Sycip Gorres Velayo & Co.

February 26, 1996 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention : Atty . Ma . Victoria Villaluz Tax Division M a d a m : This refers to your letter dated February 21, 1996 requesting reconsideration of the SEC Letter dated December 1, 1995 stating that " in case of 'movie star contracts',they cannot be accepted as payments for subscriptions inasmuch as services of movie stars under such contracts are not yet considered as actually rendered/received as their services would still be performed in the future ". LexLib As stated in the movie industry, "movie star contracts" are considered as assets. The contracts are most often exclusive contracts such that the actor/actress cannot make pictures outside the company. This can be done only if there is written consent of the producer. As such the actor/actress, by virtue of said contract becomes the "property" of the company. In the movie contracts signed by and between the actor/actress and the producer, the contract price is indicated and is usually below the market price that the actor/actress is actually charging. The producer can sell the contract to other movie producers at a profit. Considering, therefore that movie star contracts can be sold or transferred and are capable of pecuniary estimation, they are acceptable as consideration for subscription to shares of stock. Hence, you request for reconsideration. The pertinent provision of the Corporation Code provides: "SECTION 62. Consideration for stocks . Stocks shall not be issued for a consideration less than the par or issued price thereof. Consideration for the issuance of stock may be or a combination of any two or more of the following: xxx xxx xxx. 3. Labor performed for or services actually rendered to the corporation; xxx xxx xxx. Shares of stock shall not be issued in exchange for promissory notes or future services . ...." (Emphasis supplied) While the above provision allows labor or services to be used as payment of shares of stocks, it requires that the same must have been performed for or actually rendered to the Corporation. The law is also explicit that "future services" are not acceptable as consideration for the issuance of shares of stock. In the case of "movie star contracts",while the contract itself is transferable and may have pecuniary value, the services of movie stars under the contract are treated as "future services" ,and therefore, not acceptable as payment. Breach of contract by any of the contracting parties is possible to happen. In the event this situation happens, it would necessary result to " watering of the shares " issued for lack of consideration. Take note that the rationale behind the statutory prohibition to accept "future services" as payment for subscription is to prevent watering of issued stocks. In the light of the foregoing, your request for reconsideration of the Commission's previous ruling on the matter is hereby denied as to allow "movie star contracts" as consideration for stock subscription would be a clear violation of the aforecited provision of the Corporation Code. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner