Philippine Iron-Construction & Marine Works, Inc.

June 21, 1989 Philippine Iron-Construction & Marine Works, Inc. 728 Pedro Gil St.,Malate, Manila Gentlemen : This refers to the amended articles of incorporation of Philippine Iron Construction & Marine Works, Inc. seeking to reclassify all its authorized redeemable preferred shares to common shares. LibLex Records show that subject corporation has an authorized capital stock of P30,000,000.00 consisting of 2,000,000 common shares (A & B) at the par value of P10.00 each and 100,000 preferred (redeemable at the par value of P100.00 each. Out of the 100,000 preferred shares, 3,000 shares were issued and subsequently redeemed in accordance with the provisions of the articles of incorporation . The corporation now would like to reclassify the retired as well as the remaining unissued preferred shares to common shares by way of amendment of the articles of incorporation. Section III (2) of the SEC Rules Governing Redeemable and Treasury shares provides in part: "...in the case of redeemable shares reacquired, the same shall be considered retired and no longer issuable unless otherwise provided in the articles or incorporation ." A verification of the amended articles of incorporation of Philippine Iron Construction Marine Works, Inc. disclosed that the same are silent on the re-issuable nature of redeemable preferred shares in the event of redemption. Accordingly, the redeemed shares shall be considered retired and no longer issuable. 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 is reduced accordingly .(Ballantine & Sterling, Sec. 145.02). Thus, the Commission previously ruled that where the reissuance of shares that have been reacquired or redeemed by the corporation is prohibited, the number of the class and series if any, for which the reacquired or redeemed shares belonged, is reduced by the number of shares so reacquired or redeemed. Therefore, the corporation's articles of incorporation must be amended to reflect such reduction in the authorized capital stock. ( SEC letter dated December 18, 1985, addressed to LMG Chemicals, Inc. citing Ballantine & Sterling, Supra, Sec. 145.02 at S-79 to S-80). Thus; applying the aforesaid ruling insofar as the retired/redeemed shares are concerned, the same can no longer be reclassified as common shares since upon redemption, they lost their status as part of the outstanding or unissued authorized capital stock .However, insofar as the unissued and unredeemed preferred shares the same can still be reclassified by amending the articles of incorporation pursuant to Section 16 of the Corporation Code: "SECTION 16. Amendment of articles of incorporation . Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a "majority" vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code." In view of the foregoing, the corporation is advised to decrease its authorized capital stock to eliminate the redeemed shares in treasury and later to restore its capital via increase of common shares and at the same time reclassify the remaining preferred shares to common. Please be advised accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner