Mr. Fernando C. Santico

December 17, 1991 Mr. Fernando C. Santico CESO Financing, Inc. Suite 210 Sunrise Condominium I Ortigas Avenue, Greenhills San Juan, Metro Manila S i r : This refers to your letter of November 27, 1991 requesting information on the following: 1. Accounting entries for the sale of delinquent shares under Section 68 of the Corporation Code. 2. Whether the corporation can sell treasury stocks for a price lower than the par value. 3. Whether treasury shares earn dividends. Relative to the first issue, when the corporation bids for the delinquent shares in the absence of any outside bidder, the shares shall be recorded as a debit to "treasury stock" for the amount of the unpaid subscription, plus the accrued interest thereon, if any, and the cost of all expenses incurred in the delinquency and bidding proceedings. The corresponding credit accounts are the "subscription receivables",the " accrued interest receivables" and the "expenses accounts" the individual amounts of which shall be closed to the "treasury stock" account. The retained earnings account is restricted to the extent of the treasury stocks recorded. Relative to your second query, the pertinent provision of the Corporation Code provides: "SECTION 9. Treasury shares are shares of stock which have been issued and fully paid ,but subsequently reacquired by the issuing Corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors ." (Emphasis supplied) Thus, "treasury shares" need not be sold at par or issue value but may be disposed of at the best reasonable price obtainable. Anent your third query, Section 43 of the Corporation Code provides that dividends shall be declared on the basis of "outstanding capital stock" held by the stockholders. "SECTION 43. Power to declare dividends . The board of directors of a stock corporation may declare dividends out of the retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock, held by them ; xxx xxx xxx The term "outstanding capital stock" as used in the above-cited provision is defined under the Corporation Code as follows: "SECTION 137. Outstanding capital stock defined . The term " outstanding capital stock ", as used in this Code, means the total shares of stock issued to subscribers or stockholders, whether or not fully paid (as long as there is a binding subscription agreement), except treasury shares ." (Emphasis supplied) cdll Under the aforecited provision "treasury shares" are no longer part of the "outstanding capital stock".As such, they are not entitled to receive dividends as long as they remain in treasury. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman