transfer of some or all its shares into the name of said shareholders, investors or, securities intermediary in the form of uncertified securities. The use of uncertified securities in these circumstances shall be without prejudice to the rights of the securities intermediary subsequently to require the corporation to issue a certificate in respect of any shares recorded in its name; and (b) If so provided in its articles of incorporation and by-laws, issue all of the shares of a particular class in the form of Uncertificated securities and subject to a condition that investors may not require the corporation to issue a certificate in respect of any shares recorded in their name.

43.2. The Commission by rule may allow other corporations to provide in their articles of incorporation and by-laws for the use of uncertificated securities. 43.3. Transfers of securities, including an uncertificated securities, may be validly made and consummated by appropriate book-entries in the securities intermediaries, or in the stock and transfer book held by the corporation or the stock transfer agent and such bookkeeping entries shall be binding on the parties to the transfer. A transfer under this subsection has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the quantity or amount of security or right transferred, including the unrestricted negotiability of that security by reason of such delivery. However, transfer of uncertificated shares shall only be valid, so far as the corporation is concerned, when a transfer is recorded in the books of the corporation so as to show the names of the parties to the transfer and the number of shares transferred. Section 44. Evidentiary Value of Clearing Agency Record. -The official records and book entries of a clearing agency shall constitute the best evidence of such transactions between clearing agency shall constitute the best between clearing agency and its participants' or members' clients to prove their rights, title and entitlement with respect to the book-entry security holdings of the participants or members held on behalf of the clients. However, the corporation shall not be bound by the foregoing transactions unless the corporate secretary is duly notified in such manner as the Commission may provide.

Section 45. Pledging a Security or Interest Therein. -In addition to other methods recognized by law, a pledge of, including an uncertificated security, is properly constituted and the instrument proving the right pledged shall be considered delivered to the creditor under Articles 2093 and 2095 of the Civil Code if a securities intermediary indicates by book entry that such security has been credited to a specially designated pledge account in favor of the pledgee. A pledge under this subsection has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the quantity or amount of such security or right pledged. In the case of a registered clearing agency, the procedures by which, and the exact time at which, such bookentries are created shall be governed by the registered clearing agency's rules. However, the corporation shall not be bound by the foregoing transactions unless the corporate secretary is duly notified in such manner as the Commission may provide.

Section 46. Issuer's Responsibility for Wrongful Transfer to Registered Clearing Agency. -The registration of a transfer of a security into the name of and by a registered clearing agency or its name of or by a registered clearing agency or its nominee shall be final and conclusive unless the clearing agency had notice of an adverse claim before the registration was made. The above provisions which the claimant may have against the issuer for wrongful registration in such circumstances. An amount not greater than the whichever is the higher of -(a) Sixty-five per centum (65%) of the current market price of the security, or (b) One hundred per centum (100%) of the lowest market price of the security during the preceding thirty-six (36) calendar months, but not more than seventy-five per centum (75%) of the current market price.

However, the Monetary Board may increase or decrease the above percentages, in order to achieve the objectives of the Government with due regard for promotion of the economy and prevention of the use of excessive credit.

Such rules and regulations may make appropriate provision with respect to the carrying of undermargined accounts for limited periods and under specified conditions; the withdrawal of funds or securities; the transfer of accounts from one lender to another; special or different margin requirements for delayed deliveries, short sales, arbitrage transactions, and securities to which letter (b) of the second paragraph of this subsection does not apply; the methods to be used in calculating loans, and margins and market prices; and similar administrative adjustments and details. 48.2. No member of an Exchange or broker or dealer shall, directly or indirectly, extend or maintain credit is extended and maintain credit or arrange for the extension or maintenance of credit to or for any customer:

(a) On any security unless such credit is extended and maintained in accordance with t h e r u l e s a n d r e g u l a t i o n s w h i c h t h e Commission shall prescribe under this Section including rules setting credit in relation to net capital of such member, broker or dealer; and (b) Without collateral or any collateral other than securities, except (I) to maintain a credit initially extended in conformity with rules and regulations of the Commission and (ii) in cases where the extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of paragraph (a) of this subsection.

48.3 Any person not subject to Subsection 48.2 hereof shall extend or maintain credit or arrange for the extension or maintenance of credit for the purpose of purchasing or carrying any security, only in accordance with such rules and regulations as the Commission shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or trading in securities in circumvention of the other provisions of this Section.. Such rules and regulations may impose upon all loans made for the purpose of purchasing or carrying securities limitations similar to those imposed upon members, brokers, or dealers by Subsection 48.2 and the rules and regulations thereunder. This subsection and the rules and regulations thereunder shall not apply:

(a) To a credit extension made by a person not in the ordinary course of business; (b) to a loan to a dealer to aid in the financing of the distribution of securities to customers not through the medium of an Exchange; or (c) To such other credit extension as the Commission shall exempt from the operation of this subsection and the rules and regulations thereunder upon specified terms and conditions for stated period. 49.1. To permit in the ordinary course of business as a broker or dealer his aggregate indebtedness including customers' credit balances, to exceed such percentage of the net capital (exclusive of fixed assets and value of Exchange membership) employed in the business, but not exceeding in any case to thousand percentum (2,000%), as the Commission may be rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors.

49.2. To pledge, mortgage, or otherwise encumber or arrange for the pledge, mortgage, or encumbrance of any security carried for the account of any customer under circumstances: (a) That will permit the commingling of his securities, without his written consent, with the securities of any customer; (b) That will permit such securities to be commingled with the securities of any person other than a bona fide customer; or (c) that will permit such securities to be pledged, mortgaged or encumbered, or subjected to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers in respect of such securities. However, the Commission, having due regard to the protection of investors, may, by rules and regulations, allow certain transactions that may otherwise be prohibited under this subsection. 49.3. To lend or arrange for the lending of any security carried for the account of any customer without the written consent of such customer or in contravention of such rules and regulations as the Commission shall prescribe. S e c t i o n 5 0 . E n f o r c e m e n t o f M a r g i n Requirement and Restrictions on Borrowing. -To prevent indirect violations of the margin requirements under Section 48, the broker or dealer shall require the customer in nonmargin transactions to pay the price of the security purchased for his account within such period as the Commission may prescribe, which shall in no case exceed the prescribed settlement date. Otherwise, the broker shall sell the security purchased starting on the next trading day but not beyond ten (10) trading days following the last day for the customer to pay such purchase price, unless such sale cannot be effected within said period for justifiable reasons. The sale shall be without prejudice to the right of the broker or dealer to recover any deficiency from the customer. To prevent indirect violation of the restrictions on borrowing under Section 49, the broker shall, unless otherwise directed by the customer, pay the net sales price of the securities sold for a customer within the same period as above prescribed by the Commission: Provided, That the customer shall be required to deliver the instruments evidencing the securities as a condition for such payment upon demand by the broker.