LMG Chemicals, Inc.

December 18, 1985 LMG Chemicals, Inc. c/o Atty. Rolando P. Navarro 7th Flr., Chemphil Bldg. 851 Pasay Road, Makati Metro Manila Gentlemen: This refers to your letter, dated September 26, 1985 requesting for legal opinion on whether there is a need for the amendment of the articles of incorporation of LMG Chemicals, Inc. reducing its authorized capital stock to eliminate its redeemed preferred shares, which appears to be non-reissuable. The term "redemption" in a literal sense, means the act of buying back or repurchasing. (1 Ballantine & Sterling California Corporation Laws, 1982 rev. Vol.; sec. 144.01 at 8-68). Thus, where a corporation "redeems" or "make a redemption" of its shares, it repurchases or buys them back. But the term "redemption" as normally used in corporate finance is more limited than the terms "repurchase". As so used, it means the retirement or repurchase of shares or securities pursuant to a provision in the share certificate or security itself giving the corporation an option to repurchase at a specified price. (Ballantine & Sterling, Supra, citing Hammington v. Hocking Valley Ry. Co. 183F. 133.45, S.D. Ohio 1910; etc.) Number 2, Section III of the SEC Rules Governing Redeemable and Treasury Shares provides: "2. . . ., Provided, however, that in the case of redeemable shares reacquired, the same shall be considered retired and no longer issuable, unless otherwise provided in the articles of incorporation ". (emphasis supplied) A verification of the amended articles of incorporation of LMG Chemicals, Inc., disclosed that the same is silent on the reissuable nature of its redeemable preferred shares in the event of redemption. The articles of incorporation provides, thus: "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 ." (emphasis supplied) Inasmuch as the articles of incorporation of subject corporation do not provide that redeemable shares may be reissued, said shares are categorized as non-reissuable shares . (Sec. 2, Article III * , SEC Rules Governing Redeemable & Treasury Shares; Ballatine & Sterling, Supra, sec. 145). "Acquired shares which by their term could not be reissued lost their status as either outstanding or authorized but unissued shares, and the number of authorized shares of capital stock of the corporation was reduced accordingly . (Ballantine & Sterling, Sec. 145.02) Thus, where the reissuance of shares that have been reacquired or redeemed by the corporation is prohibited, the number of shares of the class and series, if any, to which the reacquired or redeemed share belonged, is reduced by the number of shares so reacquired or redeemed. " Thereupon, the corporation's articles of incorporation must be amended to reflect such reduction in authorized capital stock ". (Ballantine & Sterling, Supra, sec. 145, ( illegible portion in SEC files ) However, it is believed that it would be impractical and time consuming to amend the articles of incorporation everytime the corporation redeems its preferred shares. Hence, it is suggested that the company may amend its articles of incorporation reducing its authorized capital stock after the redemption of its entire redeemable preferred shares. Meanwhile, the company is directed to show the retired shares in its financial statements pending amendment of its articles of incorporation. Please be advised accordingly. llcd Very truly yours, (SGD.) MANUEL G. ABELLO Chairman * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .