Atty. Mamerto Z. Mondragon

January 7, 2003 SEC OPINION NO. 01-03 Atty. Mamerto Z. Mondragon Corporate Secretary Matsushita Electric Phils. Corp. Ortigas Avenue Extension, Mapandan Taytay, Rizal S i r : This refers to your letter dated 2 October 2002 requesting opinion on the following issues: 1. Is the intended transfer by Matsushita Electric Industrial Co. Ltd. (MEI) of Japan of its Matsushita Electric Philippines Corp. (MEPCO)'s class "B" shares (unlisted) in favor of one of its wholly owned companies based in Singapore or in Malaysia subject to the mandatory tender offer? 2. If your opinion is in the affirmative is the mandatory tender offer of the foreign transferee to the minority stockholders violative of MEPCO's Articles of Incorporation which prohibits foreigner to own class "A" shares? 3. Assuming that the foreign transferee is subject to the mandatory tender offer rule, can it be exempted from its coverage? 4. What are the SEC rules, regulations and procedures to be observed and complied with by MEI in effecting said transfer? First ,we resolved the first issue in the affirmative as explained in the following discussion. The pertinent portion of Section 19.1(a) of the Securities Regulation Code (SRC) provides that "Any person or group of persons acting in concert who intends to acquire at least fifteen per cent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty per cent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders by filing with the Commission a declaration to that effect; and furnish the issuer, a statement containing such of the information required in Section 17 of this Code as the Commission may prescribe." However, the Commission raised the benchmark for tender offers from 15% or more for a single acquisition or 30% for creeping acquisition to thirty-five percent (35%).[ Special Resolution No . 103, September 12, 2001 ] In this case, MEI of Japan intends to transfer its 337,994,432 MEPCO shares (all class B) to one of its foreign based wholly owned companies. The shares represent eighty percent (80%) of the outstanding shares of MEPCO. With this transfer, the transferee will own 80% equity shares of MEPCO. Accordingly, the prospective transferee must make a tender offer to buy the remaining shares held by minority shareholders at the same price or terms offered to controlling shareholders since it will own more than 35% of the equity shares of MEPCO. It is worthy to emphasize that the purpose of mandatory tender offer is to ensure that minority shareholders, like the holders of class A shares, get the same benefit for their shares as the controlling shareholders. Second, the tender offer might contravene Section 7 of the Articles of Incorporation, as presently worded. This will happen in the event that a holder of class A shares accepts the offer of the transferee (a foreigner) and as a consequence thereof the class A shares will be transferred to the foreigner. Nonetheless, this can be avoided by declassifying first MEPCO's shares of stocks by amending the pertinent provisions of the company's Articles of Incorporation. The company should dispense with having class "A" and "B" shares. There is neither a constitutional nor statutory mandate for the classification of corporate shares into class "A" and class "B" shares. Such arrangement is only a device internally adopted by Philippine companies to facilitate monitoring of foreign equity in the company. This practice is recognized, but not mandated, by the Corporation Code which allows a corporation to classify its shares for the purpose of insuring compliance with constitutional or legal requirements. [ Section 6, Corporation Code ; DOJ Opinion No. 195 dated October 3, 1989 ] Third, the foreign transferee cannot be exempted from the coverage of mandatory tender offer rule. The exemptions are enumerated under SRC Rule 19.1.3 and the intended transaction does not fall among the exemptions. HIaSDc Fourth , tender offers are governed by Section 19 of the SRC, Rule 19.1 of the IRR, and SEC Memorandum Circular No. 12 dated 18 September 2001. To recapitulate, the intended transfer by MEI of Japan of its MEPCO class "B" shares to its wholly owned companies based abroad is subject to mandatory offer. In order not contravene MEPCO's Articles of Incorporation, we advise you to declassify first MEPCO's shares of stocks before making the tender offer. For your information and guidance. Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel