Minister Jose J. Leido, Jr.

February 14, 1980 Minister Jose J. Leido, Jr. Ministry of Natural Resources Diliman, Quezon City Metro Manila Dear Minister Leido: This is to acknowledge your undated letter-request relative to your proposed Rules and Regulations pursuant to Section 63 of Presidential Decree No. 705 (Forestry Reform Code), together with enclosures. As a whole, the same is in consonance with the existing policy of the government to widen the corporate base and to distribute corporate profits more equitably. However, after due deliberation and thorough evaluation of the same, there appear some material problems, questions or issues that should be threshed out by your ministry before you issue the same to avoid complications in its implementation, to wit: 1. Are logging corporations, whose capitalizations are or almost fully subscribed and paid-up, included in the rules? In the affirmative, they should be ordered to increase their capitalization by ten percent (10%). 2. The ten percent (10%) plan is in the nature of "Stock Option". Please be advised that the same is governed by SEC Rules BED 902-A-3 , a copy of which is enclosed for your ready reference. 3. We believe that there should be a cut-off date within which the employees should exercise their right to the plan so that any portion left unsubscribed should be open for availment to other willing employees or the public may take advantage of the same or the corporation may give the shares as bonus incentives (Supra). However, there should be a reserve out of the ten percent (10%) for new permanent employed. 4. Re, Section 11 (Participation): We believe that participation in the plan should be confined only to permanent daily, weekly and monthly, and at most seasonal employees, but it should not include the casual, emergency, temporary and the contractual employees. Otherwise, there is no incentive to corporate loyalty and the books of the corporation and the record of the SEC will be unusually clogged with so many reports of terminations of employment and return of money invested (payroll deductions). Relative to this, we believe that although the plan is voluntary because the employees may have no money to invest, the Ministry may follow the plan adopted by Levi Garments which gives to its model or loyal employees its stocks as bonuses and incentives for their good work. 5. Re, Section 12 (Allotment of Shares): We believe that employee participation should be seven percent (7%) and public participation should only be three percent (3%) in order to induce employees to work more and to give them additional incentives for their time, effort, sweat and tears that they exert for the corporation. cdll 6. Re, Section 13 (Manner of Payment): We believe that the authorization for payroll deduction should be irrevocable in order to induce forced savings of employees and at the same time put the records of the corporation and SEC in good order. At any rate, the corporation may adjust the deductions to reflect additional expenses of the employees at their requests. 7. Re, Section 14 (Adjustment Upon Changes in Capitalization): In cases of consolidations and mergers of logging corporations, there is a possibility that the 10% share of the employees will increase to 20% or 30% in the new or merged corporation depending on the previous subscriptions of employees with their former employers. In said eventuality, we believe that labor should be allowed to subscribe or continue to subscribe to said original percentage of shares if the employees have not yet taken advantage of the plan. That is why there is a real necessity for a cut-off date (infra, No. 3). 8. Re, Definition of "Subscribed capital stock": We suggest a more accurate definition as follows: "Subscribed capital stock" refers to that portion of the capital stock subscribed or outstanding, whether fully pair or not. Ten (10) percent of the subscribed capital stock shall be issued and offered for sale to the employees and laborers and the general public pursuant to Section 63 of P.D. No. 705 , as amended. Moreover, treasury stock which are shares which have been issued as fully paid and have thereafter been acquired by the corporation by purchase or donation, but not retired or canceled or restored to the status of unissued shares may also be offered for sale to the employees and laborers as well as the general public in accordance with these regulations. We hope that we have assisted you and the public with our humble participation. Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner