Mr. Rodolfo C. Palpal-Latoc

August 1, 1990 Mr. Rodolfo C. Palpal-Latoc Paper Industries Corporation of the Philippines PICOP Bldg.,389 Sen. Gil J. Puyat Ave. Ext. Makati, Metro Manila S i r : This refers to your letter dated July 11, 1990 relative to the applicability of the plan of Paper Industries Corporation of the Philippines to redeem a portion of its outstanding mortgage bonds by issuing shares of stock out of the proposed increase of capital of the corporation as payment thereto instead of paying cash. llcd The above-mentioned plan of the corporation takes the nature of converting liabilities into capital. The outstanding mortgage bonds represent previously incurred indebtedness of the corporation which under Section 62 of the Corporation Code may constitute a valid consideration for the issuance of stock. The law provides thus: "SECTION 62. Consideration for stocks . ...Consideration for the issuance of stock may be any or a combination of any or two or more of the following: 4. Previously incurred indebtedness by the corporation ..." The corporation, therefore, may implement the above plan. The following are the requirements of the Commission aside from the ordinary requirements for increase of capital stock: 1. Detailed statement of the liability accounts of the corporation with the subscribers/creditors showing the date, reference, brief description and amount of each of the debits and credits to the accounts from the date when the said liabilities were incurred up to the latest date, duly certified by the Treasurer; 2. Company's books of accounts must be kept up-to-date and made available for examination by the Commission to determine that payment on the subscriptions to the increase of capital represents legitimate liabilities of the corporation to said subscribers/creditors; 3. Deed of assignment executed by the subscribers/creditors applying their claims in consideration for the shares of stock of the corporation; 4. Copy of the audited financial statements as of the last fiscal year of the corporation. cdlex Please be guided accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner