Philippine Long Distance Telephone CompanyClarification Pertaining to the Shareholder Rights Plan

September 8, 1998 PSE CIRCULAR FOR BROKERS NO. 2093-98 SUBJECT : Philippine Long Distance Telephone Company Clarification Pertaining to the Shareholder Rights Plan Further to Circular No. 2053-98 dated September 3, 1998, pertaining to the Shareholder Rights Plan ("SRP") of PHILIPPINE LONG DISTANCE TELEPHONE COMPANY ("PLDT"), attached is a letter from PLDT clarifying the matters relating to the said SRP. LLphil For your information and guidance. (SGD.) RAFAEL L. LLAVE Chief Operating Officer Atty. Enrique D. Perez Senior Executive Vice President September 7, 1998 Philippine Stock Exchange PSE Center, Exchange Road Ortigas Center Pasig City Attention: Mr . Reynold P . Ong Vice President Listings and Disclosure Group Gentlemen : This is in response to your letter of September 4, 1998 seeking clarification on matters relating to the Shareholder Rights Plan adopted by PLDT's Board of Directors on September 3, 1998. Preliminary Statement The Board of Directors of PLDT, after due consideration of the present state of the market and the unrealistically low trading price of PLDT common shares, decided to adopt certain measures to protect the company and its shareholders from hostile and potentially abusive takeover attempts. At present price levels, a public company such as PLDT with a widely dispersed ownership of shares could conceivably be the target of such an attempt. Additional Information At the September 3, 1998 meeting, the Board approved a number of measures to protect the company in case such a situation arises. These measures are intended to provide the Board ample leverage to negotiate with a potential acquirer and ensure that the company's interest will be protected and that shareholders will receive the best possible price for their shares. The measures adopted by the Board were: 1. Amendments to the By-laws of the Company, which provide that any stockholder who wishes to nominate persons for election to the Board and to propose any agenda item to be taken up at an annual or special meeting, must give timely notice thereof in writing to the secretary. Certain information concerning each proposed nominee and proposed agenda item must be provided. The amendment describes the notice requirement and procedure. In addition, a nominating committee composed of the Chairman, the President, the Corporate Secretary and two directors was created. The establishment of procedure for the advance notice of stockholder nominations of directors and of stockholder proposals of agenda items would eliminate the ability of a hostile investor to make nominations or to introduce other proposals from the floor at any meeting of stockholders without timely notice. Such advance notice would afford the Board an opportunity to consider the qualifications of the proposed nominees and the substance of the proposed business. 2. A Shareholders Rights Plan, described in greater detail below, which will serve as a mechanism for the Board to protect shareholders against takeover abuses and to assure that shareholders receive a fair price and fair treatment in the context of a corporate takeover. The plan provides the Board with bargaining power and leverage, as well as sufficient time to carefully consider, the best course of action in such a situation. A Shareholders Rights Plan is not intended to prevent a takeover of a company and will not do so. It will, however, deter any attempt to acquire control of a company in a manner or on terms not approved by its board of directors. It is intended to empower the Board to protect and pursue the interests of the company and its shareholders. Potential takeover abuses that a Shareholders Rights Plan is designed to protect against include: q The traditional function of the board of directors is to act and negotiate on behalf of a company's shareholders in connection with a merger or other business combination. The commencement of a tender offer, rather than negotiation with the board, can leave the company with a highly compressed time frame for considering alternatives with no meaningful bargaining power to negotiate a higher price. q By use of the so-called "creeping tender offer," a potential hostile acquirer can gain control of a company without affording all shareholders the right to receive the same price for their shares. This is usually achieved through open-market purchases or through direct negotiation with selected shareholders at negotiated prices. q The commencement of a tender offer by a hostile acquirer usually results in professional arbitrageurs immediately acquiring large numbers of shares. Once this takes place, a hostile acquirer could terminate the tender offer and "sweep the street" by purchasing the shares held by arbitrageurs, thereby acquiring control without giving other minority shareholders the same opportunity to tender their shares. q The takeover of a company by a hostile acquirer through a creeping or partial tender offer can enable a hostile acquirer to take advantage of the public minority shareholders through self-dealing and conflict transactions or to squeeze out the public shareholders. These tactics can unfairly pressure shareholders, squeeze them out of their investment without giving them any real choice, and deprive them of the full value of their shares. Evidence shows that Shareholders Rights Plans have served their intended purpose of increasing the bargaining power of a target company's board of directors. In a study released in November 1997 (a copy of which is attached herewith as Annex A) Georgeson & Company analyzed 319 takeover transactions between 1992 and 1996. It made two notable conclusions: (1) premiums paid to acquire target companies with Shareholders Rights Plans averaged eight percentage points higher than premiums paid for target companies that did not have such a plan; and (2) the presence of Shareholders Rights Plan did not reduce the likelihood of a company becoming a takeover target. In fact, companies with such plans had a slightly higher takeover ratio than companies without them. cdt 3. In conjunction with the Shareholders Rights Plan, the Board created a new series of preferred shares consisting of up to 1,500,000 shares, designated as "Series IV Cumulative Non-Convertible Preferred Stock" with a par value of P10.00 each. The preferred shares will be issued and sold only upon the exercise of rights as provided under the Shareholders Rights Plan. Under the Plan, the rights become exercisable (and transferable) only on the tenth day after such time as a person or group acquires beneficial ownership of 10% or more of the Company's common stock, or the tenth day (or such later time as the Board may determine) after a person or group announces its intention to commence or commences a tender or exchange offer, the consummation of which result in beneficial ownership by a person or group of 10% or more of the Company's common stock. Prior to such time the rights are not transferable, are "attached" to and automatically trade with the common shares. The features of the new series of preferred shares are described in the attached Annex B. The Shareholders Rights Plan 1 In answer to the questions in your September 4, 1998 letter, we now advise as follows: 1. The exercise price of P4,000.00 represent the Board's view of the long-term value of the common stock. This long-term value is set at approximately five times the current market price. The exercise price of P4,000.00 pertains to the right to subscribe to 1/100th of a preferred share. Thus, to purchase one preferred share, the exercise price would be P400,000.00. Note however that the exercise price is subject to adjustments by the Board. The ratio "one one-hundredth" of a preferred share for each right was so fixed so as not to utilize too much of the company's authorized but unissued preferred stock. As previously mentioned, the "newly-issued share of preferred stock" is a new series of preferred stock. The Shareholders Rights Plan would take effect on the record date, originally fixed by the Board as September 18, 1998, and would expire in ten years. The rights would not be exercisable, are not transferable, and rights certificates would not be sent to shareholders. The rights are "attached" to and would automatically trade with the common shares, whether these shares are purchased or issued before or after the record date. The record date is material only as a reference point from which to determine the effectivity of the plan, and to "carve out" from the plan's coverage current shareholder(s) who beneficially own 10% or more of the common shares. 2 When the plan becomes effective on record date, each common share, then outstanding or to be issued by the company in the future other than those held by the Acquiring Person, becomes entitled to one right. The rights become exercisable (and rights certificates are distributed and become transferable) ten days after a person or group (Acquiring Person) acquires 10% or more of the common stock, or ten days (or such later date as may be determined by the Board) after a person or group announces an offer the consummation of which would result in such person or group owning 10% or more of the common shares. From and after the occurrence of such event, any rights that are or were acquired by any Acquiring Person shall be void and shall not be exercisable. The objective of the plan is to induce the Acquiring Person to negotiate with the Board so as not to trigger the rights. Once the rights are activated, the Acquiring Person would be diluted and the value of his holdings would correspondingly decline. When the rights become exercisable, a rights holder would be entitled to purchase 1/100th of a share of the new Series IV Cumulative Non-Convertible Preferred Stock, at a purchase price of P4,000.00 per right. Alternatively, a rights holder would be entitled to buy a number of common shares having a market value of twice the purchase price of each right. Thus, at an exercise price of P4,000.00 a rights holder can purchase P8,000.00 worth of common shares for the price of P4,000.00. Moreover, the Board of Directors of the company, prior to any person or group acquiring 50% of the outstanding common shares, shall have the option to exchange the rights (other than rights held by the Acquiring Person) at an exchange ratio of one common share per right. If the company is acquired in a merger or other business combination with an Acquiring Person at any time after a person or group has acquired 10% or more of the common stock, the rights would entitle a holder to buy a number of shares of common stock of the acquiring company having a market value of twice the purchase price of each right. The company shall not consummate any such merger or combination unless prior thereto the company and the acquiring company shall have entered into such an agreement. Finally, the rights may be redeemed by the Board at a nominal price per right prior to the triggering event. 2. Persons who, on record date, already beneficially own 10% or more of the common shares of the company are not deemed "Acquiring Person" under the Plan until they acquire an additional 5% or more. No person shall become an "Acquiring Person" as a result of an acquisition of common shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such person to 10% or more of the common shares then outstanding. However, if such person becomes the beneficial owner of additional common shares, then such person shall be deemed to be an "Acquiring Person." 3. As previously discussed, while the Plan will not prevent a takeover, it makes it unacceptably expensive for a hostile investor not to deal with the Board. The Board is then given the opportunity to negotiate the best price and terms on behalf of the shareholders. 4. The new series of preferred shares is not convertible to common shares. 5. The Board of Directors of the Company may, at its option, at any time prior to any person becoming an Acquiring Person, redeem the then outstanding Rights at a nominal redemption price of One Philippine Peso (P1.00) per Right. The purpose of this right of redemption is to enable the Board to "turn off" the Shareholders Rights Plan once an agreement is reached with a person intending to acquire the Company. 6. PLDT will monitor the acquisition of any person or group through the stock transfer agent and, to the extent possible, in coordination with the PCD. In addition, services of specialized investigative agencies may be availed of. Under the Shareholders Rights Plan, "Affiliate" or "Affiliates" is defined as any person or entity that directly or indirectly controls, is controlled by or is under common control with another person or entity and shall include, without limitation, any direct or indirect parent or subsidiary of any of the foregoing and their successors and assigns, and "control", "controlled" and "common control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management or the policies of such person or entity to the extent permitted by law, rule or regulation, whether through ownership of voting interests, by contract, employment relationship or otherwise. We hope the foregoing clarify the matters raised. We wish to take this opportunity to underscore the importance of setting the record date as early as possible for the Shareholders Rights Plan to achieve its purpose, and look forward to timely action by the Philippine Stock Exchange on the matter. Very truly yours, (SGD.) ENRIQUE D. PEREZ Secretary ANNEX A November 1997 GEORGESON Jamil Aboumeri Associate Research Group (212) 440-9056 jaboumeri@georgeson . com Mergers & Acquisitions Poison Pills and Shareholder Value/1992-96 Georgeson & Company Inc.'s Research Group analyzed takeover data between 1992 and 1996 to determine whether shareholder rights plans (commonly known as "poison pills") had any measurable impact on shareholder value. Our findings are summarized as follows: Premiums paid to acquire target companies with poison pills were on average eight percentage points higher than premiums paid for target companies that did not have poison pills. This finding is consistent with earlier Georgeson studies and persisted after controlling for fundamental differences between pill and non-pill companies. We estimate that poison pills contributed an additional $13 billion in shareholder value during the last five years, and that the shareholders of acquired companies without pills gave up $14.5 billion in potential premiums. The presence of a poison pill at a target company did not increase the likelihood of the withdrawal of a friendly takeover bid nor the defeat of a hostile one. Poison pills did not reduce the likelihood of a company becoming a takeover target: companies with pills had a slightly higher takeover rate than companies without pills. I. Poison Pills and Takeover Premiums Shareholders of target companies with poison pills received significantly higher takeover premiums than did shareholders of target companies without poison pills in transactions completed between 1992 and 1996 . We looked at 319 takeover transactions (mergers, acquisitions, tender offers, and acquisition of majority interest) completed in the five-year period ending December 31, 1996, with deal size greater than $250 million. 1 There were 105 acquired companies that had a poison pill six months prior to the first bid . These companies received a significantly higher takeover premium relative to companies that did not have a poison pill: Number Average Median Median Hostile Premium Market Cap P/B Ratio Bids Target with Poison Pill 105 37.26% $677 1.82 11 Target without Poison Pill 214 29.48% $440 2.21 8 All 319 32.04% $472 1.99 19 Premiums paid for companies with poison pills averaged almost eight percentage points, or 26%, higher than premiums for non-pill companies. Takeover premium was measured as the price appreciation from one week prior to the announcement of the first bid until the transaction's completion date, net of the change in the S&P500 index over the same period (to account for market factors). The higher premiums received by target companies with poison pills were not fully attributable to these companies' fundamental differences from non-pill companies. Target companies with poison pills typically had a large market capitalization, a small price-to-book ratio, and a greater proportion of hostile bids. After controlling for these differences, pill companies still appeared to receive higher premiums. For instance, premiums for small cap companies (market capitalization less than $1 billion) with pills average over 10 percentage points more than premiums for small caps without pills, whereas premiums for large caps with pills were about 6 percentage points higher than those for similar-sized non-pill companies: In addition to having larger average market caps, target companies with poison pills on average had lower price-to-book ratios. However, as the following graph shows, the lower price-to-book ratio does not seem to be a factor in explaining the higher premiums received by pill companies: Target companies with poison pills also had a larger proportion of hostile bids, which typically involve higher premiums. However, shareholders of companies with pills received higher premiums regardless of whether the takeover attitude was friendly or hostile: After simultaneously controlling for differences in market cap, price-to-book ratio, and bid attitude, we found that takeover premiums received by target companies were higher by an average of nine percentage points when the company had a poison pill . In order to determine whether the higher premiums received by target companies with pills are due to their fundamental differences from non-pill companies, we implemented regression analysis techniques that simultaneously controlled for those differences. Our analysis showed that takeover premiums exhibited a statistically significant correllation with market cap and bid attitude, with premiums being higher for a small-cap target or for a hostile bid. Premiums also seemed to increase with a higher price-to-book ratio, but the correlation was not statistically significant. 2 Nevertheless, after controlling for these factors, we still found that companies with pills received significantly higher premiums than those without. LibLex From 1992 to 1996, poison pills appear to have added $13 billion in shareholder value for target companies, a 32.3% increase in premiums . Since poison pills are associated with the creation of additional value for the shareholders of targets companies, we can calculate the pills' possible contribution, in dollar terms, to shareholder wealth. Between 1992 and 1996, the 105 companies that had a poison pill and were the target of a successful takeover had an aggregate market value of $180 billion one week prior to the announcement of the takeover bid. The aggregate value of these completed deals was $233 billion, indicating that shareholders received $53 billion in takeover premiums. Using the correlations established by our regression analysis, we estimate that premiums would have totaled only $40 billion had these companies not had poison pills. The shareholders of target companies that did not have poison pills gave up $14.5 billion in possible additional premiums . Between 1992 and 1996, 214 companies without poison pills were acquired for a total of $202 billion. Their shareholders received $46.5 billion in takeover premiums. Had these companies received the average premiums paid to pill companies, shareholders would have earned $61 billion in total premiums, a 30.9% increase. II. Poison Pills and Bid Completion Rate Clearly, poison pills are associated with a substantial positive impact on shareholder value in successful takeover situations. Some critics argue, however, that pills damage shareholders by defeating some potentially successful takeover bids. We tested the validity of this argument by analyzing whether poison pills had any impact on the likelihood of the withdrawal of a takeover bid. We found that announced takeover bids were not less likely to be completed when the target company had a poison pill. Deals were actually more likely to be completed when the target had a poison pill . Between 1992 and 1996, 39 takeover bids were withdrawn without the target company being ultimately acquired by another bidder. The target company had a poison pill in only 12 (31%) of those 39 cases, almost the same ratio as in completed deals (33% of acquired companies had pills). This meant that the bid withdrawal rate was lower when the target company had a poison pill. Only 12 (10.3%) of the 117 takeovers bids for companies with poison pills were withdrawn, as opposed to 27 (11.2%) of the 241 bids for companies without pills: Regression analysis confirmed that the presence of a poison pill did not increase the likelihood of the deal being withdrawn. In fact, we find that a poison pill actually made it more likely for the deal to go through. The analysis controlled for differences in premiums, market capitalization, price-to-book ratio, and bid attitude. The presence of a pill did not increase the likelihood of defeating a hostile bid . These bids typically offer higher premiums. If pills were to make the success of hostile bids less likely, the economic damage to shareholders would be significant. Between 1992 and 1996, 19 hostile bids were successful and 25 were defeated (with the target remaining independent). Eleven (58%) of the 19 successful hostile takeovers had a poison pill, compared with only nine (36%) of the 25 hostile bids that were defeated. These figures indicate that target companies with poison pills had a lower hostile bid defeat rate (45% - nine defeats and 11 completions) that non-pill target companies (66.7% - 16 defeats and eight completions): Based on these findings, it is unlikely that poison pills deterred hostile takeovers. A regression analysis that simultaneously controlled for offered premium, market cap, and price-to-book ratio confirmed that the likelihood of defeating a hostile takeover bid did not increase with the presence of a poison pill. The likelihood of defeating a hostile bid actually decreased when the target company had a poison pill, although the decrease was not statistically significant. The explicit purpose of poison pills is to increase target companies' power to negotiate higher takeover prices and thus maximize shareholder value. The effectiveness of pills in achieving this goal is supported by our findings that companies with poison pills have been able to obtain significantly larger takeover premiums (relative to non-pill companies), but were not more likely to defeat announced takeover bids. III. Poison Pills and Takeover Frequency Some critics argue that having a poison pills makes it less likely that a company will become a takeover target, implying that some potentially successful takeover bids may never be initiated because the intended target has a poison pill. In other words, even though poison pills may lead to higher premiums and do not reduce bid completion rates, they still might prevent some bids from occurring, thus acting against the economic interest of shareholders of the unrealized target companies. The evidence indicates that having a poison pill does not make a company less likely to become a takeover target . If the presence of a poison pill were to reduce the likelihood of takeover, we would expect non-pill companies to exhibit a higher takeover rate than pill companies. We tested this possibility by looking at companies comprising the S&P500 and S&P400 (Mid-cap) indices in December 1993. Fifty-eight percent of these companies had poison pills (65% for S&P500 and 49% for S&P400), and 42% did not (35% for S&P500 and 51% for S&P400). 3 Sixty-one of these S&P500 and S&P400 companies were acquired between January 1994 and December 1996. Companies without poison pills did not exhibit a higher takeover rate relative to companies that had pills. In fact, non-pill companies exhibited a lower takeover rate, although the difference was not statistically significant. Forty companies had poison pills and 21 companies did not, indicating a takeover rate of 7.7% for pill companies and 5.6% for non-pill companies: 4 IV. Conclusion Our analysis shows that poison pills provide shareholders with tangible economic benefits. Companies with pills appeared more likely to be targets of takeover bids than companies without pills. Once takeover bids were initiated, they were more likely to be completed when the target company had a poison pill. Finally, when takeover bids were completed, the premiums paid were significantly larger for target companies with poison pills. In light of these findings, it is surprising that significant numbers of shares continue to be voted in support of the rescission of poison pills. While pills may raise some governance concerns because they deprive shareholders of voting rights, our findings support the notion that poison pills are a mechanism that contributes to the goal of maximizing shareholder value. November 1997 GEORGESON Christopher Hayden Associate Research Group (212) 440-9850 [emailprotected] Corporate Governance Institutional Voting on Poison Pill Rescission Support for shareholder sponsored proposals to rescind poison pills has been increasing gradually for the past eleven years, despite a series of studies demonstrating that poison pills are associated with increases in shareholder value, not with decreases. Nearly 40% of the shares outstanding were voted in favor of poison pill rescission in 1997 - the highest level of support since rescission proposals were first submitted in 1987. Georgeson & Company analyzed data from the past three years to find out what caused these high votes. Our findings include: We found that the composition of the shareholder base was a major determinant of the level of support a poison pill rescission proposal received. The greater the percentage of shares owned by investors rated high on the Georgeson Activism Rating, the greater the vote for poison pill rescission proposals. dctai We found that shareholder support for pill proposals had a modest correlation with total return. Companies with excellent performance sometimes received high votes while companies with poor performance sometimes received low votes. Poor performances, however, were more likely to have shareholder sponsored pill proposals. Similarly, we found no relationship between a company's five year average return on equity and the support its shareholders gave to poison pill rescission proposals. Why have the votes for poison pill proposals continued to increase despite evidence that poison pills are beneficial to shareholders? Since we began tracking the corporate governance movement over ten years ago, the popularity of shareholder sponsored poison pill rescission proposals has been increasing gradually. In 1987, poison pill proposals received support from 20% of the shares outstanding, which at the time was significantly higher than support for other shareholder proposals. Ten years later poison pill proposals received support from more than 40% of the outstanding shares. These voting trends are in direct contrast to the development of economic evidence about poison pills during this period. Our most recent study shows that companies with poison pills receive higher takeover premiums in both hostile and friendly deals, and that there is no evidence that pills deter bids or increase the probability that bids will be withdrawn without a completed transaction. Georgeson's two pioneering Poison Pill Impact Studies in 1988 reached the same conclusions - that companies with pills received higher premiums in takeover contests and that pills did not diminish shareholder value by preventing takeovers, but were actually associated with higher overall shareholder value. Several other studies, such as a 1996 report from JP Morgan, have reached essentially the same conclusions. The percentage of activists in a company's shareholder base was the factor that best explained variations in voting results . In order to get a clearer picture of what factors may be determining the outcome of poison pill votes, we analyzed the mix of institutions in the shareholder base of the 30 companies that received a poison pill rescission proposal from 1995 through 1997. Using Georgeson Activism Rating 1 as our measure of an institution's corporate governance philosophy, we found a significant correlation (r-squared = 0.42) between the number of shares held by activists and the level of support for pill rescission proposals. This correlation indicates that the composition of the shareholder base is a major driver behind the level of support a proposal receives. Not surprisingly, those companies that have a large portion of their shares held by activists, many of which are public and union pension plans, are likely to have higher votes. Conversely, companies with low percentages of shares held by activists tend to have significantly lower votes. This relationship between shareholder composition and voting results is even clearer when we look at specific examples . For instance, one company that had an unusually large number of votes for pill rescission was Rite Aid in 1996. Nearly 56% of the shares outstanding were voted in favor in pill rescission. Rite Aid has an unusually high concentration of activist shareholders (rated "high" on the Georgeson Activism Scale) and very few holders that rank low on the scale of activist institutions. Among Rite Aid's largest shareholders were Fidelity and Wellington -institutions that take an aggressive approach to proxy issues and score high on the Georgeson Activism Rating. At the opposite of the spectrum was Star Banc Corp. in 1995. Star Banc's ownership was highly concentrated among institutions that ranked low on the Georgeson Activism Rating scale. As a consequence, only 22% of the shares outstanding were voted in favor of pill rescission. We found that even though shareholder proposal proponents tend to target companies with poor performance, a company's total return actually had far less impact on voting results than did its shareholder composition . Activists often explain their votes for shareholder governance proposals as a way of expressing their displeasure with management performance. We used total return over the five years prior to the proposal (relative to the S&P 500) and compared this measure of performance with the results of the pill proposals. As the chart below illustrates, poison pill proposals were clearly concentrated at underperforming companies, but we found only a minimal correlation of 0.15 between total return and pill support. 2 Similarly, we found even less relationship, between ROE and voting on poison pill rescission proposals . We analyzed the impact of five-year ROE (return-on-equity) on the voting results. We found no correlation between the two. This is further evidence that a company's economic performance has little impact on the voting patterns for poison pill rescission proposals. 1. Designation and Amount . The shares of this series shall be designated as "Series IV Cumulative Non-Convertible Preferred Stock" (the "Series IV Preferred Stock") and the number of shares constituting the Series IV Preferred Stock shall not be in excess of 1,500.000. The foregoing notwithstanding such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series IV Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series IV Preferred Stock. 2. Dividends and Distributions . (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any other stock), the holders of shares of Series IV Preferred Stock, in preference to the holders of Common Stock, par value PhP5.00 per share (the "Common Stock"), of the Corporation, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series IV Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) PhP100.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series IV Preferred Stock. In the event the Corporation shall at any time declared or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series IV Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series IV Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of PhP1.00 per share on the Series IV Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series IV Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series IV Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series IV Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The board of Directors may fix a record date for the determination of holders of shares of Series IV Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 45 days prior to the date fixed for the payment thereof. LexLib 3. Certain Restrictions . (A) Whenever quarterly dividends or other dividends or distributions payable on the Series IV Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on share of Series IV Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series IV Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series IV Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled: (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series IV Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series IV Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Serial Preferred Stock, or any shares of stock ranking or a parity with the Serial Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under sub-paragraph (A) of this paragraph 3, purchase or otherwise acquire such shares at such time and in such manner. 4. Reacquired Shares . Any shares of Series IV Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall thereupon revert to and shall form part of the unissued Serial Preferred Stock of the Corporation and such shares may be reissued by the Corporation in any other series which the Board of Directors may from time to time establish. 