LMG Chemicals, Incorporated

April 2, 1985 LMG Chemicals, Incorporated c/o Atty. Rolando P. Navarro 7th Floor Chemphil Building 841 Pasay Road, Makati Gentlemen : This refers to your letter dated February 6, 1985 requesting the SEC to set aside the conditions imposed by the Commission on the corporation's issuance of shares by way of conversion of the following: Chemical Industries of the Philippines P10,906,250 Toyo Menka Kaisha, Ltd. 4,093,750 T o t a l P15,000,000 It appears that the Commission in its letter dated March 30, 1984 subjected said issuance of shares to a condition that the retained earnings of the corporation shall be restricted to the extent of the value of treasury stock and will not be available for dividend declaration. This restriction on the retained earnings may only be lifted: (1) if the articles of incorporation is amended by reducing the preferred shares and increasing the common shares to the extent of the value of preferred shares converted, or (2) by reducing the authorized capital stock of the corporation by eliminating the treasury stock. LibLex Section III 1(a) of the SEC Rules Governing Redeemable and Treasury Shares provides that when shares are re-acquired in the redemption of redeemable shares pursuant to the conversion right of convertible shares as provided for in the Articles of Incorporation, restriction of the retained earnings on the shares redeemed is not required. The Rule provides, thus: "SECTION III. Redeemable and Treasury Shares . 1. No corporation shall redeem, repurchase or re-acquire its own shares, whatever class, unless it has an adequate amount of unrestricted retained earnings to support the cost of said shares, except : a. When the shares are re-acquired in the redemption of redeemable shares of the corporation pursuant to the conversion right of convertible shares of the corporation, in accordance with the provisions expressly provided for in its articles of incorporation and certificates of stock representing said shares;" (emphasis supplied) The said preferred shares of subject corporation were converted into common shares at the option of the stockholders and were redeemed within ten (10) years from date of issue pursuant to Article VII of its articles of incorporation which provides in part: "The preferred shares shall be preferred as to both assets and dividends, be non-voting, earn cumulative dividends, be convertible to common shares at the option of the shareholders and be redeemed within ten years from date of issue." (Emphasis supplied). Considering that the redemption was made pursuant to the conversion right of convertible shares expressly provided for in the articles of incorporation of the corporation, the restriction of the retained earnings required in the above-mentioned letter of the Commission dated March 30, 1984 is not necessary. Likewise, considering that the company had sufficient unissued common shares the company need not increase its common shares. llcd In view thereof, your request is hereby granted. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman