August 10, 2000 BIR RULING NO. 030-00 SGV & CO.

6760 Ayala Avenue Makati City Attention: ATTY. M.F.A. BALILI Gentlemen : This refers to your letter dated February 29, 2000 requesting for a ruling on behalf of your clients, Republic Cement Corporation ("Republic"), Fortune Cement Corporation ("Fortune") and Blue Circle Philippines, Inc. ("BCPI"), on the tax implications of their proposed integration plan. It is represented that Republic and Fortune are domestic corporations duly organized and existing under the laws of the Philippines and are engaged in the manufacture, development, exploitation and sale of cement, marble and other kinds and classes of building, materials; that BCPI, a domestic corporation duly organized and existing under the laws of the Philippines and a wholly owned subsidiary of Blue Circle Home Products B.V. (BCHP-BV"), partnered with the Montinola Group, the SM Group, the CG&E Holdings Group, and the PICOP/Guoco Group in the latter's existing cement businesses in the Philippines, by making investments in the form of equity and debt, in the following companies, namely: Republic, Fortune, Zeus Holdings, Inc. ("Zeus") which owns 99.63% of Mindanao Portland Cement Corporation ("MPCC"), and Iligan Cement Corporation ("Iligan") (hereafter collectively referred to as the "Group Companies"); that all the Group Companies above are in a net loss position, and of the Group Companies above, Republic, Fortune and Zeus are listed on the Philippines Stock Exchange (PSE); that the percentage investments of BCPI and its partners in the Group Companies are summarized as follows: REPUBLIC FORTUNE ZEUS ILIGAN BCPI 28.229% 20.000% 23.953% 25.000% South Western Cement Corp. 20.986% 0.017% ("SWCV") Round Royal Inc. ("RRI") 17.670% 0.052% 50.249% Montinola Group: Amon Trading Corporation 10.458% Amon Industries Corp. 0.227% Monti-Rey, Inc. 1.214% Reymont, Inc. 0.238% Western Resources Corp. 0.974% Molave Transport Corp. 0.797% Seyrel Investment & Realty Corp. 0.734% Carillon Corporation 0.542% Other Montinola Related 1.225% 0.018% Sub-Total, Montinola Group 16.408% 0.018% SM Group: SM Development Corp. 3.555% 1.429% SM Investments Corp. 48.965% Henry Sy 3.029% Multi-Realty Development Corp. 0.884% Sysmart 0.208% 4.067% Other Sy Related 0.022% Sub-total, SM Group 3.786% 58.374% CG&E Holdings Group: CG&E Holdings 11.252%

Vicente Chan 0.975% Louis Coson 0.650% Guoco Securities 0.552% Gerard Chan 0.607% Leonard Chan 0.758% Chan Yu Lim 0.070% Josephine Chan 0.005% Francisco Chan 0.319% Martin Chan 0.177% Marites Chan 0.173% Bellevue Properties, Inc. 0.140% Sub-total, CG&E Holdings Group 15.680% SUB-TOTAL, Group Partners 87.079% 94.142% 74.202% 25.000% Alsons and Alsons-Related 69.633% Minorities: PICOP Holdings, Inc. 23.976% Lafarge 1.513% Others 11.407% 5.858% 1.821% 5.367% Sub-total, Minorities 12.920% 5.858% 25.798% 5.367% Total 100.00% 100.00% 100.00% 100.00% that in addition to the above investments in equity, BCPI and the SM Group (through SM Investments Corporation ["SMIC"]) extended loans to, and as such have receivables from, the following companies: LENDER/ BORROWER/ AMOUNT CREDITOR DEBTOR OF LOAN BCPI Fortune P1,196,919,227 BCPI Fortune P2,600,000,000 SM Group (thru SMIC) Fortune P214,274,882 BCPI MPCC P404,341,397 that BCPI also extended a loan to, and has a receivable from, Alsons Cement Corporation ("Alsons") in the principal amount of US$41,976,489 at 6% per annum payable in arrears on July 20, 2000; that the loan can be settled either by the payment of the principal amount and the interest accruing thereon, or by its exchange into the Iligan shares held by Alsons ("the Alsons Note"); that on December 8, 1999, the boards of directors of Republic, Fortune, Zeus and Iligan approved a proposal to integrate their cement business operations and activities according to such timetables and schedules as the circumstances permit or as the parties may agree from time to time; that the integration will consolidate the operations of the Group Companies under a single management structure that will make the Group the second largest cement group in the Philippines; that subject to certain conditions, the proposed integration consists of the consolidation in Republic of the Investments in shares in Fortune, Zeus and Iligan of BCPI, SWCV, RRI, the Montinola Group, the SM Group and the CG&E Holdings Group, and of the Fortune CLN held by the SM Group through SMIC by exchanging such investments with new shares, being original issuances, of Republic, based on the Share Swap Ratios approved by the Boards of Republic, Fortunes, Zeus and Iligan; that as a publicly-listed company, Republic will make, in compliance with the tender offer rules promulgated by the SEC or other applicable laws of the Philippines, a tender offer to the Minority Stockholders of each of Fortune, Zeus and Iligan, with each such tender offer being made in accordance with the Share Swap Ratios; that the Share Swap Ratios are 1,000

Republic shares for 1,575 Fortune shares, 14,411 Zeus shares, and 206 Iligan shares; that specifically, the proposed integration plan consists of the following: (a) BCPI will transfer its Fortune, Zeus and Iligan shares to Republic in exchange for a total of 406,017,669 Republic shares; CHDAEc (b) RRI will transfer its Zeus and Fortune shares to Republic in exchange for a total of 95,885,559 Republic shares; (c) SWCV will transfer its Fortune shares to Republic in exchange for 191,241 Republic shares; (d) Other Montinola Related will transfer its Fortune shares to Republic in exchange for 200,114 Republic shares; (e) The SM Group will transfer their Fortune shares and Fortune CLN held through SMIC to Republic in exchange for 674,927,935 Republic shares; TCAScE (f) The CG&E Holdings Group will transfer their Fortune shares to Republic in exchange for 172,323,475 Republic shares; (g) The Minorities in each of Fortune, Zeus and Iligan who may decide to take up Republic's tender offer will transfer their Fortune, Zeus and Iligan shares, as the case may be, to Republic in exchange for Republic shares at the prescribed Share Swap Ratios for each of Fortune, Zeus and Iligan; that in effecting the above Share Swap, BCPI, RRI, SMIC, Sysmart Corporation and CG&E Holdings will transfer their respective Fortune, Zeus and Iligan shares to Republic in exchange for Republic shares, as a result of which they will together own 63.618% of the total subscribed common voting stock of Republic, as shown below Resulting Amount %age Interest Transferor Subscribed in Republic BCPI P876,629,387 27.740% RRI 390,463,204 12.356% SMIC 571,515,793 18,085% Sysmart Corp. 48,168,611 1.524% CG&E Holdings 123,665,396 3,913% Total P2,010,442,391 63.618% =========== ======== that the 6th to the last shareholder participating in the proposed integration will transfer their Fortune and Zeus shares to Republic, in exchange for new Republic shares, through the facilities of the PSE; that the transfer of the Iligan shares will not be through the facilities of the PSE because Iligan is not a listed company; that BCPI, SWCV, RRI, the SM Group, the CG&E Holdings Group and the Minorities of Fortune, Zeus and Iligan participate in the proposed integration, Republic will own 100% of each of Fortune and Zeus, and 30.367% of Iligan; that Republic will in turn, continue to be owned by the following persons: BCPI 27.740% SWCV 11.077% RRI 12.356% SM Group: SM Development Corp. 2.373% SM Investments Corp. 18.085% Sysmart Corporation 1.524% Other Sy Related 0.012% Henry Sy 1.054% Multi-Realty Deve. Corp. 0.307%

Sub-total SM Group 23.354% CG&E Holdings Group: CG&E Holdings 3.913% Vicente Chan 0.339% Louis Coson 0.226% Guoco Securities 0.192% Gerard Chan 0.211% Leonard Chan 0.264% Chan Yu Lim 0.024% Josephine Chan 0.002% Francisco Chan 0.111% Martin Chan 0.062% Marites Chan 0.060% Bellevue Properties, Inc. 0.049% Sub-total, CG&E Holdings Group 5.453% Montinola Group: Amon Trading Corporation 5.517% Amon Industries Corporation 0.120% Monti-Rey, Inc. 0.640% Reymont, Inc. 0.126% Western Resources Corp. 0.514% Molave Transport Corp. 0.420% Seyrel Investment & Realty Corp. 0.387% Carillon Corporation 0.286% Other Montinola Related 0.652% Sub-Total, Montinola Group 8.662% Minorities: PICOP Holdings, Inc. 1.439% Lafarge 0.798% Others 9.121% Sub-total, Minorities 11.358% Total 100.00% In connection, therewith, you now request confirmation of your opinion that: "1. Pursuant to Section 40(C)(2) of the Tax Code, no gain or loss shall be recognized by BCPI, RRI, SMIC, Sysmart Corporation and CG&E Holdings on the transfer of their Fortune, Zeus and Iligan shares to Republic, in exchange for new Republic shares, because they together hold more than 51% of the total voting stock of Republic after the transfer; CaHAcT "2. The transfer through the facilities of the PSE by the 6th to the last transferor of their Fortune and Zeus shares to Republic in exchange for new Republic shares will be subject to the of 1% stock transaction tax based on the gross selling price or gross value in money of the shares transferred, while the 6th to the last transferor of the Iligan shares will have to realize gain on the transfer of their Iligan shares and will be subject to capital gains tax (CGT) at the rate of 5% on the first P100,000 of net gain and 10% on the excess over P100,000; "3. The transfer by BCPI, RRI, SMIC, Sysmart and the CG&E Holdings of their respective shares in Fortune, Zeus and Iligan and SMIC's Fortune CLN to Republic solely in exchange for Republic shares pursuant to Section 40(C)(2) is not subject to the 10% VAT, pursuant the provisions of Section 4.100-5(b)(1) of Revenue Regulations No. 7-95.

"4. The transfer of the Fortune, Zeus and Iligan shares to Republic are subject to the documentary stamp tax (DST) imposed under Section 176 of the Tax Code at the rate of P1.50 on each P2000, or fractional part thereof, of the par value of the shares transferred; IHcTDA "5. The new Republic shares to be issued, being original issuances, are subject to the DST imposed under Section 175 of the Tax Code at the rate of P2 on each P200 or fractional part thereof, of the par value of the new Republic shares issued; "6. The net operating losses of each of Republic, Fortune, MPCC and Iligan are preserved after the proposed share swap and may be carried over and claimed as a deduction from their respective gross income, pursuant to Section 34(D)(3) of the Tax Code, because there is no substantial change in the ownership of either Republic or Fortune or MPC or Iligan." In reply, please be informed that your opinion is hereby confirmed as follows: 1. Pursuant to Section 40(C)(2) of the Tax Code of 1997, no gain or loss shall be recognized if properties are transferred to a corporation by a person, in exchange for stocks in such a corporation of which as a result of such exchange, said person, alone or together with others, not exceeding four persons, gains control of said corporation. The term "control" shall mean ownership of stocks in a corporation possessing at least 51% of the total voting power of all classes of stocks entitled to vote. Control is determined by the amount of stocks received, i.e., total subscribed whether for properties or for services by the transferor or transferors. In determining the 51% stock ownership, only those persons who transferred properties for stocks in the same transaction may be counted up to a maximum of five. Accordingly, no gain or loss shall be recognized by BCPI, RRI, SMIC, Sysmart Corporation and CG&E Holdings on the transfer of their Fortune, Zeus and Iligan shares to Republic, in exchange for new Republic shares, because BCPI, RRI, SMIC, Sysmart Corporation and CG&E Holdings together hold more than 51% of the total voting stock of Republic after the transfer. It should be emphasized, however, that Section 40(C)(2) and (6) (c) of the Tax Code of 1997 merely defers recognition of the gain or loss from such a transaction, for in determining the gain or loss from a subsequent transaction of the properties or of the stocks involved in the exchange, the original or historical cost of the properties or stocks is considered. Thus, if the transferor later sells or exchanges the shares of stocks acquired by it in the exchange, it shall be subject to income tax on gains derived from such sale or exchange, taking into consideration that the cost basis of the shares shall be the same as the original acquisition cost or adjusted cost basis to the transferor of the properties exchanged therefor; and that the cost basis to the transferee of the properties exchanged for stocks shall be the same as it would be in the hands of the transferor. [Section 40(C)(5)(a) and (b) of the Tax Code of 1997] HSaIDc In this connection, you are further advised that in order that the parties to the exchange can avail of the non-recognition of gain provided for in Section 40(C)(2) and (6)(c) of the Tax Code of 1997, they should comply with the requirements hereunder mentioned: a. The transferor must file with its income tax return for the taxable year in which the exchange transaction was consummated, a complete statement of all facts pertinent to the exchange, including: 1. A description of the properties transferred, or of its interest in such properties, with a statement of the original acquisition cost/adjusted cost basis or other basis thereof at the time of the transfer;

2. 3. 4.

The kind of stocks received and preferences, if any; The number of shares of each class received; and The fair market value per share of each class at the date of the exchange. ADTEaI

b. On the other hand, the transferee corporation must file with its income tax return for the taxable year in which the exchange was consummated the following: 1. A complete description of the properties received from the transferor;

2. A statement of the original acquisition cost or other basis of the properties in the hands of the transferor and the adjusted cost basis thereof at the time of the transfer; and 3. Information with respect to the capital stock of the corporation including:

a. The total issued and outstanding capital stock immediately prior to and immediately after the exchange with a complete description of each class of stock; b. The classes of stocks and number of shares issued to the transferor in the exchange; and

c. The fair market value as of the date of the exchange of the capital stock: issued to the transferor. In addition to the foregoing requirements, permanent records in substantial form must be kept by the taxpayers participating in the exchange, showing the information listed above in order to facilitate the determination of gain or loss from a subsequent disposition of stock/properties received in the exchange. The parties shall also cause to be annotated at the back of the Certificates of Stocks, the date the deed of exchange was executed, the original or historical cost of acquisition of the shares of stock involved, and the fact that no gain or loss was recognized as a result of such exchange. IcHTCS 2. Considering that the tax-free treatment shall apply only to the first five transferors, the 6th to the last transferor of their Fortune and Zeus shares to Republic in exchange for new Republic shares will be subject to the of 1% stock transaction tax based on the gross selling price or gross value in money of the shares transferred pursuant to Section 127(A) of the Tax Code of 1997. Furthermore, the 6th to the last transferor of the Iligan shares will have to realize gain on the transfer of their Iligan shares and will be subject to capital gains tax (CGT) at the rate of 5% on the first P100,000 of net gain and 10% on the excess over P100,000 pursuant to Section 24(C) and 27(D)(2) of the Tax Code of 1997 and the same shall all be subject to the documentary stamp tax imposed under Section 176 of the Tax Code, supra. 3. The transfer by BCPI, RRI, SMIC, Sysmart and the CG&E Holdings of their respective shares in Fortune, Zeus and Iligan and SMIC's Fortune CLN to Republic solely in exchange for Republic shares pursuant to Section 40(C)(2) is not subject to the 10% VAT, pursuant the provisions of Section 4.100-5(b)(1) of Revenue Regulations No. 7-95. 4. The above-stated transfer of the Fortune, Zeus and Iligan shares by BCPI, RRI, SMIC, Sysmart and the CG&E Holdings to Republic is subject to the documentary stamp tax (DST) imposed under Section 176 of the Tax Code of 1997 at the rate of P1.50 on each P200, or fractional part thereof, of the par value of the shares transferred.

5. The new Republic shares to be issued, being original issuances, are subject to the DST imposed under Section 175 of the Tax Code of 1997 at the rate of P2.00 on each P200, or fractional part thereof, of the par value of the new Republic shares issued. aTSEcA 6. Since the subject corporations are not dissolved but are merely integrated for a specific bona fide business purpose, the net operating losses of each of Republic Cement Corporation ("Republic"), Fortune Cement Corporation ("Fortune"), Mindanao Portland Cement Corporation ("MPCC") and Iligan Cement Corporation ("Iligan") are preserved after the proposed share swap and may be carried over and claimed as a deduction from their respective gross income, pursuant to Section 34(D)(3) of the Tax Code of 1997, because there is no substantial change in the ownership of either Republic or Fortune or Mindanao or Iligan. Section 34(D)(3) of the Tax Code provides: "(3) Net Operating Loss Carry-Over The net operating loss of the business or any enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss: Provided, however, That any net loss incurred in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a deduction under this Subsection: Provided, further, That a net operating loss carry-over shall be allowed only if there has been no substantial change in the ownership of the business or the enterprise in that (i) Not less than seventy-five percent (75%) in nominal value of outstanding issued shares, if the business is in the name of a corporation, is held by or on behalf of the same persons; or (ii) Not less than seventy-five percent (75%) of the paid up capital of the corporation, if the business is in the name of a corporation, is held by or on behalf of the same persons. For purposes of this subsection, the term 'net operating loss' shall mean the excess of allowable deduction over gross income of the business in the taxable year: xxx xxx xxx"

Pursuant to the above-quoted Section of the Tax Code and considering that the consolidation of the operations of the Group Companies under a single management structure is for a bonafide business purpose, and there is no substantial change of ownership, the net operating loss carry-over of Republic, Fortune, MPCC and Iligan are preserved and may be carried over and claimed as a deduction from their respective gross income for purposes of computing the income tax using the normal income tax rate and without prejudice to the applicability of the rule on the Minimum Corporate Income Tax (MCIT) AaCcST In the case of Republic, since BCPI, SWCV, RRI, SM Group and the Montinola Group already owned Republic 87.079% before the proposed integration plan, and they continue to own Republic 83.189% after the proposed integration plan, the issuance by Republic of new shares from the unsubscribed portion of the authorized capital stock or from an increase in authorized capital stock to BCPI, SWCV, RRI, and the SM Group will neither result in a substantial nor in an effective change in the ownership of Republic within the purview of the above-quoted Section 34(D)(3) of the Tax Code of 1007. Consequently, since more than 75% of the paid-up capital of Republic continues to be held by or on behalf of BCPI, SWCV, RRI, the Montinola Group and the SM Group after the proposed integration, the net operating losses of Republic are preserved and may continue to be claimed by Republic as a deduction from its own gross income.

In the case of MPCC, the net operating losses of MPCC are preserved and may continue to be deducted by MPCC from its own gross income, because MPCC continues to be owned 99.63% by Zeus. CSTHca In the case of Fortune, since BCPI, SWCV, RRI, the Montinola Group, the SM Group and the CG&E Holdings Group already owned Fortune 94.141% before the proposed share swap, and they continue to own Fortune through Republic 88.642% after the proposed share swap, and since more than 75% of the paid-up capital of Fortune continues after the share swap to be held by Republic on behalf of BCPI, SWCV, RRI, the SM Group and the CG&E Holdings Group, the net operating losses of Fortune are preserved and may continue to be claimed by Fortune as a deduction from its own gross income. In the case of Iligan, while Republic may end up owning 30.367% of the capital stock of Iligan, the net operating losses of Iligan are preserved even after the proposed share swap, because BCPI was, even before the proposed share swap, already a 25% shareholder in Iligan. After the proposed share swap and with the original issuance of new Republic shares to BCPI, it continues to own 28.538% of Republic. Of the 30.367% equity held by Republic in Iligan, 8.424% (i.e. 27.740% x 30.367% representing the proportionate interest of BCPI in Iligan) of Iligan is held by Republic on behalf of BCPI, while the Alsons and Alson-related shareholders continue to own 69.633% of Iligan. Consequently, even if SWCV, RRI, the Montinola Group, the SM Group, the CG&E Holdings Group, and the Minorities of Fortune and Zeus who are, after the proposed share swap, shareholders in Republic but were not original shareholders in Iligan, their combined percentage ownership in Iligan through Republic after the proposed integration is only 21.943%. TCacIE As explicitly provided for in Section 34(D)(3) of the Tax Code, there will be a substantial change in the ownership of the business only if there has been a change of ownership greater than 25% of either the nominal value of the outstanding issued shares (in the case of no par value shares) or of the paid-up capital (in the case of par value shares) of the corporation. Consequently, since even after the proposed integration, more than 75% of the paid-up capital of Iligan continues to be held by or on behalf of BCPI and the Alsons and Alsons-related shareholders, the net operating losses of Iligan are preserved and may continue to be claimed by Iligan as a deduction from its own gross income. This ruling is being issued on the basis only of the foregoing facts as represented and for purposes only of confirming the opinion as requested, subject to the submission of the pertinent documents as required under RMO No. 26-92, to wit: a) Deed of Transfer/Assignment/Exchange; EAIaHD

b) Articles of Incorporation duly registered with SEC of a corporate transferor and transferee corporation; c) ... d) ... e) Certification as to the principal or historical cost of acquisition/adjusted cost basis of the properties transferred; f) Certification of the fair market value or zonal value of the property involved in the exchange; g) Certification by the corporate secretary of the transferee corporation of its authorized capitalization and the par value of the shares of stock; h) Certification of percentage of ownership of the shares of stock by the transferor as a result of the transaction; and i) Other pertinent documents. DTESIA

Furthermore, if upon investigation, it will be disclosed that the facts are different, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue