United Coconut Planters Bank

June 20, 1988 United Coconut Planters Bank UCPB Building, Makati Metro Manila Attention : Mr . Marino Abad Santos Gentlemen : This refers to your letter, dated May 24, 1988, requesting the imprimatur of the Commission on the application for merger of three (3) rural banks, namely: Rural Bank of Opol, Community Rural Bank of Claveria, and the Rural Bank of Laguindingan, with the latter as the surviving bank. It appears therein that the Rural Bank of Opol and Community Rural Bank of Claveria both have negative equity positions. At the very inception of the plan of merger, the United Coconut Planters Bank, which owns 95.23% of the outstanding capital stock of Rural Bank of Laguindingan was aware of the capital deficiencies of the other two banks. Nevertheless, it consented to the merger, giving each of the bank the par value of their outstanding capital stock in consideration of their certain intangible assets such as the goodwill of the banks, their franchises, personnel staffing patterns, clientele and locations of their businesses. All the pertinent documents effecting the merger are filed with the Central Bank of the Philippines pending consideration on the issue of watered stock. Prior comment of the Commission is sought at the instance of the Central Bank, considering that the merger involves the issuance of shares by the surviving bank to two constituent banks which have negative equity positions. LexLib The goodwill of a business purchased by a corporation, and paid for by stock, is property, and is to be taken into consideration in determining the value paid for the stock, and is to be valued on the basis of worth and never arbitrarily. (11 Fletcher Cyc. Corp., 1986 rev. vol. sec. 5216). In the case of Consolidated Rural Bank (Cagayan Valley), Inc. the Commission had occasion to consider the goodwill of constituent corporations in exchange for shares of stock of the consolidated corporation. Thus, in the proposed merger of Rural Bank of Opol, the Community Rural Bank of Claveria and Rural Bank of Laguindingan, the Commission in its meeting of June 10, 1988 approved in principle the issuance of shares by the surviving corporation in consideration of the intangible assets or goodwill of the other constituent corporations, subject to the following conditions: 1. That the value of the goodwill has been approved by the Central Bank, and has been recognized in the books of the constituent banks, and 2. That the shares representing the amount of the goodwill shall be held in escrow by the Commission to be released after the cost of the intangible asset shall have been amortized in accordance with the schedule to be submitted to this Commission by the constituent banks. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman