Manila Electric Company

July 15, 1986 Manila Electric Company Ortigas Avenue Pasig, Metro Manila Attention : Mr . Marcelo N . Fernando Sr . Vice President and General Manager Sir : This refers to your letter dated June 18, 1986, requesting for the confirmation of this Commission on your stock dividend declaration. LexLib It appears that Meralco has authorized but still unissued common shares numbering 4,607,231 shares, each with par value of P10.00. Likewise, Meralco has of the year-end 1985 unappropriated retained earnings in the amount of P222, 565,453. Your Board of Directors believes that there are good financial and business reasons for the company to declare stock dividends out of the aforesaid retained earnings and is prepared to so do. Such declaration will be subject to stockholders approval and all other requirements under the Corporation Code. The Public Service Act ,in its Section 20 (e) provides that the issuance of stock or stock certificates representing an increase in capital must be approved by the Board of Energy (BOE).You likewise plan to make the corresponding application for BOE approval before going to the stockholders for ratification of the declaration. Hence, you request for confirmation that as a public utility, there are no constraints to the declaration of stock dividends to your stockholders other than those that may be found in the Public Service Act or as the Board of Energy may impose in the exercise of jurisdiction over electric utilities. Section 43 of the Corporation Code provides, thus: "SECTION 43. Power to declare dividends . The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them ...Provided, further, that no stock dividends shall be issued without the approval of the stockholders representing not less than two-thirds (2/3) of the outstanding capital stock, at a regular or special meeting duly called for the purpose." (Emphasis supplied) The said provision requires merely the approval by the board and at least two-thirds (2/3) of the outstanding capital stock as a requisite for the declaration of stock dividend. Furthermore, pursuant to the Rules Governing the Distribution of Excess Profits of Corporation promulgated by the Commission on August 13, 1973 pursuant to P. D. No. 270, any declaration of dividend, whether cash or stock, shall be reported to the Commission within fifteen (15) days from date of declaration. LibLex Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman