August 10, 2004

SEC OPINION NO. 40-04

Re: Preferred shares are included in the computation of Filipino-Foreign equity requirement Regal Knights Security and Detective Agency Inc. 4/F Trafalgar Plaza 105 H.V. De La Costa Street Salcedo Village, Makati City Attention: Job M. Mayo Jr., President Sir: This refers to your company's plan to issue preferred non-voting shares to foreigners by amending the articles of incorporation. Your company is a security or watchman agency as defined under Section 3 of RA 5487, as amended, otherwise known as "The Private Security Agency Law". Section 4 of the aforesaid law provides that only Filipino citizen or a corporation, partnership or association, one hundred percent (100%) of which is owned and controlled by Filipino citizens, may organize a security or watchman agency. In our view, your company cannot issue preferred non-voting shares to foreigners as this will violate the legal requirement that a security agency must be one hundred percent (100%) owned and controlled by Filipinos. Please note that both common and preferred shares are part of the corporation's capital stock. Both stockholders are no different from ordinary investors who take on the same investment risks. Preferred and common shareholders participate in the same venture, willing to share in the profits and losses of the enterprise. [CIR vs. CA, GR 108576, January 20, 1999] They are stockholders in the corporation. Accordingly, preferred stocks are considered in the computation of the Filipino-foreign equity percentage requirement, unless the law covering the type of business to be undertaken provides otherwise. [SEC opinion dated July 16, 1996, addressed to Mitsuhiro Otsuki]
2004cdtai

Copyright 1994-2012

CD Technologies Asia, Inc.

Securities and Exchange Commission 2011

Moreover, although preferred shares may be deprived of voting rights in the articles of incorporation, this deprivation of voting right is not absolute. As provided in Section 6 of the Corporation Code, there are at least eight (8) specific instances wherein preferred shareholders with no voting rights are nevertheless entitled to vote in the following matters: (1) amendment of the articles of incorporation; (2) adoption and amendment of by-laws; (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 capital stock; (6) merger or consolidation of the corporation with another corporation or other corporations; (7) investment of corporate funds in another corporation or business in accordance with the Corporation Code, and; (8) dissolution of the corporation.
CASTDI

For your information and guidance.

Very truly yours,

(SGD.) VERNETTE G. UMALI-PACO General Counsel

Copyright 1994-2012

CD Technologies Asia, Inc.

Securities and Exchange Commission 2011