Mr. C.B. Fuentesfina

September 14, 1998 Mr. C.B. Fuentesfina Door No. 8, 2nd Floor, JTL Building BS Aquino Drive, Bacolod City S i r : This refers to your letter dated July 16, 1998, requesting opinion on the queries posed therein summarized as follows: 1. Whether or not shares of stocks can be offered to existing stockholders or non-stockholders at par value even if the adjusted book value of the share is higher than the par value or even above par but below the book value . 2. Whether or not a corporation which has accumulated a sizable amount of deficit can undergo a quasi-reorganization to erase such deficit by offsetting the amount of deficit against the capital paid in excess of par value. Section 62 of the Corporation Code, quoted hereunder, expressly allows a corporation to issue shares of stock at any price, provided it is not less than the par value. "SECTION 62. Consideration of stocks . Stocks shall not be issued for a consideration less than the par price thereof. ..." (Emphasis supplied) Accordingly, an agreement between the corporation and subscribers to pay the shares of stock at par or above par but below the book value is valid and enforceable according to its terms. However, under this situation, the doctrine of "pre-emptive right" should be observed. All existing stockholders should be given the first opportunity to subscribe to the shares covered by the issuance before offering them to third parties. Relative to the second query, please be advised that it has been the policy of the Commission to allow a corporation with prior SEC approval to reduce or wipe out its deficit by applying the additional paid-in capital against the deficit, provided that after such re-structuring process has been affected, the same shall be disclosed in all subsequent financial statements of the corporation for a period of at least three (3) years. prLL Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner