Interim Guidelines for the Registration of Bonds

December 14, 1987 INTERIM GUIDELINES FOR THE REGISTRATION OF BONDS To enable corporations to issue and float bonds pending release of the rules on registration of bonds, the following guidelines shall be observed in the meantime: I. Definition Bonds shall refer to securities representing denominated units of indebtedness issued by a corporation to raise money or capital obliging the issuer to pay the maturity value at the end of a specific period which should be not less than 360 days, and where applicable, payment of interest on stipulated dates. Bonds secured by mortgage on specific corporate property shall be created under Sec. 38 of the Corporation Code prior to registration. II. Conditions for Registration . Bonds shall be registered under any of the following conditions: A registrant must have a minimum net worth of P25 million at the time of the filing of the application for registration. A. UNSECURED BONDS In addition to the minimum net worth, a registrant must be in operation for at least three (3) years and must meet the following complementary financial ratios as may be set by the Commission from time to time for each of the immediate past three (3) fiscal years: i) Ratio of (a) the total cash, marketable securities, current receivables to (b) total current liabilities; ii) Debt to equity ratio with debt referring to all kinds of indebtedness including guarantees; iii) Debt to average earnings ratio; debt to cash flow ratio; iv) Fixed assets to long-term liabilities; v) Interest coverage ratio; vi) Such other financial indicators as may be prescribed by the Commission. B. SECURED BONDS For the secured bonds, in addition to the minimum net worth, the amount of bonds applied for is covered by the following collaterals which shall be maintained at their respective values indicated at all times in relation to the face value of the bond issue: Type of Collateral Minimum Coverage 1. Securities listed in Current market value of 200% the stock exchanges 2. Registered real estate Appraised value of 150% 3. Registered heavy equipment, Appraised value of 200% machinery and motor vehicle 4. Government securities, Aggregate current market including Central Bank value of 100% Certificate of Indebtedness, Land Bank Bonds and government guaranteed securities. 5. Other assets acceptable to Appraised value of 200% the Commission Government Securities, CBCI, private securities, certificates of titles and documents evidencing receivables offered as security shall be physically delivered to the indenture trustee and, where applicable, duly covered by pledge, real estate chattel mortgage The Commission may, whenever it deems necessary, impose other requirements in addition to those enumerated in subsection (a) and/or (b) above. III. Registration Requirements Any corporation desiring to issue bonds, not otherwise of a class exempt under any of the provisions of Section 5 or to be sold in any transaction exempt under any of the provisions of Section 6 of Revised Securities Act, to the public shall comply with and file following requirements: 1. Registration Statement in the form prescribed by Commission; 2. Board of Directors Certificate certifying that the stockholders owning at least a majority of the subscribed capital stock authorized the issuance and registration of the bonds signed by the chairman/president and majority of the board of directors; 3. Board Resolution signed by at least a majority of its members. The resolution shall contain the following: 3.1. designation of at least two (2) senior officers with a rank of the vice president or higher or their equivalent to sign the bond instrument to be issued; 3.2. provision that the registration statement shall be signed by the following: chief executive officer, the chief operating officer, chief financial officer or persons performing similar functions; 4. Immediately preceding three (3) years financial statements duly certified by an independent external auditor. However, if the latest of the said statements is as of a date more than three (3) months prior to filing of the registration statement, an unaudited financial statement which should not be more than two months old certified under oath by the chief financial officer and the chief operating officer or persons performing similar functions. 5. Long form audit report which should not be more than nine (9) months old at the time of the filing of the application for registration duly certified by an independent certified public accountant. 6. Projected Annual Cashflow Statement as of the approximate date of issuance for a period co-terminus with the lifetime of the issue indicating the basic assumptions thereto and supported by schedules on actual maturity patterns of assets and liabilities and inventory turn over. 7. Copy of a preliminary prospectus indicating the material data contained in the Registration Statement as per attached checklist. 8. Bio-data of the directors and principal officers in prescribed SEC format. 9. Sample forms of the bond showing the terms and conditions, the face value, interest rate (where applicable), date of maturity. 10. If the bonds are secured, the following shall, in addition, be submitted: a) Report of an independent appraiser; b) Photocopy of title (OCT) or (TCT) with a certification as to authenticity and genuineness of the title from the register of deeds of the province/city where the property is situated; c) Latest Tax Declaration on real estate mortgage. Within sixty (60) days from the issuance of the certificate of registration, the following documents shall be submitted: 1. Trust Indenture executed by and between the company and the trustee bank. 2. Underwriting Agreement, if applicable. 3. Copy of the printed prospectus. 4. Certification from the trustee that the following documents have been submitted: a) Owner's duplicate copies of OCT or TCT; b) Real estate mortgages, Chattel mortgages and pledge agreements duly registered with the appropriate government agencies. IV. The preliminary prospectus shall include the following features: a. A statement printed in red on the left hand margin of the front page of the following tenor: "A registration statement relating to these Bond Issues has been filed with, but has not yet been approved by, the Securities and Exchange Commission. Information contained herein is subject to completion or amendment. These bond issues may not be sold nor may offer to buy be accepted prior to the time the registration statement is approved. This preliminary prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these bonds in the Philippines as such offer, solicitation or sale is prohibited prior to registration under the Revised Securities Act." b. Aggregate maximum amount applied for, stated on front page of the prospectus; c. Description and nature of the applicant's business; d. Intended use of proceeds; e. The provision in the underwriting agreement naming the underwriter and responsibilities of the underwriter in connection with, among others, the use by the issuer of the proceeds of the bond issues and the reportorial requirements under these rules; f. Other obligations of the bond issuer classified by maturities (maturing within six (6) months, from six (6) months to one (1) year, over one (1) year and past due amounts); g. Encumbered assets; h. Directors, officers, and stockholders owning 2% or more of the total subscribed stock of the corporation, indicating any advance to said directors, officers and stockholders. V. Reportorial Requirements a. Issuers of registered bonds shall submit to the Commission the following reports in the prescribed form: 1) Monthly reports on bonds outstanding as at the end of each month, to be submitted within fifteen (15) working days following the end of the reference month; 2) Annual Audited financial statements within 120 days after the end of the fiscal year. b. These periodic reports shall be signed under oath by the Corporate officers authorized pursuant to a board resolution previously filed with the Commission; c. Issuers whose officers are located in the provinces may submit their reports to the nearest extension offices of the Commission. VI. Fees Every bond issuer shall pay the following fees: a) For application for registration, a filing fee of 1/10 of 1% based on total bonds proposed to be issued; b) For issuers of bonds exempt under Sec. 6(b) of the Revised Securities Act, an exemption fee of 1/10 of 1% based on the aggregate value of the bonds. VII. Administrative Sanctions If the Commission finds that there is a violation of any of these guidelines or that any issuer, in a registration statement and its supporting papers, as well as in the periodic reports required to be filed with the Commission has made any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion impose sanctions as provided under the Revised Securities Act. For strict compliance. LexLib (SGD.) JULIO A. SULIT, JR. Chairman