5. Liquidation, Dissolution or Winding Up . Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of share of stock ranking junior (upon liquidation, dissolution or winding up) to the Series IV Preferred Stock unless, prior thereto, the holders of shares of Series IV Preferred Stock shall have received PhP11.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; ^ or (2) to the holders of shares of stock ranking on a parity (upon liquidation, dissolution or winding up) with the Series IV Preferred Stock, except distributions made ratably on the Series IV Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series IV Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 6. Consolidation, Merger, etc . In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series IV Preferred Stock shall at the time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series IV Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. No Redemption . The shares of Series IV Preferred Stock shall not be redeemable. 8. Voting Rights . Except as hereinafter provided, or except as expressly required by applicable law, the Series IV Preferred Stock shall have no voting rights. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least a majority of the outstanding shares of Series IV Preferred Stock, voting separately as a class, shall be required for (i) the dissolution, liquidation or winding up of the Corporation (if such a vote or consent is permitted by the Philippine Securities and Exchange Commission); (ii) any variation or abrogation of the rights, preferences or privileges of the Series IV Preferred Stockholders; or (iii) the amendment, alteration or repeal, whether by merger, consolidation or otherwise, of the provisions in the Articles of Incorporation, the Company's By-Laws or these resolutions relating to (i) and (ii) above (including, without limitation, the authorization or issuance, or the increase in the authorization or issued amount, of any shares of the Company ranking senior to the Series IV Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, dissolution or winding up). Any increase in the amount of authorized Serial Preferred Stock or the creation and issuance of other shares of preferred stock ranking on a parity with or junior to the Series IV Preferred Stock with respect to dividends and upon liquidation, dissolution or winding up shall not be deemed to adversely affect the rights of the Series IV Preferred Stockholders. 9. Preemptive Rights . The Series IV Preferred Stockholders shall have no preemptive rights. 10. Amendment . The Articles of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series IV Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series IV Preferred Stock, voting together as a single class. Footnotes 1. The Plan is embodied in a "Rights Agreement," to be entered into between PLDT and its appointed Rights Agent. 2. However, when such current shareholder increase its beneficial ownership of common shares by an additional 5% or more of the outstanding common stock, the rights are triggered. 1. We obtained our data from Securities Data Company, Inc. We started with all 416 takeover bids initiated and completed between January 1, 1992, and December 31, 1996. We excluded 42 transactions for lack information about premium paid, 19 for lack of key financial data, three for unusually large premiums (greater than 150%), and four transactions for extreme P/B ratios. We also excluded all 29 transactions with premiums less than 5% (10 transactions had negative premiums). These transactions were excluded at this point because inspection of a few of these anomalous premiums revealed substantial errors. We note however that our results are not driven by any of these exclusions. 2. Some critics of poison pills argue that premiums are higher for pill-companies because these companies are undervalued to begin with. While we question the economic basis of such an argument, we find that it is inconsistent with the evidence. The argument suggests that companies with low P/B ratios (one measure of undervaluation) would receive higher premiums. Our findings show that low P/B companies received lower, not higher, premiums (while controlling for other factors). Even when we exclude the poison pill variable from our regression, the correlation between premiums and P/B ratios remains positive and statistically insignificant. 3. These figures are based on Investor Responsibility Research Center (IRRC) data. 4. The conclusion is similar when we examine S&P500 and S&P400 companies separately. 1. The Georgeson Activism Rating is calculated on a 10-point scale based on an institution's voting on shareholder and management proposals, as well as direct actions such as sponsoring proposals or soliciting proxies. Sub-ratings are also available for voting on categories of proposals, such as those dealing with compensation, governance structure and management initiatives. We considered institutions "activist" if their Georgeson Activism Rating was greater than 6.6 points. 2. When we excluded the two companies with total returns substantially above the rest of the group, the correlation between total return and vote outcome increased to 0.23, still far lower than the correlation with ownership composition. We also performed a multiple regression which included total return and level of activist holders. This analysis also showed that the level of activist holders was more than twice as strong a predictor of rescission support as was performance.