Omni Health Care Organization, Inc.

February 8, 1996 Omni Health Care Organization, Inc. 4th Flr., One Marian Centre, 106 Esteban St., Legaspi Village, Makati City Attention : Ms . Ma . Salva R . Limbo M a d a m : This refers to your letter dated January 10, 1996, requesting clarification as to the character and classification of the type of services Omni Health Care Organization (OMNICARE) Inc. is operating under the following scheme. As stated, the above corporation is marketing and selling prepaid medical and preventive health care services . The Bureau of Internal Revenue classifies the corporation as a marketer of pre-need medical services which constitutes dealership in " securities " and therefore liable to pay a 6% percentage tax under the National Internal Revenue Code. However, it is your view that while the corporation is engaged in prepaid medical services, the same is done without any securities attached to it; no long term liabilities as the covering contracts of the transaction automatically expire after a year; and the corporation has its own clinic where it provides and conducts medical services. An analysis of the Revised Securities Act (Batas Pambansa Blg. 178) disclosed that it has expanded the meaning of " SECURITIES " to include " contracts " even where there is no tangible return of investments but enjoyment of particular privilege and services . Section 2 (a) of said Law provides: "SECTION 2. Definitions . For purposes of this Act: (a) " Securities " shall include bonds, debentures, notes, evidences of indebtedness, shares in company, pre-organization certificates or subscriptions, investment contracts, certificates of interest or participation in a profit sharing agreement, collateral trust certificates, equipment trust certificates (including conditional sale contracts or similar interests or instruments serving the same purpose), voting trust certificates, certificates of deposit for a security, or fractional undivided interest in oil, gas or other mineral rights, or, in general, interests or instruments commonly considered to be "securities", or certificates of interests or participation in, temporary or interim certificates for, receipts for, guarantees of, or warrants or rights to subscribe to or buy or sell any of the foregoing; or commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another, with or without recourse, such as promissory notes, repurchase agreements, certificates of assignments, certificates of participation, trust certificates or similar instruments; or proprietary or non-proprietary membership certificates, commodity futures contracts, transferable stock options, pre-need plans , pension plans, life plans, joint venture contracts, and similar contracts and investment where there is no tangible return on investments plus profits but an appreciation of capital as well as enjoyment of particular privileges and services ." (Emphasis supplied) The present definition of "SECURITIES" in the Revised Securities Act is designed to embrace speculative schemes and includes " CONTRACTS " for delivery of future services of every kind, character and description as can be construed from the phrase " and similar contracts ". The term was redefined and broadened to prevent evasion of promoters who may adopt ingenious schemes in order to escape regulation by the issue of what purports to be a simple contract of future services. Thus, under the "SEC REVISED RULES ON REGISTRATION AND SALE OF PRE-NEED PLAN, PENSION PLANS, LIFE PLANS AND SIMILAR CONTRACTS AND INVESTMENT", "contracts for the delivery of future services" are included within the scope of the term " contracts " which are subject to registration and licensing under the Revised Securities Act. Said SEC Revised Rules provide: "SECTION 1. Scope . These rules shall apply to the following: xxx xxx xxx. c) Contracts which provide for the payment and/or performance of future services or services of a fixed value at the time of actual need, payable in cash or installment by investors at stated prices, with or without interest or finance charges and with or without insurance coverage." (Emphasis supplied) While the scheme adopted by the corporation is not strictly considered an " investment contract " as there is no expectation of profitable return, it essentially involves money outlay on the assumption and anticipation of "future delivery of medical services ". Therefore, we believe that the scheme of operation described above falls within the scope of " securities " as contemplated by the present Revised Securities Act. Please be advised however that the Commission has recently initiated legislative amendments to the present Law which include, among others, the exclusion of " pre-need plans " from the definition of the term " securities ". The proposed legislative bill is still pending with Congress. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner