REFERENCE AND RESEARCH BUREAU LEGISLATIVE RESEARCH SERVICE

Transcription

1 REFERENCE AND RESEARCH BUREAU LEGISLATIVE RESEARCH SERVICE THE PROCEDURE ON THE CONVERSION OF PREFERRED SHARES TO COMMON SHARES OF THE PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) AND COMMENTARIES ON CLASSES OF SHARES UNDER THE CORPORATION CODE OF THE PHILIPPINES I. INTRODUCTION The Philippine Lone Distance Telephone Company (PLDT) was established on November 28, 1928 by virtue of Public Law No. 3436, entitled An Act Granting to the Philippine Long Distance Telephone Company a franchise to install, operate, and maintain a telephone system throughout the Philippine Islands. On October 1, 1973 PLDT started providing Subscriber s Investment Plan (SIP) or preferred shares to subscribers at ten pesos (P10.00) at par value. 1 This is in compliance with the policy of the government to encourage the spreading out of ownership in public utilities as mandated in Presidential Decree No. 217, entitled Establishing Basic Policies for the Telephone Industry, Amending for the Purpose the Pertinent Provisions of Commonwealth Act 146, as Amended, Otherwise Known as the Public Service Act, the Franchise of the Philippine Long Distance Telephone Company under Act No. 3436, as Amended, and all Inconsistent Legislative and Municipal Franchises Including Other Existing Laws. Residential telephone subscribers are given 100 shares for their SIP of P1, while, the business subscribers, 200 shares of their SIP of P2, Telephone interview with Atty. Abner Tito L. Alberto, Division Head, Corporate Stock Service, PLDT, December 9, Ibid. 1

2 This report contains information on the procedure for the conversion of PLDT preferred shares or the Subscriber s Investment Plan (SIP) into common shares; the period and terms of said conversion; list of SIP shares which are now convertible to common shares; and general information on the dividend and voting rights of the holders of SIP shares. Pertinent definitions and commentaries on certain concepts in corporate capital structure likewise, the classification of shares under the Corporation Code of the Philippines (Batas Pambansa Blg. 68, May 1, 1980) are included. II. THE CONVERSION OF SIP SHARES INTO COMMON SHARES 3 A. Procedure 1. Any holder of SIP shares desiring to convert said shares into common shares shall surrender the certificate(s), duly endorsed to PLDT or in blank with proper instruments to transfer together with a written notice of his election to convert such shares, specifying the name or names in which the certificate(s) per common shares is to be issued and submit them to any PLDT commercial or business offices or at the office of Rizal Commercial Banking Corporation (RCBC). 2. Thereafter, the holder surrendering such certificate(s) of shares of SIP shall be entitled to receive certificate(s) for the number of whole common shares into which such SIP shares are at the time convertible and from and after the time of surrender. B. Period and Terms of Conversion Holders of SIP shares are entitled to convert their SIP shares into common shares after a year from the last day of the year in which the shares were issued. For example, shares of Series CC which were issued in the year 2002, are convertible into common shares anytime after December 31, Source: Material furnished by the office of Atty. Abner Tito L. Alberto, Corporate Stock Services, PLDT. 2

3 C. The Conversion Price Equivalent The conversion price is equivalent to 10% below the average of the high and low daily sales price of one common share in the Philippine Stock Exchange (PSE), or if there shall have been no such sales in the PSE any day, the average of the bid and the asked prices of one common share at the end of such day on such Exchange, in every case is averaged over a period of thirty (30) consecutive trading days prior to the conversion date, but in no case shall the conversion price be less than the par value of one common share. The number of common shares issuable at any time upon conversion of one SIP shall be determined by dividing ten pesos (P10.00) by the then applicable conversion rate. D. Cases Wherein Common Shares are Subdivided or Consolidated In case the common shares at anytime outstanding shall be subdivided into a greater or consolidated into a lesser number of shares, then the minimum conversion price of one common share shall be proportionately decreased or increased, as the case may be, and in the case of a stock dividend, such price shall be proportionately decreased or increased as the case may be. In the case of a stock dividend, such price shall be proportionately decreased as long as the minimum conversion price shall not be less than the par value of one common share. In the event the relevant effective date for any such subdivision or consolidation of shares of stock dividend occurs during the period of thirty (30) trading days preceding the presentation of any SIP shares for conversion, a similar adjustment shall be made in the sale prices applicable to the trading days prior to such effective date utilized in calculating the conversion price of the shares presented for conversion. E. Payment of Fees and Taxes PLDT will pay any and all fees and other taxes that may be payable in respect of any issue or delivery of common shares on conversion of SIP shares. PLDT will not pay on any taxes payable in respect to any transfer involved in the issuance and delivery of common shares in a name other than which the SIP shares so converted was registered. No fraction of a common share shall be issued upon conversion of SIP shares but, in lieu thereof, PLDT shall pay to the holders of such converted shares who are otherwise entitled to a fraction of a share, a cash adjustment in an amount equal to the same fraction of the average sales prices of a full common share. 3

4 F. List of Series of Certificates under the PLDT/SIP which are convertible into common shares at the option of the holders/subscribers. (Annex A) G. Dividend and Voting Rights of Holders of SIP Shares Holders of the SIP shares are entitled to receive when, and if declared by the Board of Directors, dividends in cash at the rate of ten percent (10%) per share per annum. Such dividends on SIP shares shall be cumulative from the date or dates of issue. Holders of SIP shares have no right in the election of Directors. However, such holders have voting rights in those provided by the Corporation Code of the Philippines. III. PERTINENT DEFINITIONS AND COMMENTARIES ON CLASSES OF SHARES A. Classification of Shares in General Corporations under our Corporation Code have authority to classify shares. The organizers and managers of a corporation may classify and issue such variety of shares as the prospects and needs of the enterprise may call for, and as the tastes of the investing public may absorb. 4 In general, the basis of classification consists of the three essential rights of participation of shareholders, namely, in corporate profits or surplus, in ownership of corporate assets, and in corporate control. Accordingly, the classes of shares may differ: 1) as to priority of claim on dividends; 2) as to limited or participating dividend rights; 3) as to amounts payable on dissolution; and 4) as to voting rights There may, of course, be other differences. 5 Generally, shares are classified into common and preferred shares. The classification must be provided in the articles of incorporation, either in the original or amended articles. Where the articles of incorporation are silent on the question of classification of 4 5 Aguedo F. Agbayani. Commentaries and Jurisprudence on the Commercial Laws of the Philippines, 1990, p. 98. Ibid. 4

5 shares, the board of directors has no authority to classify shares of stock and all shares issued by the corporation are all common shares and presumed equal as to rights, privileges and restrictions. Accordingly, a corporation cannot, issue preferred shares with superior rights than other shares. 6 B. Shares of Stock 7 A share of stock is one of the proportionate integers or units of the capital stock of a corporation, which represents the interest or right of a stockholder or shareholder in the management of the corporation, and in its surplus profits, and, on dissolution, in all of its assets remaining after payment of its debts. The term shares of stock when qualified by words indicating member and ownership expresses the extent of the owner s interest in the corporate property. C. Capital Stock 8 The term capital stock signifies the aggregate of the shares actually subscribed (the share capital). The term capital stock means the amount subscribed and paid-in and upon which the corporation is to conduct its operations, or the amount paid-in by its stockholders in money, property or services with which it is to conduct its business, and it is immaterial how the stock is classified, whether common or preferred. D. Preferred Shares 9 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. 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 as long as such terms and conditions shall be effective upon filing of a certificate thereof with the Securities and Exchange Commission Ruben E. Agpalo, Comments on the Corporation Code of the Philippines, 2001, 2 nd ed., p. 33. Ibid., p. 32. Ibid., p nd par., Sec. 6, Corporation Code of the Philippines (CCP). 5

6 E. Common Shares 10 In the absence of any classification of shares in the articles of incorporation, all shares of the corporation are common shares. A common share is a stock which entitles its owner to an equal pro rata division of profits, if there are any, but without preference or advantage in that respect over any other stockholder or class of stockholders. It is called common because it gives no stockholder any greater rights than any other stockholder or in short, they stand upon an equal footing. F. Presumed Equality of Shares 11 The shares issued by a corporation are presumed to be equal. The section under comment provides that except as otherwise provided in the articles of incorporation and stated in the certificate of stock each share shall be in all respects equal to every other shares (5 th par., Sec. 6, CCP). The statutory rule is important in determining the relative rights of the various classes of issued shares. Thus, where the articles of incorporation and the certificate of stock are silent on the question of voting rights, all issued shares shall be considered to have the right to vote. Consequently, if it is desired that any class of shares shall be denied voting rights, a provision to that effect must be inserted in the articles of incorporation and in the certificate of stock representing such shares. 12 G. Voting and Non-Voting Shares 13 One of the rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised through his vote. Ordinarily, the preferred stock has the same privileges as the common stock in regard to voting rights. But preferred shareholders are sometimes excluded from any control whatever on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders. H. Where Non-Voting Shares Can Vote Paragraph 6, Section 6 of the Code provides that where the articles of incorporation provide for non-voting shares in the cases allowed by the Code, the holders of such shares shall nevertheless be entitled to vote on the following matters: 1. Amendment of the articles of incorporation. 2. Adoption and amendment of by-laws SEC opinion, October 9, 1989, The SEC Quarterly Bulletin, Vol. XXIV, No. 1, March 1990, pp See Agbayani, p. 99. See Agpalo, p. 33. Ibid., p

7 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property. 4. Incurring, creating or increasing bonded indebtedness. 5. Increase or decrease of capital stock. 6. Merge or consolidation of the corporation with another corporation or other corporations. 7. Investment of corporate funds in another corporation or business in accordance with this Code. 8. Dissolution of the corporation. Except as above provided, the vote necessary to approve a particular corporate act as provided in this Code, shall be deemed to refer only to stocks with voting rights. In other words even non-voting shares can vote, in the cases specified by law. 14 (CORPORATION: PROCEDURE ON THE CONVERSION OF PREFERRED SHARES PLDT) RRB/LRS RHAB/MJMV/amt See Agbayani, p

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