Philippine Telegraph & Telephone Corp.

August 9, 1982 Philippine Telegraph & Telephone Corp. SCC Bldg.,106 Alvarado St. Legaspi Village, Makati Metro Manila Attention : Mr . Daniel G . Carreon President Sir : This has reference to your letter dated July 23, 1982 inquiring whether it will suffice for only the PT&T Board of Directors, pursuant to Feature No. 6 of the Series A Preferred Stock to approve the following without having to go back to the stockholders: prcd 1. Increase the dividend rate from 15% to 17.75% per annum; 2. Eliminate the 2% "tail-end",premium; 3. Make mandatory the redemption; 4. Provide for the establishment and maintenance of a sinking fund. It appears therein that the present authorized capital stock of PT&T is P100 million including P50 million of Series A 15% Cumulative Non-Convertible Preferred stock. The company has offered P15 million worth of shares at par value of the aforesaid Series A Preferred Shares to an investor who is willing to invest provided that: a. The annual dividend rate of 15% be increased to 17.75% for a quarterly divided rate of 4.4375% instead of 3.75% owing to the unattractiveness of the 15% annual dividend rate under the prevailing effective yield obtainable in other investment fields; b. The redemption, at the company's option, on or after March 31, 1983, at par plus a 2% premium be amended as follows: PT&T shall redeem the Series A Preferred Shares in eleven (11) equal semi-annual installments, starting at the end of the sixth (6th) semester from issue of the Series A Preferred Shares up to the end of the Sixteenth (16th) semester, notwithstanding the terms and conditions of the Series A Preferred Shares as contained in the Amended Articles of Incorporation. c. The redemption of the aforesaid shares be made mandatory regardless of the absence of any surplus or retained earnings and the company shall comply with all requirements of law and/or SEC or other governmental regulations regarding the setting up and maintenance of sinking funds for the redemption. Feature No. 6 of the aforesaid Series A Preferred Shares reads thus: "6. The majority of the members of the Board of Directors may, in a duly approved, ratified and confirmed resolution, amend certain terms and conditions of the aforesaid Preferred Shares, provided that such amendment(s) shall not be superior to the rights, interests and privileges granted to holders of the aforesaid Preferred Shares or other Series of the corporation's Preferred Shares." In reply thereto, please be informed that this Commission has ruled in a previous opinion that "giving the Board blanket authority to fix the terms and conditions of preferred shares, without stating in the articles of incorporation or amended thereto the privileges, preferences, restrictions or rights of said preferred shares, is contrary to Section 6 of the Corporation Code". ( Ltr. to Mr. Jose C. Vitug, dated January 11, 1982 ) The pertinent provision of Section 6 is quoted hereunder: "SECTION 6. Classification of shares ... "Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code :(Emphasis supplied)" In consonance with the aforementioned ruling and provision, respectively, the privileges and the preferences in your company's Series A 15% Cumulative Non-Convertible Preferred Shares offered to Philamlife should be stated and indicated in your articles of incorporation. Furthermore, this Commission believe that the amendment of the aforesaid features as proposed by the Board of Directors i.e. increasing the dividend rate from 15% to 17.75% eliminating the 2% "tail-end" premium, would be tantamount to giving the holders of said preferred shares an edge over holders of other series of the corporation' Preferred Shares, which is contrary to the proviso of the said Feature No. 6. In view of the foregoing, we suggest therefore that you revise your amended articles of incorporation for the purpose of including the aforesaid features. Please be guided accordingly. LibLex Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner