Mr. Ruben P. Alvarez

August 6, 1991 Mr. Ruben P. Alvarez Senior Manager & Trust Officer Boston Bank, Boston Center 6764 Ayala Avenue, Makati, M.M. S i r : This refers to your letter dated July 31, 1991 requesting opinion on the legality of the corporate structure of a proposed domestic real estate corporation whose equity structure to be reflected in the articles of incorporation would consist basically of two (2) classes of shares with the following features: 6 Million Common shares at P0.01 par value to be owned by Filipinos only, and 4 Million Preferred shares at P100.00 par value per share to be owned by Filipinos and foreigners. Regardless of the disparity of the par value, common and preferred shares are entitled to one (1) vote for each share held. In addition to its voting rights, and its preference in the distribution of the assets of the corporation in case of liquidation, the preferred shares shall be further classified as 20% cumulative and participating as to dividends. With the foregoing, your prospective client wishes to confirm its view that: 1. The proposed corporation, as above-described, is a Filipino corporation, since the common shares which represent 60% of the outstanding capital stock are to be owned and controlled at all times by Filipinos ; 2. If and when, it gets into a joint venture or partnership with other corporations in the pursuit of the real estate activities mentioned in the primary purpose clause of its articles of incorporation its shareholders are to be considered for all legal purposes owned by a Filipino corporation; and 3. The said corporation may be duly incorporated via the SEC Express Lane by using the SEC Express pro-forma articles of incorporation and by-laws with the corresponding adjustments of the pertinent Articles (7 to 9) to reflect the proposed equity structure. The commission previously ruled that the 60-40 percentage nationality requirement under existing law should be based on the total outstanding capital stock irrespective of the total amount of the par value of the shares (SEC Opinion dated November 21, 1989 addressed to Romulo Mabanta, Buenaventura, Sayoc and De Los Angeles). The term "outstanding capital stock" is defined under the Corporation Code as follows: "SECTION 137. Outstanding capital stock defined The term " outstanding capital stock ", as issued in this Code, means the total shares of stock issued to subscribers or stockholders ,whether or not fully or partially paid (as long as there is a binding subscription agreement),except treasury shares." (Emphasis supplied) cdlex In determining the nationality of corporations with foreign equity, the Commission En Banc, on the basis of the opinion of the Department of Justice No. 18, s. 1989, dated January 19, 1989, voted and decided to do away with the strict application/computation of the so-called "grandfather rule" (Re: Far Southeast Gold Resources, Inc. FSEGRI), and instead applied the so-called "control test" method of determining corporate nationality. The method as applied in the said case states as follows: " Shares belonging to corporations or partnership at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality ,but if the percentage of Filipino ownership in the corporation or partnership, is less than 60%,only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital respectively, of which belong to Filipino citizens, all of said shares shall be recorded as owned by Filipinos. But if less than 60%,or say only 50% of the capital stock or capital of the corporation or partnership, respectively belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging to aliens".(Emphasis supplied, Justice Opinion, dated January 19, 1989) In the light of the foregoing, the Commission hereby confirms your client's first and second view on the matter, provided the required 60% Filipino ownership of the total outstanding capital stock is always maintained. Please be advised, however, that while you can make use of SEC Express Lane forms for its articles of incorporation, the registration thereof should pass thru the regular processing as the same requires thorough examination considering that adjustments are made in the pro-forma provisions. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman