Sycip, Salazar, Feliciano

November 13, 1985 Sycip, Salazar, Feliciano & Hernandez Law Offices PAIC Bldg.,105 Paseo de Roxas Makati, Metro Manila Attention : Atty . Cirilo T . Tolosa RE : G . S . Philippines Enterprises, Inc . (GSPEI) Sir : This has reference to your letter dated September 26, 1985, requesting for the confirmation of this Commission on the proposed plans of action indicated therein. It appears therein that G.S. Philippines Enterprises, Inc. (GSPEI) is a corporation registered with this Commission. It is also duly registered as a zone export enterprise in the Baguio City Export Processing Zone. It was organized to engage and carry on the business of manufacturing, selling, distributing, importing, exporting, and otherwise dealing in and with garments and apparel of every kind and nature such as, but not limited to, fur garments and leather apparel. It likewise appears therein that GSPEI is a joint venture between the Philippine American Life Insurance Company ("Philamlife") and Granga Enterprises Limited ("Granga") with a proposed equity participation of 60% for the former and 40% for the latter. Philamlife is a wholly-owned subsidiary of an American corporation organized and existing under Philippines laws while Granga is a corporation organized and existing under Hongkong laws. CAPITAL STRUCTURE & EQUITY PARTICIPATION GSPEI has an authorized capital stock of P10,000,000.00 with P3,500,000.00 initially subscribed and P1,000,000.00 paid up. The authorized capital stock is divided into 10,000 common shares with a par value of P1,000.00 per share. Both the Philamlife the Granga have agreed on the following steps (some of which have already been undertaken) effecting the distribution of their respective equity participation therein: a. of the authorized capital stock there is an initial subscription of P3,500,000.00 made by Philamlife in the name of its nominees/designees. b. Relative to Granga's proposed equity participation of 40% in GSPEI, Philamlife proposes to transfer and assign to Granga a portion of the Initial Subscription in consideration of Granga assuming to pay to GSPEI the subscription price of said assigned portion, taking into consideration the aforesaid percentage of equity participation. c. After BOI approval of the proposed investment has been secured, Philamlife shall then effect the assignment of a portion of the Initial Subscription such that subscription rights to 1,400 shares (with a total par value of P1,400,000.00) constituting 40% of the total Initial Subscription shall be assigned and transferred to Granga and/or its nominees/designees. Thereafter, both Philamlife and Granga shall fully pay their respective subscriptions using the same 60-40 percentage. BOI ACTION On July 15, 1985, the Board of Investments (BOI) duly noted the proposed equity investment of Granga in GSPEI and likewise advised that BOI approval is no longer required since GSPEI is registered with EPZA. CB ACTION On January 22, 1985, the Central Bank approved Granga's initial foreign equity investment in the amount of HK $320,426.48 (P791,357.27) in the form of machinery and equipment. The value (P791,357.27) of the machinery and equipment is approximately only 56-57% of Granga's proposed 40% (P1,400,000.00) equity in GSPEI. Granga will transfer additional machinery and equipment in order to cover the balance of approximately 44-43% of its proposed 40% equity participation. ISSUANCE OF STOCK CERTIFICATE Upon Granga's full payment of the unpaid subscription, equipment with a value equal to P1,400,000.00, GSPEI will issue to Granga certificates of stock covering 1,400 GSPEI shares. On the basis of the foregoing, you would like to request for this Commission's confirmation regarding the following: a. Granga can pay the unpaid subscription price of 1,400 shares of GSPEI by a transfer or conveyance to GSPEI of assets/ machinery and equipment in value equal to the total par value of 1,400 GSPEI shares. b. GSPEI can issued to Granga 1,400 fully paid shares of the capital stock of GSPEI upon the transfer or conveyance of assets/machinery and equipment in value equal to the total par value of the said 1,400 shares. Anent query letter (a), Section 62 of the Corporation Code provides, and we quote: "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 any or a combination of any two or more of the following: xxx xxx xxx 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued . xxx xxx xxx Where the consideration is other than actual cash ...the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to the approval by the Securities and Exchange Commission." (Emphasis supplied) LexLib The property which a corporation may accept in exchange for its stock must be of a kind which the corporation may lawfully acquire and hold in carrying out the purpose of its corporation (In re: Waterloo Organi Co. 134 F 341, revg. 128 F 517) and which is necessary or proper for it to own in carrying on its business (Holcombe v. Trenton White City Co. 80 NJ Eg 122, 82 A618, affd 82 NI Eq. 364, 91 A 1069 cited in Vol. II, Fletcher's p. 343). The rule requires that the value of the property must actually equal the amount of the stock (Fletcher's Vol. II, p. 397). From the above, it is therefore apparent that Granga can pay the unpaid subscription price of 1,400 shares of GSPEI by transferring machinery and equipment provided said machinery is actually received by the corporation and necessary for its use and the same is valued at an amount equal to the price of the stock issued. Likewise, said valuation shall be subject to approval by this Commission. Regarding query letter (b), Sec. 64 of the Corporation Code provides, thus: "SECTION 64. Issuance of Stock Certificates . No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares),if any, is due, has been paid." From the foregoing provision, and subject to the aforequoted conditions provided by said Sec. 62, it is therefore correct to state that GSPEI can issue to Granga 1,400 fully paid shares of the capital stock of GSPEI. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman