Belo Gozon Elma Parel Asuncion & Lucila

November 7, 1995 Belo Gozon Elma Parel Asuncion & Lucila 15th Flr., Sagittarius Condominiums H.V. dela Costa Street, Salcedo Village Makati, Metro Manila Attention : Atty . Roberto O . Parel S i r : This refers to your letter dated September 28, 1995 inquiring whether the investment scheme described therein is violative of SEC Rules and Regulations on registration of securities. LexLib As stated, your client corporation has started the groundworks for an initial public offering (IPO) of shares of stock. The exact listing date is still undetermined and subject to the registration process with the Securities and Exchange Commission. However, several persons have expressed the intention of making reservations subscribing to the shares to be offered under the IPO and are prepared to remit an amount equivalent to 10% of their contemplated subscription as deposit. Because of an inordinately large number of similar requests received by the corporation, the latter is inclined to accommodate such requests under the following conditions: 1. The amount paid shall be considered as a reservation fee or deposit ; 2. The reservation fee/deposit shall not exceed ten percent (10%) of the intended investment. Any investor depositing a reservation fee should intend to invest to not less than P500,000 . 00 worth of shares and not more than P10 Million . The corporation makes no commitment to make the public offer and the investor agrees to assume such risk. 3. In the event that the corporation fails to offer its shares to the public within a period of nine (9) months from the payment of the reservation fee/deposit, then the investor shall have the option to seek a refund of the reservation fee/deposit with interest at twelve percent (12%) per annum or to maintain the reservation fee for another six (6) months. Your query is, assuming that the underwriters have no objection to the above arrangement, would such scheme violate SEC Rules and Regulations on registration of securities? Section 4 of the Revised Securities Act provides: (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided . (Emphasis supplied) xxx xxx xxx" Likewise, Section 2 thereof provides: "SECTION 2. Definitions . The purposes of this Act: xxx xxx xxx (c) "Sale" or "sell" shall include every contract of sale or disposition of a security or interest in a security, for value. The terms " offer to sell ", " offer for sale ", or " offer shall include every attempt or offer to dispose of or solicitation of an offer to buy, a security or interest in a security, for value. (Emphasis supplied) It can be construed from the above provisions that " mere attempt " to offer shares to the public is subject to the registration requirement under the Revised Securities Act. The inclusion in the definition of a "mere attempt" is designed to prevent evasion from registration requirements by promoters who may adopt ingenious investment schemes to escape regulation. In the present case, the act of accepting subscription deposits from the public for an intended initial public offering (IPO) is an indication that there is an attempt to offer the shares to the public. Moreover, the deposits cannot be merely treated as reservation fees inasmuch as they will bear interest in the event the corporation fails to start the IPO within the period of nine (9) months. In view of the foregoing and taking into consideration the amount and volume involved in the scheme described above, the proposed transaction is subject to registration under the Revised Securities Act. Please be advised accordingly. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner