Amended Rules Governing the Distribution of Excess Profits of Corporation

July 28, 1994 AMENDED RULES GOVERNING THE DISTRIBUTION OF EXCESS PROFITS OF CORPORATION In the interest of the investors and of the general public, the Commission pursuant to the powers vested in it by law, hereby promulgates the following rules and regulations: 1. All domestic stock corporations which have surplus profits in excess of necessary requirements for capital expansion and reserves shall declare and distribute the excess profits as dividends to stockholders. prcd 2. The Corporation Code, particularly Sec. 43, provides for the prohibition to retain surplus profits in excess of 100% its paid-in capital except: a. When justified by definite corporate expansion projects or programs approved by the board of directors; or b. When the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent and such consent has not yet been secured; or c. When it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation such as when there is a need for special reserve for probable contingencies. 3. The Commission considers as sufficient justification for non-distribution of dividends when such is consistent with the policy or requirement of a government office like Central Bank, Insurance Commission, Board of Transportation, Board of Investments etc.,including this Office regarding the restriction on declaration of dividends where there are treasury shares held by a corporation to cover the cost of said shares, until the same are re-issued or retired. 4. Any and all appropriations out of the surplus profits for reserves shall have the prior approval of the board of directors. prcd 5. The appropriations and justifications shall be fully disclosed in the notes to the financial statements to explain why said surplus profits have not been declared as dividends. 6. Should an examination of the affairs of the corporation be necessary to determine the validity of the explanation given, an examination fee of not exceeding Five Hundred (P500.00) Pesos shall be charged and collected from the corporation. 7. For failure or neglect to: a. declare dividends to its stockholders; or b. disclose any appropriations/reserves approved by the board of directors; or c. disclose the justification for non-distribution of dividends. the corporation shall be imposed a penalty of 1/10 of 1% of the excess amount over the paid-in capital but in no case shall it be less than Two Hundred (P200.00) nor more than Ten Thousand (P10,000.00) Pesos for that given fiscal year, or be punished by suspension or revocation of the license/permit to sell securities issued to the corporation. 8. Any person who may be found guilty of misrepresentation, fraud or misstatement of material facts in making explanations to the Commission shall be held criminally liable as provided under the law. These amended rules and regulations, which shall be published in a newspaper of general circulation in the Philippines or in the Official Gazette, shall apply to the corporations whose fiscal years end December 31, 1994 and all fiscal years thereafter. LibLex Mandaluyong, Metro Manila, July 28, 1994. (SGD.) ROSARIO N. LOPEZ Chairman