Torres Campos Hernandez & Lim

September 22, 1983 Torres Campos Hernandez & Lim c/o Atty. Antonio R. Velicaria 5th Flr.,Magsaysay Building T.M. Kalaw, Ermita, Manila Gentlemen: This refers to your letter dated August 19, 1983, requesting this Commission to reconsider its action on the amendments of the Articles of Incorporation of the University of the East granting founders' stocks and exclusive right to vote and be voted for in the election of the Board for a period of five (5) years from the approval which the Commission limited to be valid only up to April 30, 1985 and the deletion of the amendment on the conversion of founders' stocks to common stocks within said period of five (5) years at the rate of 40 common stocks to 1 founders' stock. cdlex As regards the first amendment, Section 148 of the Corporation Code of the Philippines, provides that existing corporations affected by the new requirement of the Code are given a period of two (2) years from its effectivity (May 1, 1980) within which to comply with the same. Consequently, to avail of the provisions of Section 7 of the Corporation Code granting the founders' shares certain rights and privileges not enjoyed by the owners of other stocks, such as the exclusive right to vote and be voted for in the election of directors for a limited period of 5 years, you should have filed with this Commission your amended articles of incorporation on or before May 1, 1982. As the records show, your amended articles of incorporation embodying the five-year limitation on founders' shares was filed with this Commission only on June 14, 1982. In this connection, this Commission, in several opinions, has ruled that, "if the corporation does not file an amendment to its articles of incorporation on or before May 1, 1982, the Commission will consider the limitation laid down by Section 7 of the Corporation Code as written into said articles on May 1, 1980. (SEC opinion dated April 26, and June 29, 1982). Thus, the Commission in its letter dated June 16, 1983, has ruled that the limitation period in the articles of incorporation of subject corporation, granting the founders' shares thereof certain rights and privileges not enjoyed by the owners of other stocks, to be effective only up to April 30, 1985; after said date, the holders of common and founders' share shall enjoy equal rights and voting power. With respect to the second amendment, please be informed that giving the founders' shares therein some convertible features is premature considering that the retained earnings of the corporation as of March 31, 1983, amounted to only P1,069,034.00. For the Commission to rule otherwise would result to the "watering" of common stocks which is prohibited under the law. Unless the corporation has sufficient retained earnings to cover the full amount of the common shares to be issued, the Commission will not allow said conversion. Please be advised accordingly. llcd Very truly yours, (SGD.) MANUEL G. ABELLO Chairman