Mr. J. A. Osana

August 8, 1991 Mr. J. A. Osana Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila S i r : This refers to your letter of May 28, 1991, requesting approval of the proposed quasi-reorganization of Hotel Enterprises of the Philippines, Inc. reducing the par value of the shares of stock of the company for the purpose of eliminating its deficit, providing in effect a fresh start on the part of the corporation, and inquiring whether any excess reduction surplus after the offset can be distributed as stock or cash dividends. cdlex Please be advised that the Commission does not interpose objection to the above proposal. However, the reduction surplus in excess of the amount used to offset the deficit can be available only as stock dividend. This is in conformity with the previous ruling of the Commission En Banc in its Executive Meeting of October 17, 1989 allowing dividend declaration out of paid-in surplus only in the form of stock dividends. Since reduction surplus or surplus arising from the reduction of the par value of issued shares of stock partakes the nature of paid-in capital in excess of par value, said ruling of the Commission may be applied, subject to the following conditions: 1. That the reduction surplus be declared only as stock dividends and not as cash dividends; 2. That no creditors shall be prejudiced therefrom; and 3. That there shall be no resulting impairment of capital after the declaration of stock dividend. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman