Messrs. Leonardo B. Dayao and Jimmy F. P. Perez

August 24, 1992 Messrs. Leonardo B. Dayao and Jimmy F. P. Perez Bank of the Philippine Islands BPI Building, Ayala Avenue corner Paseo de Roxas, Makati, M.M. Gentlemen: This refers to your letter of August 4, 1992 requesting clarification on the following questions on preferred shares: 1. Does the issuance of preferred shares require prior amendment of the articles of incorporation of the domestic company to increase its capitalization? 2. Is the increase in capitalization to issue preferred shares covered by the 25%-25 % rule on subscribed and paid-up capital? 3. What are the procedures of the Commission in requesting the authority of a domestic company to issue preferred shares? 4. What are the fees payable to the Commission in requesting the authority to issue preferred shares? 5. Can the preferred shares be issued on the basis of variable dividend rate as agreed upon by the issuer and the shareholders? Relative to Nos. 1, 3, & 5 queries, the pertinent provision of the Corporation Code provides: "SECTION 6. Classification of shares . The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation . xxx xxx xxx 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. Provided, That preferred shares of stock may be issued only with a stated par value. The board of directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof : Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission . xxx xxx xxx Except as otherwise provided by the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share ." (Emphasis supplied) Thus, where the articles of incorporation are silent on the question of classification of shares, all shares issued by the corporation are presumed to be equal. Accordingly, a corporation cannot, without express authority in the articles of incorporation, issue preferred shares with superior rights than that of the other shares. The corporation, however, if it desires to issue preferred shares with preference as to dividends or with preference as to distribution of dividends, should amend its articles of incorporation in accordance with Section 16 of the Corporation Code quoted hereunder: "SECTION 16. Amendment of Articles of Incorporation . Unless otherwise prescribed by this Code or by special laws, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority 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, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended, shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation .(Emphasis supplied) Anent your second query, the Corporation Code provides: "SECTION 38. Power to increase or decrease capital stock ;... ...Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: ...(Emphasis supplied) The above provision uses the phrase "of such increase capital stock".Hence, the basis for the computation should be on the amount representing the increase of capital stock. Accordingly, for the purpose of complying with the requirement, it is not necessary that each and every subscriber shall pay twenty-five percent of his subscription. It is enough that the twenty-five percent of the increase of capital, shall be subscribed and twenty-five (25%) percent of the total subscription is paid, regardless of class of shares. Thus, even if the increase in capital stock consists only of preferred shares, the 25%-25% rule shall apply. Where the increase in capital stock consists of two (2) or more classes of shares, the Commission allows any of the following ways of applying the 25%-25% rule: 1. To be applied on each of the classes of shares representing the increase in capital stock, or 2. To be applied on the total amount representing the increase in capital stock. Regarding your fourth query, the following fees are imposed by the Commission: Increase of capital stock 1/10 of 1% of the increase in capital stock but not less than P200.00. Issuance out of the unsubscribed capital stock 1/10 of 1% of the aggregate par or issue value of the shares but not less than P200.00. In addition, a legal research fee equal to 1% of the filing fee shall also be paid. Please be advised accordingly. llcd Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman