Ms. Efifania Mendoza

August 16, 1993 Ms. Efifania Mendoza Rayomar Management, Inc. 2nd Flr. Marbella Manila II Bldg.,2071 Roxas Blvd. Malate, Manila M a d a m : This refers to your letter of July 7, 1993 requesting approval for the declaration of treasury shares of Transmar Agencies, Inc. as property dividends out of its additional paid-in capital instead of its retained earnings. The pertinent provision of the Corporation Code provides: "SECTION 43. Power to declare dividends . The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by them: "....(Emphasis supplied) LibLex It is clear from the aforecited provision that dividends must be declared and paid out of the unrestricted retained earnings of the Corporation. However, as an exception, the Commission in its Executive Meeting of October 17, 1989 resolved to allow the declaration of stock dividends (but not as cash dividends) from paid-in surplus taking into consideration that when a corporation converts the premium or contributed surplus into capital by issuing to its stockholders shares of stock representing their respective participation, it actually parts with nothing but merely transfers the surplus to capital account and issues shares of stock to represent the same. However, it would be different when property dividend is declared out of additional paid-in capital. Under this situation, the capital of the corporation. represented by the additional paid-in capital, is reduced to the extent of the property dividend declared, as can be gleaned from the Exhibit 1 attached to your letter to support your request. This is not allowable since this will involve return of capital to the stockholders. In view of the foregoing, your request is hereby denied. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman