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CHUNG HUNG AGM Information 2019

Jul 8, 2019

51945_rns_2019-07-08_f57333a7-0dcb-4c4a-81ae-fca2cbd74cab.pdf

AGM Information

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Stock Code: 2014 The Company's website: http://www.chsteel.com.tw TWSE Market Observation Post System website: http://mops.twse.com.tw/mops/web/index

Chung Hung Steel Corporation 2019 General Shareholders’ Meeting Meeting Manual

Time: 09:30 June 26, 2019 (Wednesday)

Venue: No. 2, Hongyi 1st Rd., Nanzi Dist., Kaohsiung City, Taiwan

CPC Corporation Hongnan Training Classroom (exit of R17 World Games MRT station)

Table of Contents

Table of Contents
Page No.
Chapter 1 Agenda of the Annual Meeting of Shareholders 1
Chapter 2 Report Items
I. The Company's 2018 business and financial report. 2
II. The Audit Committee's review report on statements for 2018. 6
III. Report on the 2018 distribution of remuneration to employees and Directors. 7
IV. Report on the Amendment of the Company's “Corporate Governance Best
Practice Principles”. 8
Chapter 3 Ratifications and discussions
I. Ratification of the company's 2018 business report and financial statements. 27
II. The Company’s 2018 earnings distribution proposal is filed for
acknowledgment. 55
III. The amendment of the Company's "Procedures for the Acquisition or Disposal
of Assets" is filed for approval. 57
IV. Approval of the amendments to the Company's “Rules Governing the Election
of Directors”. 92
V. The amendment of the Company's "Procedures for Extending Loans to Others"
is filed for approval. 96
VI. The amendment of the Company's "Procedures for Making Endorsements and
Guarantees" is filed for approval. 101
VII. The amendment of the Company's "Rules of Procedure for Shareholders'
Meetings" is filed for approval. 110
Chapter 4 Extempore motions 125
Chapter 5 Rules of Procedure 126
Chapter 6 Additional Descriptions
I. Directors' shareholdings 134
II. The effects of the stock dividends on the Company's business performances,
earnings per share and shareholder ROI 134

Chapter 1 Agenda of the Annual Meeting of Shareholders

Time: 9:30 a.m., June 26, 2019 (Wednesday)

Venue: No. 2, Hongyi 1st Rd., Nanzi Dist., Kaohsiung City, Taiwan

CPC Corporation Hongnan Training Classroom (exit of R17 World Games MRT station)

Agenda: 1. Call Meeting to Order

  1. Chairman’s Speech

  2. Reports

  3. Ratifications and discussions

  4. Extempore motions

6. Meeting adjourned

  • 1 -

Chapter 2 Report Items

I. The Company's 2018 business and financial report

(I) Business Overview

Chung Hung shall uphold the business strategy of “Make full use of resources and equipment production capacity; Flexible production and sales to reduce lead time; Diverse career development to pass on knowledge; Ensure environmental protection and occupational safety and fulfill social responsibilities.” The Company maintains a positive outlook on the steel market and works with upstream and downstream partners to create optimal results.

The global economy is facing a decline in growth momentum as uncertainty and economic slowdown cause increase in risks. The speed of growth in certain major economies may have peaked. The United States and China decided to temporarily suspend tariff increase in December 2018 but the tension between two sides may intensify and cast doubts on the global economy. The Eurozone is faced with political and economic upheavals and Brexit may cause the economy to shrink by 5-8% over the long term. The French government was also forced to make concessions in terms of its fiscal policies in response to the yellow vests movement. Japan's plans for increasing the sales tax in October 2019 is expected to cause tremendous pressure on economic growth in the fourth quarter. In many emerging markets and developing economies, the growth of many energy exporters has improved due to the increase oil prices. However, the economic growth forecasts for countries like Argentina, Brazil, Iran, and Turkey have decreased due to a tightened financial environment, geopolitical tension, and increase in the cost of oil imports. The World Steel Association predicts that global steel demand will increase by 1.3% to 1.735 billion tons in 2019. Despite a recovery in steel demand in 2017 which continued to 2018, the prospect of growth now faces increase in risks. The exacerbation of trade tension and fluctuations in foreign exchange rates have increased uncertainty.

(II) Business Plan Implementation Results

1.Results of production:

Steel demand has continued to increase in the first three quarters of 2018 due to the status of supply and demand on the international market but a decline became apparent in the fourth quarter. The Company adjusted its production and sales plan in response. The combined production of hot-rolled products, cold-rolled products, steel pipes, and

  • 2 -

galvanized products in 2018 amounted to 2.8549 million tons which was approximately 1.97% higher than the combined output in 2017.

  • 2.Results of sales:

The price of steel products has continued to recover due to the reduced supply in the global steel market in 2018. Demand continues to grow but the increase in material prices and adjustments in upstream suppliers’ production and sales contributed to the consolidated sales volume of 2.4793 million tons in 2018 which was a 6.73% increase from 2017.

In terms of total product sales volume in 2018, domestic sales accounted for 52.85% and exports accounted for 47.15%. Domestic sales declined by 7.70% from the same period in the previous year. In terms of product sales, hot-rolled products accounted for the largest share with 71.78 % while cold-rolled products placed second with 16.70%. Steel pipes accounted for 6.80% and galvanized products accounted for 4.72%.

