Arcontica Investment Corporation

July 26, 1982 Arcontica Investment Corporation 505-511 Magsaysay Building T.M. Kalaw Street Ermita, Manila Attention : Mr . Fernando C . Campos President and General Manager Sir : This has reference to your letter dated April 20, 1982, inquiring whether there is a need for an independent appraisal of the properties before a quasi-reorganization could be instituted. From the facts in your letter, it appears that you wish to settle part of your loan obligation with the DBP pursuant to your proposal to restructure your accounts which may require a quasi-corporate reorganization to convert P1,868 million of your DBP outstanding loan of P3 million into preferred, cumulative, voting and 18% participating stocks. Your authorized stock is P8 million of which P3,680,100 is subscribed and fully paid, leaving therefore 43,199 unissued shares at P100 per share. Anent thereto, the same is hereby answered in the affirmative. As held by this Commission in an earlier opinion, considering the fact that "quasi-reorganization" has been defined as a "procedure recognized in accounting by which the accounts of a corporation may be restated to the same extent as they would be, if a new corporation were created and acquired the business of the existing corporation; a new basis of accountability for assets, liabilities, and capital is established". ( Letter to Attys. Sycip, Salazar, Luna, Manalo and Feliciano, dated August 18, 1967 citing Montgomery's Auditing, 8th Ed., p. 396) Likewise, enclosed herewith for your information is SEC's set of guidelines for approval of quasi-reorganization. Please be guided accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner ATTACHMENT MEMORANDUM FOR THE DIRECTOR, EXAMINERS AND APPRAISERS DEPARTMENT: RE : ARCONTICA INVESTMENT CORPORATION Letter dated April 20, 1982 This refers to the letter of the above-named corporation dated April 20, 1982, inquiring whether there is a need for an independent appraisal of the properties before quasi-reorganization of the company could be instituted. The SEC has set of guidelines for approval of quasi-reorganization, enumerated as follows: 1. That only companies which are financially in distress may be allowed to undergo quasi-reorganization. 2. That the company has substantial increment in the market value of its fixed assets as appraised by a reputable licensed appraiser which is adequate to absorb its accumulated past losses. 3. That the appraisal increment to be considered in the plan shall be limited to real properties, permanently installed fixed assets, and other machineries and equipment directly needed and actually used in the operations of the company. 4. That the appraisal increment of fixed assets undergoing repair or will require repair before the same can be put into productive use shall not be included in the appraisal of assets for purposes of quasi-reorganization. 5. The company shall present a project study on its future operations to support its quasi-reorganization. 6. That the remaining appraisal surplus set up in the books of the company after the deficit shall have been offset will not be used to wipe out losses that may be incurred in the future without prior approval of the Commission. 7. For purposes of dividend declaration, retained earnings of the company shall be restricted to the extent of the deficit wipe out (and not recovered by accumulated depreciation on appraisal increment) by the appraisal surplus. 8. That after the quasi-reorganization of the company has been effected and approved by the Commission, the company shall disclose in all its financial statements for a minimum period of three (3) years the mechanics, purpose and effect of such quasi-reorganization on the financial condition of the company. Respectfully submitted: (SGD.) BIENVENIDO A. SANCHEZ Supervising SE Specialist