Asiatrust Development Bank

February 3, 1983 Asiatrust Development Bank 1424 Quezon Boulevard Quezon City Attention : Messrs . Dionisio C . Ong and Ramon B . Rodriguez Gentlemen: This has reference to your letter dated January 25, 1983, requesting the opinion of the Commission on the legality of stating on the stock certificates, the following features of preferred private shares of Asiatrust Development Bank even if these features are not stated in the articles of incorporation of the corporation. 1. "The shares will be cumulative and non-participating on the matter of dividend payments. It will be non-voting except in cases provided by law. It will have preference in liquidation but subordinated to the Development Bank of the Philippines." 2. "P5 million worth of the shares may be redeemed by the Bank at the end of each semester from issue date to coincide with the dividend payment date of the shares, provided that the Bank shall give the shareholders at least 30 days prior written notice of redemption." At the end of the second year from issue date of the shares, the bank commits to redeem the shares from the shareholders. In any case, the redemption price to be paid by the bank of the shares shall be equivalent to the par value of the shares together with any accumulated and unpaid dividend. Upon payment by the Bank of the redemption price, the shareholders agree to sell and transfer the shares to the bank. Any redemption of the shares shall be conditioned upon the receipt by the Bank on or behalf redemption of new paid-up capital as would permit the maintenance of the paid-up capital of the Bank after such redemption, or should not result in the reduction of the current paid-up capital level or the required minimum capital, whichever is higher." It is your contention that the foregoing features need not be stated in the articles of incorporation considering that the same, except on the matter of redemption of the shares, could be inferred from the provisions of the articles of incorporation and the Corporation Code, that the general supervision by the Central Bank would require the Bank to strictly comply with the Central Bank rules and regulations pertaining to the redemption of the shares and that the statement of the said features on the stock certificates already constitutes the contractual commitment of the Bank to the shareholders as well as the other persons acquiring interest on the shares. The pertinent provisions of the Corporation Code of the Philippines relevant thereto reads, thus: "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 :... Preferred shares of stock issued by any corporation may be given preference in the distribution of 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 ;...The Board of Directors, where authorized in the articles of incorporation may fix the terms and conditions of preferred shares 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. ...(Emphasis supplied) Corollary thereto, Section II (2) of the Rules Governing Redeemable and Treasury Shares * defines "redeemable shares",to wit: "2 * . Redeemable shares . Redeemable shares are shares of stock issued by a corporation which have redemption features as expressly provided for in its articles of incorporation and certificates of stock representing said shares." (emphasis supplied) It is very clear from the aforecited provisions that rights, privileges and preferences of preferred shares have to be stated in the articles of incorporation in order to be legally effective. It appears from the articles of incorporation of the corporation that preferred private shares are given only the preference as to dividends at the rate per annum as may be determined by the board of directors and rank second in the order of priority in the distribution of the remaining assets of the bank in the event of liquidation, dissolution, receivership, bankruptcy and winding up the affairs of the bank. In consonance with the aforementioned provisions of law, it is advised that the articles of incorporation of the corporation be amended to reflect the proposed features of the corporation's preferred private shares which are not stated therein. Please be advised further that any amendment of the articles of incorporation of a bank requires prior authority from the Central Bank of the Philippines. prcd Very truly yours, (SGD.) JESUS J. VALDES Associate Commissioner * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .