Philippine Silver Corporation

February 11, 1986 Philippine Silver Corporation Suite 720-722 Philamlife Bldg. U.N. Avenue, Manila Gentlemen: With reference to the articles of incorporation of that proposed corporation which was presented to this Commission for registration, please be informed that the same has been approved in principle by the Commission in its meeting of January 27, 1986, subject to the following conditions: I. Transfer of both the common and preferred shares shall be subject to the provisions of the Omnibus Investments Code. Quoted hereunder are the pertinent provisions of P.D. 1789, otherwise known as the Omnibus Investments Code. "ARTICLE 67. Permitted Investments . (1) Without need of prior authority, any one, not a Philippine national as that term is defined in Article 14 of this Code, and not otherwise disqualified by law, may invest: (a) ... (b) In an enterprise not registered under Book one hereof to the extent that the total investment of non-Philippine nationals herein shall not exceed thirty per cent (30%) of the outstanding capital of that enterprise, unless existing law forbids any non-Philippine nationals to a percentage smaller than thirty percent (30%). xxx xxx xxx (Emphasis supplied) "ARTICLE 68. Permissible Investments . If an investment by non-Philippine national in an enterprise not registered under Book One hereof is such that the total participation by non-Philippine nationals in the outstanding capital thereof shall exceed thirty (30%) per cent, the enterprise must obtain prior authority from the Board of Investments, ..." It appearing that the proposed Philippine Silver Corporation does not have any prior authority from the Board of Investments under Section * 68 of the Omnibus Investments Code, it is presumed that Article 67 thereof on Permitted Investment applies. Accordingly, subscription of non-Philippine nationals and transfer of equity participation from a Philippine national to a non-Philippine national, should not exceed thirty (30%) per cent of the outstanding capital of the corporation. The term "outstanding capital" as defined under the Corporation Code, " means the total shares of stock issued to subscribers or stockholders ,whether fully or partially paid (as long as there is a binding subscription agreement),except treasury shares," (Sec. 137).The term covers both the issued common and preferred shares . Therefore, the "transfer clause" found in the opening paragraph of Article VII of the Articles of Incorporation of the proposed corporation must qualify the transfer of both common and preferred shares . II. Assessments or any amount received in excess of the par value of preferred shares considered as "paid-in surplus." It appears from your articles of incorporation that your authorized capital stock amounts to P1,000,000.00 divided into 250,000 common shares and 750,000 preferred shares both of the par value of P1.00 per share. As stated in No. 1, Article VII thereof, "each preferred share shall be issued, originally or from treasury, exclusively in exchange for ten (10) ounces of silver of .999 fine as may be determined by the Central Bank of the Philippines or by such entity as may, from time to time, be accepted by the board of directors." Furthermore, No. 2, Article VII of your articles of incorporation provides that "Each preferred share shall, on the first day of November of each calendar year, be assessed for the succeeding calendar year, at a rate to be determined by the Board of Directors an amount which shall not exceed three hundred (300) per centum of the charges per annum for insurance premiums, depository and storage fee for the next calendar year for ten (10) ounces of silver of .999 fine which assessment shall be paid within forty-five days from the announcement of the assessment rate per preferred share in a newspaper of general circulation within the Philippines." In this connection, it should be further stated therein that assessments or any amount received in excess of the par value of preferred shares shall be treated as "paid-in surplus." The term "surplus" as used in modern statutes is generally defined as the excess of the net assets of a corporation over its capital or stated capital. (19 Fletcher, Cyc. Corp.,1975 Rev. Vol.,sec. 9268, p. 467; Ballantine on Corporations, sec. 227a.,p. 539).Paid in surplus includes premium on par value stock. (H.A. Finney and H. Miller, Principles of Accounting, Intermediate, 4th ed.,chap. 13, p. 271).Thus, where par value shares are issued and a premium paid over par, a paid in surplus results. (Ballantine, loc. cit.). Furthermore, please be advised that considering that your preferred shares shall be issued for a consideration other than cash, valuation thereof shall be subject to the approval of this Commission. (Sec. 62; Corporation Code of the Philippines). III. Redemption of preferred shares contingent upon remaining assets at least equal to liabilities. No. 4, Article VII of the Articles of Incorporation of that proposed corporation provides that "Each preferred share may be surrendered at the exclusive option of the registered owner, for ten (10) ounces of silver of .999 fine, as determined by the Central Bank of the Philippines provided that the volume of such silver redeemed shall not include a fraction of silver bar as maintained by the Central Bank of the Philippines, and provided, finally, that should the volume of silver redeemed include, or be equivalent to a fraction of silver bar, the cost to segregate the fractional bar or silver redeemed shall be for the account of the retiring stockholder." Our law on the matter provides, thus: "Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. They may be purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions as may be stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing said shares." (Sec. 8, Corporation Code). Most modern statutes expressly authorized the issue of redeemable stock when provided for in the articles of incorporation which must specify the power and details of its exercise. (11 Fletcher, Cyc. Corps.,1971 Rev. Vol. sec. 5909, p. 581).Provisions in articles relating to the retirement of preferred stock is in effect a contract between the issuing corporation and the preferred stockholders. (Fletcher. Supra.,p. 585, citing Franzer v. Fred Rueping Leather Co.,255 Wis. 265, 38 NW 2d 517).As a rule, however, the stockholders' right to compel a redemption is subordinate to the rights of creditors. (Fletcher, sec. 5310, p. 589). Hence, the Commission in its "Rules Governing Redeemable and Treasury Shares" provides thus: "Redeemable shares may be redeemed, regardless of the existence of unrestricted retained earnings, provided that the corporation has, after such redemption sufficient assets in its books to cover debts and liabilities inclusive of capital stock." (Sec. V, 5) Redemption of your preferred shares shall be subject to the rule above stated. LibLex Your attention is likewise invited to the provisions of Section 4(a) of the Revised Securities Act to the effect that no securities, except of a class exempt under any of the provisions of Section 5 thereof or unless sold in any transaction exempt under any of the provisions of Section 6 thereof, 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 provided for in said Act. Accordingly, should you intend to have a public offering of your securities, you are directed to file the corresponding Registration Statement duly executed in accordance with Section 8 of the Revised Securities Act. Your early compliance with the foregoing observations is requested. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .