Material Related Party Transaction Policy

I. Objective

This policy provides the guidelines governing the Company’s Related Party Transactions, to ensure that all transactions by and between a related party and RGHC and its subsidiaries (the “company”) are:

• Conducted at an arm’s length basis under terms comparable to those provided to/by unrelated third parties;

• Reviewed to make certain the transactions are properly approved and disclosed Pursuant to Securities and Exchange Commission Memorandum Circular no. 10 Series of 2019.

This policy applies to any transaction where –

• the aggregate amount involved will or may be expected to exceed Five percent (5%) of total assets in any fiscal year;

• the participants are the Company, its subsidiaries, as well as affiliates and any party (including their subsidiaries, affiliates and special purpose entities), that the company exerts direct or indirect control over or that exerts direct or indirect control over the company; the company’s directors; officers; shareholders and related interests (DOSRI), and their close family members, as well as corresponding persons in affiliated companies.  This shall also include such other persons or juridical entities whose interest may pose a potential conflict with the interest of the company. 

A “significant non-affiliated stockholder”, who beneficially owns 5% or more of equity of the Company, is also considered a “Related Party”. Current SEC regulations stipulate / consider as material related party transactions (RPTs) amounts equivalent to ten percent (10%) or higher of a company’s total assets.

II. Definitions

For ready reference, kindly refer to Annex A. 

III. Procedure and Approval Process

A. Periodic Identification of Related Parties

Each Director and key managerial personnel shall promptly notify the ARM Committee of any potential material related party transaction involving him / her or his / her relative. The notice shall include a description of the transaction and the aggregate peso amount.  The list of identified related parties shall be prepared, tagged and updated in the accounting record regularly.  

B. Approval of Audit and Risk Management Committee

Company management shall be responsible for determining prior to entering into such transaction, whether a proposed Related Party Transaction requires standard review and approval in accordance with the process as provided under this Policy.  Upon determination that the proposed is a Related Party Transaction, the relevant facts, circumstances and the Related Party’s interest shall be submitted to the Audit and Risk Management (ARM) Committee for review and consideration. 

The ARM Committee shall review, at least on a semi-annual basis, the aggregated value and other details of related party transactions transacted into by the company pursuant to the omnibus approval given.

C. Approval of the Board

All transactions with Related Parties shall be entered into only after prior approval of the Board.  In determining whether to approve, ratify, disapprove or reject a Related Party Transaction, the ARM Committee will consider, among other factors it deems appropriate, the following factors to the extent relevant to the Related Party Transaction: 

• the terms of such transaction, the Related Person’s interest in the transaction, the approximate peso value of the transaction, the purpose and timing of the transaction;

• whether the Company is a party to the transaction, and if not, the nature of the Company’s participation in the transaction

• whether the terms of the Related Party Transaction are fair to the Company and would apply on the same basis if the transaction did not involve a Related Party; 

• whether there are any compelling business reasons for the Company to enter into the Related Party Transaction; 

• whether the Related Party Transaction would impair the independence of an otherwise independent director or nominee for director; 

• whether the Company was notified about the Related Party Transaction before its commencement and if not, why pre-approval was not sought and whether subsequent ratification would be detrimental to the Company; and   

• whether the Related Party Transaction would present an improper conflict of interest for any director, nominee for director or Executive Officer of the Company, taking into account the size of the transaction, the overall financial position of the director, nominee for director, Executive Officer or Related Party, the direct or indirect nature of the director, nominee, Executive Officer or Related Party’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Committee deems relevant.

If the Audit and Risk Management Committee determines the RPT in order, it shall forward the same to the Board of Directors for approval. The Board of Directors, may in consultation with the business unit, Corporate Secretary, Chief Executive Officer and Chief Financial Officer, approve the Related Party Transaction after it has determined in good faith that it is deemed comparable to those that could be obtained in arm’s length dealings with an unrelated third party and is not inconsistent with the best interest of the company. 

If the Related Party Transaction involves a Related Party who is a Director or his/her immediate family member, such director may not participate in the deliberations or vote respecting such approval or ratification, provided, however, that such director may be counted in determining the presence of a quorum at a meeting of the Board of Directors which considers such transaction.  In the event more than one member of the Board of Directors is Related Persons, the Related Party Transaction will be deliberated and approved by impartial members who constitute a majority of impartial members of the Board. 

D. Abusive Material Related Transactions

In the event the Company becomes aware of a Material Related Party Transaction with a Related Party that has not been reviewed and approved by the ARM Committee and the Board as required under this Policy before its consummation, the matter shall be referred to the ARM Committee. The ARM Committee shall consider all of the relevant facts and circumstances and evaluate all options available to the Company, including ratification, revision or termination of the Material Related Party Transaction. The ARM Committee shall also examine the facts and circumstances pertaining to the failure of reporting such Material Related Party Transaction. The ARM Committee shall take any such action it deems appropriate, including imposing penalties for officers who failed to comply with this policy without prejudice to the penalties and any other administrative penalties that may be imposed by the Securities and Exchange Commission as provided by the Revised Corporation Code of the Philippines, and other relevant laws.

IV. Pre-Approved Related Party Transactions 

The ARM Committee has determined that each of the types of Related Party Transactions (RPTs) listed below shall be deemed to be “pre-approved” or “exempt RPTs”, and shall not require review or approval by the ARM Committee, but may require regular reporting to the Board of Directors:

a. Compensation arrangements approved by the GNC (Governance, Nomination and Compensation) Committee;

b. Director compensation.  Any compensation paid to a Director, if the related compensation is required to be reported in the Company’s information statement under SEC’s compensation disclosure requirements (generally applicable to “named executive officers”). 

c. Certain transactions with other companies. Any transaction with another company at which a Related Person’s (other than a Director’s or 5% Shareholder who is a natural person’s) only relationship is as (i) an employee (i.e., the Related Person is not the equivalent of a Senior Manager), (ii) a beneficial owner of less than 10% of that company’s outstanding equity, if the aggregate amount involved does not exceed 5% of that company’s total assets. 

d. Ordinary course transactions. 

• Ordinary course of business and repetitiveness of the transactions (in past or in future), including rent, utilities, dues;

• Any financial services, including banking services, loans, insurance services and other financial service, provided by any Related Person to the Company, provided, with respect to (i) a Director or his or her Immediate Family Member or (ii) a 5% Shareholder or his or her Immediate Family Member, if applicable, that the services are on substantially the same terms as those prevailing at the time for comparable services provided to non-affiliates. 

e. Transactions where all shareholders receive proportional benefits.  Any transaction where the Related Person’s interest arises solely from the ownership of the Company’s common stock and all holders of the Company’s common stock received the same benefit on a pro rata basis (e.g., dividends). 

f. Transactions with one or more wholly owned subsidiaries of the Company (1) with the objective of providing shared services or for operational efficiency; and (2) in connection  with the funding  of operations of the Company’s projects.

V. Whistle-Blowing Mechanism

Anyone who has reasonable belief that an employee or the Company has engaged in any action that violates applicable laws, or regulations, including those concerning accounting and auditing, or constitutes a fraudulent practice, the employee is expected to immediately report such information to the compliance officer.  If the employee does not feel comfortable reporting the information to the compliance officer, he or she is expected to report the information to the Corporate Secretary or Audit and Risk Management Committee. The employee may refer to the mechanism provided in the Whistleblower Protection Policy of the Company for guidance.

VI. Disclosure and Reporting

Relevant facts and information of the approved Related Party Transactions during the semester shall be disclosed by the CFO to the ARM Committee.  The report may include the following: 

• The terms of such transaction; 

• The identification of the Related Person’s interest in the transaction; 

• The amount and nature of the transaction; 

• If the transaction involves the sale / acquisition of an asset, a description of the asset, including date acquired and cost basis; 

• Evidence supporting the transaction was conducted at an arm’s length arrangement; and

• Any other relevant information regarding the transaction. 

 All Related Party Transactions shall be disclosed to the Philippine Stock Exchange and Securities and Exchange Commission pursuant to SEC Memorandum Circular no. 10, series of 2019.

VII.   Policy Review

The Board shall periodically review and assess the adequacy of this Policy.