Securities Regulation Code Chapter VI: Protection of Shareholder Interests

Approach Tender Offers Proxy Solicitations Transactions by Directors, Officers, and Principal Stockholders

Tender Offers Amended IRR of Securities Regulation Code, Rule 19 Definition: – “publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company”

Tender Offers Definition of Terms: “public company” (Amended IRR SRC Rule 3) – Listed on an exchange, or – Assets exceed P50M AND with 200 or more stockholders at least holding 100 shares RSA Sec 33(c): rule on aggregate persons – Aggregate share acquisition of two or more persons when they act as a group/syndicate – Recognized by SRC

Tender Offers Rationale: – Protection of interests of stockholders of the company, especially minority stockholders – Concentrated ownership of Phil. companies – “block trade” concept * – Bidder compelled to offer highest purchase price during the past 6 months

Tender Offers SEC Memorandum Circular No. 12 Series of 2003 increased all thresholds to 35%

Tender Offers Mandatory Tender Offers (Amended IRR SRC Rule 19) – Any person/group of persons acting concert who intends to buy 35% or more of equity shares in a public company for a one-time acquisition – Any person/group of persons acting concert who intends to buy 35% or more of equity shares in a public company within a 12-month period – Acquisition of less than 35% would result in ownership of over 51% of total equity

Tender Offers Any class of equity shares can be subject of a tender offer * National Life Insurance Co. v Cemco Holdings (2005): – “direct and indirect shareholdings of an entity in a public company is included in the computation of the threshold percentage for a mandatory tender offer”

Tender Offers Exceptions: – Purchase of shares from unissued capital stock, provided it will not result to 50% or more ownership – Any purchase of shares from an increase in authorized capital stock – Purchase in connection with privatization by the government of the Philippines – Purchase in connection with corporate rehabilitation under court supervision

Tender Offers Exceptions: – Purchase in connection with foreclosure proceedings where acquisition made by debtor or creditor – Purchase through an open market at the prevailing market rate – Merger or consolidation Purchasers of shares in the foregoing transactions shall, however, comply with the rules on disclosure of equity ownership *

Tender Offers Voluntary Tender Offers Concept present under OLD IRR * Amended IRR does not recognize the concept of Voluntary Tender Offers Applicable rules are those on Mandatory Tender Offers

Tender Offers Filing Requirements Must be complied with 2 business days prior to the date of tender offer by the bidder – File with the Commission copies of SEC Form 19-1, with all exhibits and filing fees; and – Hand deliver a copy of Form 19-1, with all exhibits, to company at its principal office and to each Exchange where company’s securities are listed for trading Amendments: – File with Commission any additional tender offer materials as exhibits – Hand deliver to company and to any Exchange – Report to Commission results of tender offer by filing all exhibits and amendments within 10 calendar days after end of offer

Tender Offers Disclosure Requirements: – Identity of bidder and his principal occupation – Identity of target company – Amount of class of securities being bought and consideration being offered – Expiration date of offer – Other information included under Form 19-1

Tender Offers Dissemination Requirements: Bidder must comply with ONE of the methods: – Long Form Publication – Summary Publication For any material change (percentage of securities being sought or consideration offered), bidder must promptly disclose such change to all security holders

Tender Offers Manner and Period Offer, unless withdrawn, is valid/open until: – 20 business days from commencement – 10 business days from notice of any material change Bidder compelled to offer highest purchase price during the past 6 months

Tender Offers Manner and Period Withdrawal of securities allowed: – Any time when offer is still open – If not yet accepted for payment, after 60 business days from offer No Tender Offer can be made unless: – Offer is open to all security holders of the class of securities being sought – Consideration paid is the highest price

Tender Offers Insider Trading (Amended IRR SRC Rule 19) – “A person becomes aware of a potential tender offer before it has been publicly announced – such person shall not buy or sell, directly or indirectly, the securities of the target company until the tender offer shall have been publicly announced – such buying or selling shall constitute Insider Trading under Section 27.4 of the Code.”

Proxy Solicitations Definition – “contract of agency; physical absence of stockholder at a stockholder’s meeting is transformed into juridical presence through the proxy” IRR SRC Rule 3: – Applies to any public company and to any other person soliciting votes from the stockholder

Proxy Solicitations Proxy Solicitations also apply to: – Amendment of the AOI and/or By-laws – Dispositions of company property – Incurring or increasing bonded indebtedness – Increase or decrease of capital stock – Merger or consolidation – Dissolution Articles or By-laws may further provide where proxy solicitations can apply

Proxy Solicitations Form (SRC Sec. 20.2): – Proxies must be in writing – Signed by stockholder or duly authorized representative – Filed before scheduled meeting with corporate secretary Validity (SRC Sec. 20.3) – Proxies valid only for the meeting for which it is intended, unless otherwise provided – No proxy shall be valid beyond 5 years

Proxy Solicitations Limitations (Amended IRR SRC Rule 20) Proxy can confer discretionary authority on: – Matters incidental to the meeting – Approval of minutes of meeting – New matters presented at the meeting, previously unknown, provided there is a statement to that effect in the proxy

Proxy Solicitations A broker or dealer acting as proxy for at least 10% of the outstanding shares of a public company must submit a report to issuing company, Exchange, and the SEC as to who the beneficial owner of such shares is

Transactions by Directors, Officers, and Principal Stockholders Coverage Persons: – Directors – Officers – Principal Stockholders (Amended IRR SRC Rule 3) Shares: – Only equity (voting) shares are covered (Amended IRR SRC Rule 18)

Transactions by Directors, Officers, and Principal Stockholders Requirement: File a statement with SEC (Form 23-A) indicating amount of equity securities which he is the beneficial owner within 10 days: – After becoming beneficial owner, director, officer – After effective date of registration of security, OR File with SEC (Form 23-B) as to changes of ownership occurring in the calendar month within 10 days after the close of each month, OR

Transactions by Directors, Officers, and Principal Stockholders Notify SEC if his direct/indirect beneficial ownership falls below 10% or if he ceases to be a director or officer (Amended IRR SRC Rule 23)

Transactions by Directors, Officers, and Principal Stockholders “short-swing profit” concept (SRC Sec. 23.2) * Elements: – Purchase AND sale or vice-versa – Within 6 months – By a director, officer, principal stockholder Rationale – “prevent the unfair use of information which may have been obtained by said person by reason of his relationship with the company” *

Transactions by Directors, Officers, and Principal Stockholders Speculative Transactions (SRC Sec. 23.3) : – “short sales” concept * – “sales against the box” concept * Requirement: – Director, officer, principal stockholder must deliver securities within 20 days after the sale Rationale: – Access to inside information is subject to abuse Unable to deliver in good faith a defense

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