Manila Electric Company

September 13, 1982 Manila Electric Company Ortigas Avenue, Pasig Metro Manila Attention : Atty . Marcelo N . Fernando Sir : This has reference to your letter dated September 4, 1982, regarding the query posed therein. It appears therein that the Articles of Incorporation of Manila Electric Company provides in part in its Clause VII regarding the preferred stock of the company as follows: "Preferred Stock shall be issued serially in blocks of not less than One Hundred Thousand (100,000) shares. Shares of preferred stock comprising one series shall have the same rights and restrictions. There shall be no preemptive right on the part of the holders of shares of either the common stock or preferred stock of the corporation to subscribe to any or all issues or other disposition of shares or preferred stock . Holders of preferred stock shall be entitled to cumulative preferential dividends before any dividend is paid upon shares of common stock, payable at a rate and at such intervals as may be determined by the Board of Directors from time to time for each series of block of preferred stock, provided that such dividends rate shall in no case be higher than twenty per cent (20%) per annum. Preferred stock may be issued subject to call by the corporation or with rights for their redemption, either mandatory at a fixed or determinable date after issue or at the option of the holders thereof. Preferred shares shall have such other features as the Board of Directors may determine prior to the issue of each series or block of preferred stock to which they are applicable . Voting rights shall be vested exclusively in common shares. Preferred stock shall be non-voting, except those cases expressly provided by law. After full cumulative dividends upon the outstanding preferred shares shall have been paid, the holders of common shares shall be entitled to receive such dividends as may from time to time be declared by the Board of Directors." Pursuant to the authority granted under the aforequoted provision, two series of preferred stock have been issued, the first called Series "A" issued in 1972 and the second called Series "B" being issued since 1975. The rights and restrictions of the latter are governed by the Articles of Incorporation and the resolution of the Board authorizing the issuance. You now request for the formal confirmation of this Commission that the above-quoted provision is sufficient to confer upon preferred shares issued thereunder the nature of redeemable shares as defined in Section 8 of the Corporation Code. Anent thereto, please be informed that the aforequoted Clause VII of your Articles of Incorporation may be considered sufficient to confer upon preferred shares issued thereunder the nature of redeemable shares pursuant to Section 8 of the Corporation code. Section 8 of the Corporation Code provides, thus: "SECTION 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 which must also be stated in the certificate of stock representing said shares." It is generally held that a corporation may redeem its preferred stock only when it is expressly authorized or has contractually reserved the right to do so, and that it has no inherent power in this respect (Am. Jur. 2d, Sec. 282) citing Bowman vs. Armour & Co. 17 III 2d 43; 162 d 753) But corporations are frequently given the right to retire or redeem preferred stock either by statute or by provisions to that effect in the Articles of Incorporation or the stock certificate ...(Fletcher, pp. 913-915, citing Patterson vs. Shaver, 165 vs. 298) Please be guided accordingly. cdlex Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner