Atty. Antonio P. Jamon, Jr.

September 9, 1998 Atty. Antonio P. Jamon, Jr. United Laboratories, Inc. United Street, Mandaluyong Metro Manila S i r : This refers to your letter dated August 25, 1998, requesting clarification on the SEC Policy regarding payment in the increase in capital stock by way of " stock dividend " declaration. llcd While under Section 38 of the Corporation Code, it is not a requirement that the minimum subscription to the increase of capital stock shall be fully paid, in cases where the subscription to the increase in capital stock is " entirely paid " by way of stock dividend ,the SEC requires such subscription to be " fully paid ".This is because a dividend is a profit of the investment of the stockholder, not an obligation. Hence, the corporation cannot use its unrestricted retained earnings as partial payment for the stocks to be declared as dividend and oblige the stockholders to pay the balance thereof without their consent. There is no law that authorizes a private entity to impose an obligation on another without the latter's consent. However, the corporation may opt to have two sets of subscriptions :first, by way of stock dividend declaration to the extent fully paid by the available unrestricted retained earnings; and second, by separate "voluntary" subscription contracts for the balance of the minimum subscription required under the law. Very truly yours, (SGD.) DANILO L. CONCEPCION Chairman