Guerrero & Torres

April 16, 1984 Guerrero & Torres c/o Atty. Luis Ma. Guerrero 638 Philbanking Building Ayala Avenue, Makati, MM Gentlemen: This refers to your letter dated April 11, 1984 requesting for confirmation of your stand that the effectivity of stock dividend declaration of Intel Philippines Manufacturing, Inc. worth P19,800,000.00 is on the date of the approval of the same by the Board of Directors on October 27, 1983. It appears that on the above-mentioned date, the Board of Directors and stockholders of subject corporation resolved to declare a stock dividend of nineteen million eight hundred thousand (P19,800,000.00).Shares could not be immediately issued because the authorized capital stock of the said corporation was fully subscribed. Thus, it was necessary to increase its authorized capital stock to P87,575,000.00 before shares could be issued to shareholders. The increase of capital was approved by this Office on April 6, 1984. Your contention is that the effective date of the stock dividend was October 27, 1983 (date of declaration of stock dividend),not April 6, 1984 (approval of the increase by the SEC. A stockholder is supposed to have acquired the stock dividend as of the date of declaration by the corporation. However, it should be noted that "the declaration of a stock dividend involves the creation and issue of new shares of stock ".(Fletcher Cyclopedia Corporations, p. 747, citing Green V. Bissell; 79 Conn 547, 65 A 1056, 8 LRA (NS) 1011, 118 Am. St. Rep 156, 9 Ann Cas 287).A stock dividend which requires a transfer of surplus to capital account, therefore, cannot be made without issuing additional shares. ( SEC opinion dated March 28, 1974 addressed to Sabido, Sabido and Associates). In the instant case, at the time of the declaration of the stock dividend by the directors and stockholders, the corporation's capital stock was fully subscribed, hence, there was nothing to issue. Thus, to cover the stock dividends, the corporation increased its capital stock in accordance with Section 38 of the Corporation Code. The law provides in part, to wit: "SECTION 38. Power to increase or decrease capital stock . ... xxx xxx xxx From and after the approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased. ..." xxx xxx xxx It is very clear from the aforecited provision that the increase of capital is effective only upon approval by the Commission. Considering that the declaration of stock dividends depends on the approval of the increase of capital stock, the above-mentioned stock dividends become effective/payable only on April 6, 1984, the date of the approval of the increase of capital stock. To rule otherwise would have the effect of declaring stock dividends without issuing shares of stocks. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman