Related Party Transactions (RPT) Policy

For the purpose of this Policy and Guidelines,the following definition of terms shall apply:

• A.

  Related Party – a person or entity that is related to the reporting entity. A person or a close member of that person’s family is related to a reporting entity if that person has control, joint control, or significant influence over the entity or is a member of its key management personnel. (In this Policy, the entity that is preparing its financial statementsis referred to as the ‘reporting entity’ or ‘the Company’).

  The Company’s Related Party includes MERALCO and 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 spouses and relatives within the fourth civil degree of consanguinity or affinity, legitimate or common-law, as well as corresponding persons in affiliated companies.This shall also include such other person or juridical entity whose interest may pose a potential conflict with the interest of the Company. RefertoAnnexAon page 8 forinstances of a related party.

• B.

  Related Party Transaction (RPT) – a transfer of resources, services or goods between a reporting entity and a related party, regardless of whether a price is charged. It should be interpreted broadly to include not only transactions that are entered into with related parties, but also outstanding transactions that are entered into with an unrelated party that subsequently becomes a related party.

• C.

  Close members of the family of a person – family members who may be expected to influence, or be influenced by,that person in his dealings with the entity.

• D.

  Associate - an entity over which an investor has significant influence.

• E.

  Control of an Investee – an investor controls an investee when the investoris `exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affectthose returns through its power overthe investee.

• F.

  Joint control -the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

• G.

  Significant influence – the power to participate in the financial and operating policy decisions of the investee butis not control or joint control over those policies.

• H.

  Parent – an entity that controls one or more entities.

• I.

  Subsidiary - an entity that is controlled by another entity.

• J.

  Affiliate – an entity linked directly or indirectly to the reporting PLC through any one or a combination of any of the following:

• K.

  Joint Venture – a contractual arrangement whereby the parties that have joint control of the arrangement have rights to the net assets ofthe arrangement.

• L.

  The term “fair and at arm’s-length” refers to transactions in an open and unrestricted market and between willing parties who are knowledgeable, informed, and who act independently of and without regard to any relationship with each other.

• M.

  Key Management Personnel– persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive orotherwise) of that entity.

• A.

  The Company shall at all times observe and adhere to the provisions ofthe Corporation Code of the Philippines and its amendments/revisions, its Articles of Incorporation and By-laws, and all other relevant and laws, rules and regulations, as may be applicable, in the review, approval and disclosure of RPTs, always taking into consideration the rights ofthe Company’s shareholders, minority and majority alike.

• B.

  All RPTs shall be reviewed and approved by an appropriate RPT Approving Authority to ensure that they are on terms and conditions that are at arm’s-length. This RPT review and approval shall encompass potential and existing RPTs entered or to be entered by any group or business responsibility unit of the Company, taking into account its size, structure, risk profile and complexity of operations.

• C.

  Directors and keymanagement personnelshalldisclose their interestin transactions and any other conflicts of interest, including details of all their other directorships and any shareholdings owned by them. Directors are required to notify the Company’s Board before accepting a directorship in another publicly-listed company. Changes in their interest must be promptly disclosed to the Board of Directors through the Company’s Corporate Secretary.

• D.

  Directors and key management personnel shall abstain and/or inhibit themselves from participating in discussions on a particular agenda when they are conflicted.

• E.

  The Company shall ensure that RPTs carried out by its subsidiaries are conducted in accordance with this Policy.

• F.

  Subject to the recommendation of the RPT Review Committee/Team, any unusual or infrequently occurring transaction constituting RPT may likewise be made subject to review and approval in accordance with this Policy and Guidelines.

The following are situations or events which may give rise to or result in a Conflict of Interest Situation. Other situations not described herein shall be evaluated on a case to case basis by the Clearance Authority within the context of this Policy.

• A.

  Corporate Opportunity and Outside Investment

  • A.

    Each RPT Approving Authority shall ensure that RPTs are for the best interest of the Company. In evaluating RPTs, all the relevant facts and circumstances available shall be considered, including but not limited to the following:

    • 1.

      The related party’s relationship to the Company and interest in the transaction;

    • 2.

      The material facts of the proposed RPT, including the proposed aggregate value of such transaction;

    • 3.

      The purpose and timing of the proposed RPT;

    • 4.

      The benefits to the Company of the proposed RPT;

    • 5.

      The availability of other sources of comparable products or services; and

    • 6.

      An assessment of whether the proposed RPT is on terms and conditions that are comparable to the terms generally available to an unrelated party under similar circumstances.

  • B.

    The Company should have an effective price discovery system in place and exercise due diligence in determining a fair price for RPTs. The price discovery mechanism may include, but is not limited to, acquiring the services of an external expert, opening the transaction to a bidding process, or publication of available property for sale.

  • C.

    The Board of Directors may appoint an independent party to evaluate the fairness of the terms of the material RPTs. The independent evaluation of the fairness of the transparent price ensures the protection of the rights of shareholders and other stakeholders.

  • D.

    The RPT shall be considered material/significant if determined by the RPT Review Team to be potentially or actually significant to the Company. The RPT Review Team shall be composed of heads from Legal, Finance and Corporate Service (for Procurement). The aggregate amount of RPT under consideration, within the preceding 12-month period, shall be among the aspectsto be considered in determining the materiality of such:

    Classification	Aggregate Transaction Value (12-month period)
    Material Transactions	PhP10 Million and above
    Significant transactions	PhP1 Million but less than PhP10 Million
    De Minimis transactions	Below PhP1 Million

  • E.

    Material/significant RPTs shall be evaluated by the RPT Review Committee/Team to ensure that these are not undertaken on more favorable economic terms (e.g., price, commissions, interest rates, fees, tenor, collateral requirement) to such related parties than similar transactions with non-related parties under similar circumstances and that no corporate or business resources of the Company are misappropriated or misapplied, and to determine any potential reputational risk issues that may arise as a result of or in connection with the transactions.

  • F.

    After review, the RPT Review Committee/Team shall report the material/significant RPTs to the Audit Committee for its evaluation, approvaland/or endorsement to the Board.

  • G.

    Significant RPTs shall require the approval of the Audit Committee while material RPTs shall require endorsement of the Audit Committee and approval by the Board.

  • H.

    De Minimis RPTs entered in the ordinary course of business shall neitherrequire review by the Audit Committee nor approval by, and reporting to, the Board.

  • I.

    Directors with personal interest in the transaction should abstain from participating in discussions and voting on the same. In case they refuse to abstain, their attendance shall not be counted for purposes of assessing the quorum and their votes shall not be counted for purposes of determining approval.

  • J.

    Regardless of the amount of the transaction or contract, RPTs entered into by a director or corporate officer in his/her personal capacity must be approved by the Board. These RPTsshall be voidable at the option of the Company, except when all the following conditions are present:

    • 1.

      The presence of the Director in the board meeting in which the contract or transaction was approved was not necessary to constitute a quorum for such meeting;

    • 2.

      The vote of such Director was not necessary for the approval of the contract;

    • 3.

      The transactions are fair, and on terms comparable to those that could be obtained at arm’s length dealings with an unrelated third party, or can be justified on a legitimate business case basis; andThe transactions are fair, and on terms comparable to those that could be obtained at arm’s length dealings with an unrelated third party, or can be justified on a legitimate business case basis; and

    • 4.

      In the case of a Corporate Officer, the contract has been previously authorized by the Board of Directors.

    However, that when conditions J.1 and J.2 are absent in the case of a transaction or contract with a Director, such RPT may be ratified either by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock of the Company or by the vote of the stockholders representing majority of the outstanding capital stock of the Company excluding that of the affected Director, whichever is lower.

  • K.

    All recurring RPT contracts that have a term that exceeds one (1) year must be reviewed and approved on an annual basis to determine whether to continue/renew the same.

The following are considered Exempt Related Party Transactions (“Exempt RPTs”) which shall not require RPT Committee review and approval, but may require regular reporting to the Board of Directors:

• A.

  De minimis transactions which are unusual and non-recurring;

• B.

  Compensation of directors and employment of executive officers approved by the Board;

• C.

  Transfer of resources or transactions between the Company and its wholly-owned subsidiaries in connection with the funding of operations of the Company's business units and projects, or other transactions with the objective of providing shared services or for other services for operational efficiency of a common parent company;

• D.

  Transactions between two (2) or more wholly owned subsidiaries or affiliates of the Company with the objective of providing shared services or for other services for operational efficiency of the Company;

• E.

  Share transactions such as dividends, repurchase, rights offerings, available to all shareholders on a pro-rata ownership basis;

• F.

  Any transaction with a Related Party involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority;

• G.

  Transactions with similar terms available to all employees generally.

This Policy was approved on February 19, 2021 by the Board of Directors.