Dear Madam or Sir:
Concerning the issue of investment in kind by (Party 1) on December 31, 1999, we can give you the following information.
In general, Dilo could allocate patent surplus as a capital surplus of capital reserves in one of two ways.
On the one hand, the existing shareholders could return the stipulated 10% of capital stock to the corporation in proportion to the distribution of ownership and then the corporation could reimburse Dilo. Direct share sale through the corporation is much more difficult, because it would only represent a legal transaction between the shareholders and the amount of difference between the nominal shareholding amount and the patents value would only represent the capital profit of the shareholders and not the issue charge (capital surplus) of the corporation.
On the other hand, Gaia could increase existing capital stock by 10%, which would produce real capital surplus and make allocation to capital reserves possible. We would prefer this option because it is much easier to execute.
Concerning the second option, we must point out that we can enter capital increase into the trade registry only after the financial statement date and therefore entry as subscribed capital does not yet come into question. We will enter the capital increase under special items (“Deposits Made for the Execution of Capital Increases”). In general, we make the entry between equity and debt capital; the item does not represent equity capital. In order to be able to make entries of capital increase for eliminating missing amounts not covered by equity capital, either the trade registry entry must occur before the closing date for preparing the annual financial statement or the share transferee must declare that the deposit made may not be reclaimed even if the capital increase is not executed.
We are at your disposal at any time, if you have further questions.
Sincerely,
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