(III) Analysis of operating income/expenses and profitability

The after-tax net profit was NT$3.033 billion in 2018. The operating revenue/expenses and profitability are as follows:

1.Revenue:

The Company's consolidated operating revenue in 2018 was NT$48.239 billion which was an increase of approximately 18.26% from the operating revenue of NT$40.792 billion in 2017.

2.Expenditures:

The Company's consolidated operating costs and consolidated operating expenses in 2018 totaled NT$45.363 billion which was a 18.69% increase from NT$38.219 billion in 2017.

3.Profitability:

The increase in sales price in 2018 was greater than the increase in costs and it increased pre-tax profit by NT$427 million from 2017.

(IV) Research and Development

The Company continues to update the hot rolling, cold rolling, galvanized products, and steel pipe equipment, refine the process, and advance personal quality accountability to improve product quality. It also actively expands the product line and seeks to develop high add-value products with steel slab suppliers to improve the Company’s overall

  • 3 -

competitiveness. The Company’s material R&D and improvement in 2018 were as follows:

  • 1.Product development:

  • Development of hot-rolling SAE4130 products, hot-rolling QStE380TM products, development of cold-rolling SPCC-1D, and development of hot-dipped galvanized steel plates for the bottom of containers.

  • 2.Product improvement:

  • Improved the break-off rust on hot-rolled API steel pipe materials, continuous improvement for tail stamp marks on hot-rolled coils, continuous improvement for rust on high-quality PO materials, improvement for crowning on hot-rolled fineblanking materials, improvement for hot-rolled coiling form, continuous improvement for cold-rolled fineblanking drilling marks, continuous improvement for tearing of adhesives on cold-rolled products, improvement of cleanliness on cold-rolled steel coils, improvement of external press marks on cold-rolled products, improvement of continuous scratch marks on the surface of pickled steel rolls of the Pickling and Galvanizing Department, and improvement for spark marks on pickled steel coils in the Pickling and Galvanizing Department.

  • 3.Process research and improvement:

  • Establishment of the technology for controlling the difference in thickness of hot-rolling fineblanking materials.

  • 4.Equipment technology establishment:

  • Establishment of horizontal setting technologies of the hot-rolling finishing mill, replacement of tube and skids in the No.1 furnace boiler, update of No. 1 cold-rolling product line equipment, replacement of air compressor for cold-rolling, replacement and update of the cleaning tank on the cold-rolling pickling line, replacement and update of the deviation correction system on the tension leveler for cold-rolling, installation of the welding brush roller at the exit of the pickling and galvanizing CPL welding machine, update of the pickling CGL galvanizing and film machine, energy efficiency improvement of the pickling and galvanizing chiller machine room, increase in the speed of the No. 1 process in Lukang Plant, supplementary welding for incomplete welding during outages to reduce wear for the production of steel pipes, establishment of heat treatment simulation and test capabilities for the production of steel pipes, and additional crane for Building Q in the storage area in Lukang Plant.

  • 4 -

(V) Summary of 2019 Business Plan

According to estimates of the International Monetary Fund (IMF), the global economic growth rate may reach 3.3% in 2019. The estimate is 0.4% lower than the estimate in October 2018. As the United States increased tariffs on Chinese products and the Chinese government tightened its fiscal policies, economic growth in China will decrease from 6.6% in 2018 to 6.3% in 2019. The estimated economic growth rate in the Eurozone was lowered to 1.3%, down 0.6% from the forecast in the fall of 2018. In the overall international steel market, despite a recovery in steel demand which continued to 2018, the exacerbation of trade tension and fluctuations in foreign exchange rates have increased uncertainty in the economy. However, the United States Federal Reserve's decision to slow the increase in interest rates gradually relieved pressure on the emerging market which is set to bounce back in 2019.

The Company’s consolidated sales target for all products this year (2019) is 2.3 million tons with 56.53% in domestic sales and 43.47% for exports. Hot-rolled products account for the largest share with 75.22% while cold-rolled products place second with 13.57%. Steel pipe products account for 7.30% and galvanized products account for 3.91%. The management team will dedicate full efforts on achieving and exceeding goals.

In the new year, we shall continue to strengthen our advantages in mobility and flexibility and actively develop new sources of revenue while controlling costs. We shall create product diversification and increase the added value in the upstream and downstream industrial chain while enhancing market segmentation. We shall expand development and deployment in overseas markets and establish Chung Hung as a small but refined, professional, and dedicated company.

  • 5 -

II. The Audit Committee's review report on statements for 2018

Chung Hung Steel Corporation

Audit Committee's Audit Report

Hereby approves

The Company's 2018 Individual Financial Report and Consolidated Financial Report (audited and certified by CPAs Jui-Hsuan Hsu and Yu-Hsiang Liu of Deloitte, Taiwan), Business Report, and Earnings Distribution Proposal prepared by the Board of Directors who found them to be compliant with regulations. The Audit Report is therefore provided in accordance with Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Act and filed for approval.

Please review and assess the preceding items.

Respectfully submitted to

The Company's 2019 General Shareholders Meeting

Audit Committee, Chung Hung Steel Corporation

Convener: Chu-Shan Chiu

March 19, 2019

  • 6 -

III. Report on the 2018 distribution of remuneration to employees and

Directors.

Proposed by the Board of Directors

Explanation:

  • I. Processed in accordance with Article 28 of the Company's Articles of Incorporation and Jing-Shang No. 10402436190 Letter of the Ministry of Economic Affairs dated January 4, 2016.

  • II. According to Article 28 of the Articles of Incorporation passed by the shareholders' meeting on June 24, 2016, the Company's remuneration for employees and Directors shall be no lower than 1‰ and under 1% of the earnings before tax of the year after making up for losses and before deducting remuneration for employees and Directors.

  • III. The profitability shall be based on the applicable explanations provided by the Ministry of Economic Affairs after the promulgation of the amendments: The Articles of Incorporation shall include provisions on remuneration of employees as well as remuneration of Directors. When calculating employee and director remuneration, the Company shall use the profits before tax deducted by pre-tax interest for distribution of remuneration to employees and Directors.

  • IV. The 2018 employees' remuneration on the account is 5% of net profit for the current year after making up for losses amounted to NT$22,262,406, which is equivalent to 2.10% of the pre-tax profit after making up for losses and deduction of interest for employee and director remuneration. The director remuneration on the account is 1% of net profit for the current year after making up for losses amounted to NT$4,452,481, which is equivalent to 0.42% of the pre-tax profit after making up for losses and deduction of interest for employee and director remuneration. The items specified above meet requirements in Article 28 of the Company’s Articles of Incorporation and all remuneration shall be distributed in cash.

  • 7 -

IV. Report on the Amendment of the Company's “Corporate Governance Best Practice Principles”.

Proposed by the Board of Directors

Explanation:

  • I. The amendment is implemented in accordance with the amendment of the "Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies" promulgated by Taiwan Stock Exchange on December 12, 2018 and the Company's actual operations.

  • II. Article 1.4, Article 2.2, Article 2.3, Article 3.1.3, Article 3.1.4, Article 3.1.8, Article 3.4.3, Article 3.4.4, Article 3.5.1, Article 3.5.3, Article 3.6.2, Article 3.6.3, Article 3.7.3, Article 3.7.5, Article 3.8.1, Article 3.8.3, and Article 3.10.1 are amended.

  • III. The comparison table for revised clauses is provided in the Attachment.

  • 8 -

Attachment

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Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision Existing Clauses Description 1.4 The unit responsible for the 1.4 The unit responsible for the The Finance maintenance of the Principles is the maintenance and management of Department was assigned the task of Finance Department and the unit the Principles is the Administration processing related responsible for management is the Department. corporate governance Administration Department. affairs on November 15, 2018. Therefore, the unit responsible for maintenance of the Principles is the Finance Department. 2.2 Establishment of the internal 2.2 Establishment of the internal Article 2.2 is revised control system control system in accordance with The Company shall establish an The Company shall establish an Article 3 of the effective internal control system effective internal control system "Corporate based on the Company and its based on the Company and its Governance Best subsidiary companies' overall subsidiary companies' overall Practice Principles for operation activities in accordance operation activities in accordance TWSE/TPEx Listed with the Regulations Governing with the Regulations Governing Companies": Establishment of Internal Control Establishment of Internal Control 1. Paragraph 2 of this Systems by Public Companies. The Systems by Public Companies. The Article specifies that Company shall conduct reviews at Company shall conduct reviews at the regulations in the any time to respond to changes in any time to respond to changes in Regulations the Company's internal and external the Company's internal and external Governing environment as well as to ensure environment as well as to ensure Establishment of that the system design and that the system design and Internal Control implementation remain effective. implementation remain effective. Systems by Public The establishment and revision of Companies shall the internal control system must be apply which will approved by at least one half of all include contents in members of the Audit Committee Paragraph 3, and submitted to the Board of Paragraph 6, and Directors for resolution. Paragraph 7. To The Company's Board of Directors The results of self-assessment of make the Articles and management shall review the each unit and the audit reports shall more concise, results of self-assessment of each be reviewed at least once each year. Paragraph 3, unit and the audit reports at least With respect to internal control Paragraph 6, and once each year. With respect to system reviews, Directors shall Paragraph 7 are internal control system reviews, meet regularly with internal audit deleted. Directors shall meet regularly with personnel and keep minutes of 2. The Company internal audit personnel and keep discussions, which shall be amended Paragraph

  • 9 -

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Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision Existing Clauses Description minutes of discussions, which shall followed up and used to implement 3 of this Article to be followed up and used to improvements. They shall also be ensure information improvements. They reported to the Board of Directors. transparency and let shall also be reported to the Board The evaluation of the effectiveness shareholders learn The Company is of the internal control system must about the status of advised to establish channels and be approved by at least one half of communication of communication all members of the Audit between the Audit between the Audit Committee and Committee and submitted to the Committee and the internal auditors. The Board of Directors for resolution. internal audit convener of the Audit Committee manager. The shall also report on the status of Company is advised communication with the internal to establish channels audit manager in the shareholders'' and mechanisms of communication and In addition to fully implementing In addition to fully implementing the convener of the the self-assessments in the internal the self-assessments in the internal Audit Committee control system, the Company's control system, the Company's shall report to the shall respect the management shall respect the shareholders' internal audit unit and personnel and internal audit unit and personnel and meeting.

minutes of discussions, which shall be followed up and used to implement improvements. They shall also be reported to the Board of Directors. The Company is advised to establish channels and mechanisms of communication between the Audit Committee and chief internal auditors. The convener of the Audit Committee shall also report on the status of communication with the internal audit manager in the shareholders'' meeting.

In addition to fully implementing the self-assessments in the internal control system, the Company's management shall respect the internal audit unit and personnel and grant them sufficient authority and oversight so that they may perform effective inspections and assessments of the internal control system and measure operational efficiency in order to ensure the continuing effective operation of the system, assist the Board of Directors and management in fully performing their duties, and implement the Company’s corporate governance.

In addition to fully implementing the convener of the the self-assessments in the internal Audit Committee control system, the Company's shall report to the management shall respect the shareholders' internal audit unit and personnel and meeting. grant them sufficient authority and 3. Paragraph 5 of this oversight so that they may perform Article is added to effective inspections and enhance the assessments of the internal control independence of system and measure operational internal audit. efficiency in order to ensure the continuing effective operation of the system, assist the Board of Directors and management in fully performing their duties, and implement the Company’s corporate governance.

To ensure the internal control system is effectively implemented, strengthen the professional abilities of the deputy of the internal auditor, and further improve and maintain the quality and implementation outcomes of internal audits, the Company shall appoint a deputy to act on behalf of internal auditing personnel.

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Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision Clause after Revision ExistingClauses ExistingClauses Description
The
appointment,
dismissal,










Article 11, Paragraph 6 of the







Regulations
Governing


Establishment of Internal Control
Systems
by
Public
Companies



regarding the criteria of internal

auditors, Article 16, Article 17, and

Article 18 shall apply mutatis

mutandis to the deputy specified in

the preceding paragraph.


performance
evaluation,
and


remuneration of the Company's

auditors shall be processed in

accordance with the Company's

internal
control
system.
The

appointment and dismissal of the

chief auditor shall require the

approval of the Board of Directors.

If
there
is
any
objection
or


reservation from an independent

director,
it
should
be
clearly


recorded in the minutes of the board
meeting.
2.3 The Companyshall designate a
corporate governance officer as the
highest-ranking officer responsible
for related corporate governance
affairs.
The
officers
shall
be
required to have obtained attorney
or accountant licenses or work
experience
in
the
securities,
financial or futures management
field or served in a management
role in the legal affairs, finance,
stock affairs, or related corporate
governance
units
of
a
public
company for more than three years.
The corporate governance matters
specified in the preceding paragraph
shallinclude at least the following
content:		 shall designate a











2.3 The Companymay set up a
full-time
(part-time)
unit
or
personnel
to
take
charge
of
corporate
governance
related
matters which shall be supervised
by the Vice President of the
Department based on the duties of
each Department.
The corporate governance matters
specified in the preceding paragraph
shouldinclude at least the following
content:		 may set up a









Article 2.3 is revised
in
accordance
with
Article
3
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
1. Paragraph 1 of this
Article is amended
in accordance with
Article
20,
Paragraph 3 of the
"Operation
Directions
for
Compliance with the
Establishment
of
Board of Directors

highest-ranking officer responsible
personnel
to
take
charge
of

for related corporate governance

corporate
governance
related

affairs.
The
officers
shall
be

matters which shall be supervised
required to have obtained attorney
by the Vice President of the

or accountant licenses or work
Department based on the duties of
experience
in
the
securities,
each Department.
The corporate governance matters
specified in the preceding paragraph
shouldinclude at least the following
content:


financial or futures management

field or served in a management

role in the legal affairs, finance,

stock affairs, or related corporate

governance
units
of
a
public


company for more than three years.
The corporate governance matters
specified in the preceding paragraph
shallinclude at least the following
content:
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Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision ExistingClauses Description
(1)Execute related affairs for the
Board of Directors meetings and
shareholders' meetings.
(2)Produce meeting minutes for
the meetings of the Board of
Directors
and
shareholders’
meetings.
(3) Assist the Directors in taking









(1) Company
registration
and















by
TWSE
Listed
Companies and the
Board's Exercise of
Powers"
to
implement corporate
governance
and
improve
the
performance of the
Board of Directors.
2. Paragraph 2 of this
Article is amended
in accordance with
Article
21,
Paragraph 1 of the
"Operation
Directions
for
Compliance with the
Establishment
of
Board of Directors
by
TWSE
Listed
Companies and the
Board's Exercise of
Powers".


change registration.
(2)Execute related affairs for the
Board of Directors meetings and
shareholders' meetingsand assist
the Company in compliance with
laws and regulations governing
such meetings.
(3)Produce meeting minutes for the
meetings
of
the
Board
of
Directors
and
shareholders’
meetings.
(4) Provide
Directors
with
information required for the
execution of businessesand the
latest regulatory development for
the operations of the Company to
help Directors with regulatory
compliance.
(5) Matter
related
to
investor

office and continuing education.
(4) Provide
Directors
with
information required for the
execution of businesses.
(5)Assist
the
Directors
in
regulatory compliance.
(6) Other matters set forth in the
Company's
Articles
of
Incorporation or contracts.

relations.
(6) Other matters set forth in the
Company's
Articles
of
Incorporation or contracts.
3.1.3 The
Company's
Board
of
Directors shall properly arrange
shareholders'
meetings
and
proceedings,
establish
principles
and
operating
procedures
for
shareholders’
nomination
of
Directors and filing proposal in
shareholders' meetings. It shall also
process
proposals
filed
by
shareholders in accordance with
laws in an appropriate manner.
Shareholders' meetingshould be











3.1.3 The
Company's
Board
of
Directors shall properly arrange
shareholders'
meetings
and
proceedings, establish principles and
operating
procedures
for
shareholders’
nomination
of
Directors and filing proposal in
shareholders' meetings. It shall also
process
proposals
filed
by
shareholders in accordance with laws
in
an
appropriate
manner.
Shareholders' meetingshould be











Paragraph 2 of this
Article is revised in
accordance
with
Article
6
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies"
and
Article 1.3 of the
Corporate Governance
Evaluation Indicators.
  • 12 -

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Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision Existing Clauses Description organized at locations with organized at locations with convenient access. The Company convenient access. The Company shall set aside sufficient time and shall set aside sufficient time and assign suitable and sufficient assign suitable and sufficient personnel to the registration personnel to the registration procedures. With regard to the procedures. With regard to the certification documents for certification documents for shareholders’ attendance, the shareholders’ attendance, the Company may not arbitrarily Company may not arbitrarily request request shareholders to present shareholders to present other other additional certification additional certification documents. documents. In addition, it shall also In addition, it shall also set aside set aside reasonable time to discuss reasonable time to discuss meetings meetings and provide shareholders and provide shareholders with with appropriate opportunities to appropriate opportunities to speak. speak. Shareholders meetings convened by Shareholders meetings convened by the Board of Directors should be the Board of Directors should be chaired by the Chairman in person, chaired by the Chairman in person, attended by more than half of the attended by more than half of the board (including at least one board (including at least one independent director) in person, and independent director) and the attended by at least one convener of the Audit Committee in representative member of each person, and attended by at least one functional committee. In addition, a representative member of each of record of attendance shall be made in the other functional committee. In the minutes of the shareholders’ addition, a record of attendance meeting. shall be made in the minutes of the shareholders’ meeting.

3.1.4 The Company shall encourage 3.1.4 The Company shall encourage Article 3.1.4 is revised shareholders to participate in shareholders to participate in in accordance with corporate governance and appoint a corporate governance and appoint a Article 7 of the professional stock affairs agency to professional stock affairs agency to "Corporate take charge of affairs related to take charge of affairs related to Governance Best shareholders' meetings to ensure shareholders' meetings to ensure Practice Principles for shareholders' meetings are shareholders' meetings are TWSE/TPEx Listed convened under legal, valid and convened under legal, valid and Companies": secure conditions. The Company secure conditions. The Company 1. A listed company shall use all methods and measures shall use all methods and measures with a paid-in capital available and fully adopt technology available and fully adopt of more than NT$10 for information disclosure to technology for information billion or foreign

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Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision Existing Clauses Description simultaneously upload the Annual disclosure and voting to upload capital shareholding Report and Financial Report in shareholders' meeting notices, ratio over 30% shall Chinese and English, shareholders' meeting manual, and supplemental publish English meeting notices, meeting manual, meeting information to increase versions of the and supplemental meeting shareholder attendance rates at Procedures Manual information and adopt electronic shareholder meetings and to ensure and supplemental voting to increase shareholder that shareholders may exercise their information of the attendance rates at shareholder rights at such meetings in meetings, annual meetings and to ensure that accordance with the law. reports, and annual shareholders may exercise their financial reports. rights at such meetings in The Company adopts the candidate Therefore, wording accordance with the law. nomination system for the election in Paragraph 1 of The Company adopts the candidate of Directors. The Company employs this Article is nomination system for the election electronic voting at shareholders' amended. of Directors. The Company is meetings and it is therefore 2. The competent advised to avoid raising extempore advisable to avoid raising authority required all motions or amending original extempore motions or amending TWSE/TPEx-listed proposals. original proposals. companies to fully The Company is advised to arrange The Company is advised to arrange adopt electronic for their shareholders to vote on for their shareholders to vote on voting for each separate proposal in the each separate proposal in the shareholders' shareholders’ meeting agenda, and shareholders’ meeting agenda, and meeting starting to, on the same day following to, on the same day following from 2018. Wording conclusion of the meeting, enter the conclusion of the meeting, enter the in Paragraph 1 and voting results (namely the numbers voting results (namely the numbers Paragraph 2 of this of votes cast for and against and the of votes cast for and against and the Article is therefore number of abstentions) into the number of abstentions) into the amended. Market Observation Post System. Market Observation Post System. 3. Article 11 of the The Company may not offer "Regulations preferential treatment or Governing the Use discrimination if it distributes of Proxies for souvenirs for shareholders' meetings Attendance at to shareholders. Shareholder Meetings of Public Companies" already stipulates related contents regarding the issuance of souvenirs for shareholders' meetings. Therefore,

  • 14 -

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Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision Clause after Revision ExistingClauses ExistingClauses ExistingClauses Description
Paragraph 4 of this
Article is deleted.
3.1.8 Shareholders have the right to
share the Company's earnings. In
order to protect the investment
interests
of
shareholders,
the
shareholder meetings may, pursuant
to Article 184 of the Company Act,
examine the records and books
prepared and submitted by the
Board of Directors and decide profit
distributions or loss makeup plans
by resolution. The shareholders'
meeting may appoint an examiner to
conduct
the
aforementioned
examination.
Shareholders may also petition to
the court to assign an examiner in
accordance with Article 245 of the
Company
Act
to
inspect
the
Company’s business records, assets,
or document and record of a
particular
transaction
of
the
company.
The
Board
of
Directors
and
managerial
officers
shall
fully
cooperate
in
the
examination
conducted by the examiners without
any evasion, obstruction, or refusal.























3.1.8 Shareholders have the right to
share the Company's earnings. In
order to protect the investment
interests
of
shareholders,
the
shareholder meetings may, pursuant
to Article 184 of the Company Act,
examine the records and books
prepared and submitted by the Board
of Directors and decide profit
distributions or loss makeup plans by
resolution.
The
shareholders'
meeting may appoint an examiner to
conduct
the
aforementioned
examination.
Shareholders may also petition to
the court to assign an examiner in
accordance with Article 245 of the
Company
Act
to
inspect
the
Company’s business recordsand
assets.
The
Board
of
Directors
and
managerial
officers
shall
fully
cooperate
in
the
examination
conducted by the examiners without
any obstruction, refusal or evasion





















Article
3.1.8
is
amended
in
accordance
with
Article
11
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
Paragraph 2 and 3 of
this
Article
are
amended
in
accordance
with
regulations regarding
inspectors in Article
245 of the Company
Act.
particular
transaction
of
the

company.
The
Board
of
Directors
and
managerial
officers
shall
fully
cooperate
in
the
examination
conducted by the examiners without
any evasion, obstruction, or refusal.
3.4.3 The
Company
follows
the
regulations in the Company Act and
specifies the candidate nomination
system for the election of Directors
in the Articles of Incorporation.It
shall
carefully
review
the
qualifications of the nominees and
whether
any
of
them
exhibit
circumstances
as
prescribed
in
Article 30 of the Company Act.The
process shall be completed in
accordance with Article 192-1 of the










3.4.3 The
Company
follows
the
regulations in the Company Act and
specifies the candidate nomination
system for the election of Directors
in the Articles of Incorporation. It
also specifies the qualifications,
academic
and
experience
informationof thecandidates for
Directors
recommended
by
shareholders
or
Directors
and
whether
any
of
them
exhibit
circumstances
as
prescribed
in











Article
3.4.3
is
amended
in
accordance
with
Article
22
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
According
to
the
simplified nomination
procedures
for

informationof thecandidates for
Directors
recommended
by
candidates for

shareholders
or
Directors
and
whether
any
of
them
exhibit
circumstances
as
prescribed
in

accordance with Article 192-1 of the
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Clause after Revision Clause after Revision ExistingClauses Description
Company Act. Article 30 of the Company Act.The
Company may not arbitrarily add











shareholders in Article
192-1, Paragraph 4 of
the
Company
Act
amended
and
promulgated
on
August 1, 2018, the
inclusion
of
a
candidate on the list of
candidates
of
Directors shall also be
determined Paragraph
5 of the same Article
and the Company shall
not request the Board
of Directors or other
individuals
with
convening rights to
review the nominee.
Therefore, Paragraph
1 of this Article is
amended
and
Paragraph 2 is deleted.

requirements for documentation of

other qualifications. The results of

the review shall be submitted to
shareholders for their reference in
selecting the suitable Directors.
Before the Board of Directors
proposes the list of candidates for

Directors, it shall carefully review

the qualifications listed in the

preceding
paragraph
and
the


candidates’willingness to serve as a

Director once elected.
3.4.4 The
responsibilities
of
the
Company’s Chairman and President
shall be clearly divided.
The ChairmanandPresident should
not be the same individual. Where
the ChairmanandPresident are the
same
individual,
spouses,
or
relatives within the first degree of
kinship,
the
Company
should
appoint
additional
Independent
Directorsand more than half of the
Directors should not be comprised
of
employees
or
managerial
officers.
When the Company establishes
functional committees, they shall
assign specific duties to them.












3.4.4 The
responsibilities
of
the
Company’s Chairman and President
shall be clearly divided.
The Chairmanand President should
not be the same individual. Where
the ChairmanandPresidentarethe
same
individual,
spouses,
or
relatives within the first degree of
kinship,
the
Company
should
appoint
additional
Independent
Directors.
When the Company establishes
functional committees, they shall
assign specific duties to them.










Article
3.4.4
is
amended
in
accordance
with
Article
23
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
The
Company
amended Paragraph 2
of
this
Article
to
clearly separate the
powers
of
the
Chairman
and
President
and
strengthen
the
independence of the
Board of Directors.
should not be comprised

of
employees
or
managerial


officers.
When the Company establishes
functional committees, they shall
assign specific duties to them.
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Clause after Revision ExistingClauses ExistingClauses Description
Where the Chairman
and President is the
same person, or are
spouses or first-degree
relatives, the Board of
Directors should add
independent directors
and
not
have
a
majority
of
the
directors consisting of
employees
or
managerial officers.
3.5.1 The Company may appoint more
than three Independent Directors in
accordance with the Articles of
Incorporation.
The
number
of
Independent Directors shall not be
lower than 1/5 of all Directors.
Independent Directors shall possess
professional knowledge and there
shall
be
restrictions
on
their
shareholding
status.
Unless
otherwise provided by laws and
regulations, Independent Directors
should not hold offices concurrently
as a director (including as an
independent director) or supervisor
of
more
than
five
other
TWSE/TPEx
listed
companies.
Independent directors shall also
maintain independence within the
scope of their directorial duties and
may not have any direct or indirect
interest in the Company.



















3.5.1 The Company may appoint more
than three Independent Directors in
accordance with the Articles of
Incorporation.
The
number
of
Independent Directors shall not be
lower than 1/5 of all Directors.
Independent Directors shall possess
professional knowledge and there
shall
be
restrictions
on
their
shareholding
status.
Unless
otherwise provided by laws and
regulations, Independent Directors
should not hold offices concurrently
as a director (including as an
independent director) or supervisor
of
more
than
five
other
TWSE/TPEx
listed
companies.
Independent directors shall also
maintain independence within the
scope of their directorial duties and
may not have any direct or indirect
interest in the Company.
The
election
of
Independent
Directors of the Company shall be
based on the candidate nomination
system stipulated in Article 192-1 of
the Company Act and it shall be
specified
in
the
Articles
of

























Article
3.5.1
is
amended
in
accordance
with
Article
24
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
Paragraph 8 of this
Article
includes
content in Paragraph 3
and Paragraph 7. To
make the articles more
concise, Paragraph 3
and Paragraph 7 are
deleted.

Directors of the Company shall be

based on the candidate nomination
system stipulated in Article 192-1 of

the Company Act and it shall be

specified
in
the
Articles
of
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Clause after Revision Existing Clauses Description Incorporation. Shareholders shall elect independent directors from the list of candidates. According to Article 198 of the Company Act, - independent and non independent directors shall be elected concurrently and the seats shall be calculated separately. Where the Company and the group Where the Company and the group enterprise or organization and enterprise or organization and another company in another group another company in another group enterprise or organization nominate enterprise or organization nominate a Director to each other’s Board or a Director to each other’s Board or where Supervisors or managerial where Supervisors or managerial officers are candidates for officers are candidates for Independent Directors, the Independent Directors, the Company shall disclose such Company shall disclose such information when processing the information when processing the nomination of the Independent nomination of the Independent Director and describe the Director and describe the qualifications of the candidate for qualifications of the candidate for Independent Directors. The number Independent Directors. The number of votes received by candidates of votes received by candidates elected as Independent Directors elected as Independent Directors shall be disclosed. shall be disclosed. The group enterprises and The group enterprises and organization specified in the organization specified in the preceding paragraph include the preceding paragraph include the Company’s subsidiaries, any Company’s subsidiaries, any foundation to which the Company's foundation to which the Company's direct or indirect contribution of direct or indirect contribution of funds exceeds 50% of the total funds exceeds 50% of the total funds received, and other funds received, and other institutions or legal entities that are institutions or legal entities that are substantially controlled by the substantially controlled by the Company. Company. Independent or non-independent Independent or non-independent directors are not allowed to change directors are not allowed to change their independent/non-independent their independent/non-independent status during their tenure. status during their tenure. When the number of independent

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Clause after Revision ExistingClauses Description
The
professional
qualifications,
restrictions on shareholding and
concurrent
employment,
determination
of
independence,
method of nomination and other
requirements
for
independent
directors shall be governed by the
Securities
and
Exchange
Act,
Regulations
Governing
Appointment
of
Independent
Directors and Compliance Matters
for
Public
Companies,
and
regulations
of
Taiwan
Stock
Exchange.











directors falls below that prescribed
























in the Paragraph 1 or the Articles of

Incorporation due to the dismissal

of an independent
director,
a


by-election to fill the vacancy

should ideally be held at the next

shareholders'meeting. When the

Independent Directors are dismissed

en masse, a special shareholders

meeting shall be called within 60

days from the date of occurrence to

hold a by-election to fill the

vacancies.
The
professional
qualifications,
restrictions on shareholding and
concurrent
employment,
determination
of
independence,
method of nomination and other
requirements
for
independent
directors shall be governed by the
Securities
and
Exchange
Act,
Regulations
Governing
Appointment
of
Independent
Directors and Compliance Matters
for
Public
Companies,
and
regulations
of
Taiwan
Stock
Exchange.
3.5.3 The
Company
and
other
members of the Board of Directors
may not obstruct,refuse, or deny
Independent
Directors
in
their
performance ofbusiness.
The Company shall determine the
remuneration of Directors according
to the related regulations and it may
establish a separate but reasonable
set
of
remuneration
rules
for
Independent Directors.







3.5.3 The
Company
and
other
members of the Board of Directors
may
not
restrict
or
obstruct
Independent
Directors
in
their
performance ofduties.
The Company shall determine the
remuneration of Directors according
to the related regulations and it may
establish a separate but reasonable
set
of
remuneration
rules
for
Independent Directors.








Article
3.5.3
is
amended
in
accordance
with
Article
26
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies"
and
Article 14-2 of the
Securities
and
Exchange Act.
3.6.2 The Audit Committee shall be
composed of all the Independent

3.6.2 The Audit Committee shall be
composed of all the Independent

Article
3.6.2
is
amended
in
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Directors. It shall have at least three
committee members and one of
them shall serve as the convener. At
least one of the members shall have
accounting or financial expertise.


Directors. It shall have at least three
committee members and one of
them shall serve as the convener. At
least one of the members shall have
accounting or financial expertise.
Regulations in the Securities and































accordance
with
Article
28
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
The exercise of the
powers of the Audit
Committee
and
the
duties
of
the
Independent Directors
and related provisions
are
established
in
Paragraph 4 of this
Article and they shall
be
complete
in
accordance
with
related
regulations.
Paragraph
2
and
Paragraph
3
are
deleted to make the
articles more concise.

Exchange Act, Company Act, and

the
regulations
regarding


supervisors shall apply mutatis

mutandis to the Audit Committee.
The following items must be

approved by at least one half of all

members of Audit Committee and
submitted to the Board of Directors
for resolution. Article 3.5.2 of the
Best Practice Principles shall not be

applicable.
(1) Establishment or amendments

to the internal control system
according to Article 14-1 of the
Securities and Exchange Act.
(2) Evaluation of the effectiveness
to the internal control system

according to Article 14-1 of the

of internal control policies.
(3) Establishment or amendments

to
asset
acquisition/disposal
procedures, derivative trading
procedures, procedures on loans
to
others,
endorsement
and
guarantee procedures, and other
procedures of major financial
consequences as specified in
Article 36-1 of the Securities and
Exchange Act.
(4) Matters concerning the personal
to
asset
acquisition/disposal

procedures, derivative trading

procedures, procedures on loans

to
others,
endorsement
and

guarantee procedures, and other

procedures of major financial

consequences as specified in

Article 36-1 of the Securities and

interests of directors.
(5) Material asset transactions or

derivatives.
(6) Material
loaning
of
funds,



making
of
endorsements
or
provision of guarantees.
(7) Offering, issuance, or private


making
of
endorsements
or
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The exercise of the powers of the
Audit Committee and the duties of
the
Independent
Directors
and
related
provisions
shall
be
processed in accordance with the
Securities
and
Exchange
Act,
Regulations Governing the Exercise
of Powers by Audit Committees of
Public Companies, and regulations
of Taiwan Stock Exchange.







placement of securities with
equity characteristics.
(8) Appointment,
dismissal,
or		 placement of securities with

















compensation of the certifying
CPAs.
(9) Appointment and removal of

compensation of the certifying

the financial, accounting, or
internal auditing officers.
(10) Annual financial reports and
the financial, accounting, or

semi-annual financial reports;
(11) Other major items required by

the Company or the competent
authority.
The exercise of the powers of the
Audit Committee and the duties of
the
Independent
Directors
and
related
provisions
shall
be
processed in accordance with the
Securities
and
Exchange
Act,
Regulations Governing the Exercise
of Powers by Audit Committees of
Public Companies, and regulations
of Taiwan Stock Exchange.
the Company or the competent
3.6.3 The Company has established a
Remuneration Committeeand more
than half of the member should
consist of Independent Directors.
Their professional qualifications of
the members, exercise of powers,
establishment of its organization
structure, and related items shall be
processed in accordance with the
“Regulations
Governing
the
Appointment
and
Exercise
of
Powers
by
the
Remuneration
Committee of a Company Whose
Stock is Listed on the Stock
Exchange or Traded Over the
Counter”
and
the
Company’s
Charter
of
the
Remuneration
Committee.
















3.6.3 The Company has established a
Remuneration Committee and the
professional qualifications of the
members,
exercise
of
powers,
establishment of its organization
structure, and related items shall be
processed in accordance with the
“Regulations
Governing
the
Appointment
and
Exercise
of
Powers
by
the
Remuneration
Committee of a Company Whose
Stock is Listed on the Stock
Exchange or Traded Over the
Counter”
and
the
Company’s
Charter
of
the
Remuneration
Committee.














Article
3.6.3
is
amended
in
accordance
with
Article 28-1 of the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
1. Paragraph 1 of this
Article is amended
to
continue
to
strengthen
the
independence of the
Remuneration
Committee.
2. The exercise of the
powers
of
the
consist of Independent Directors.
Their professional qualifications of
the members, exercise of powers,
establishment of its organization
structure, and related items shall be
processed in accordance with the
“Regulations
Governing
the
Appointment
and
Exercise
of
Powers
by
the
Remuneration
Committee of a Company Whose
Stock is Listed on the Stock
Exchange or Traded Over the
Counter”
and
the
Company’s
Charter
of
the
Remuneration
Committee.
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Clause after Revision ExistingClauses Description
The Remuneration Committee shall











Remuneration
Committee and the
duties
of
the
Independent
Directors and related
provisions
are
established
in
Paragraph 1 of this
Article
and
they
shall be complete in
accordance
with
related
regulations.
Paragraph
2
is
deleted to make the
articles
more
concise.
exercise the care of a prudent

manager
to
fulfill
the
duties

specified in Article 2.4, Paragraph 1

of the Company’s Charter of the

Remuneration Committee and offer
recommendations for discussion by

the Board of Directors.
The Remuneration Committee shall
perform the aforementioned duties

in accordance with Article 2.4,

Paragraph 2 of the Company’s

Charter
of
the
Remuneration
Committee.
3.7.3 For any decisions that need to be
through a board meeting under
Article 14-3 of the Securities and
Exchange Act, the Independent
Directors of the Company shall
attend the meetings in person and
they
may
not
appoint
non-independent
directors
as
proxies. If there is any objection or
reservation from an Independent
Director, it should be clearly
recorded in the minutes of the board
meeting. If an Independent Director
is unable to express objections or
qualified opinions personally at the
board meeting, the opinion shall be
raised in writing in advance unless
there is justifiable reason not to do
so. Such opinions shall also be
recorded in board meeting minutes.
If the board resolution involves any
of the following, the details of
which shall be addressed in the
meeting minutes and reported to the
Market Observation Post System2























3.7.3 For any decisions that need to be
through a board meeting under
Article 14-3 of the Securities and
Exchange Act, the Independent
Directors of the Company shall
attend the meetings in person and
they
may
not
appoint
non-independent
directors
as
proxies. If there is any objection or
reservation from an Independent
Director, it should
be clearly
recorded in the minutes of the board
meeting. If an Independent Director
is unable to express objections or
qualified opinions personally at the
board meeting, the opinion shall be
raised in writing in advance unless
there is justifiable reason not to do
so. Such opinions shall also be
recorded in board meeting minutes.
If the board resolution involves any
of the following, the details of
which shall be addressed in the
meeting minutes and reported to the
Market Observation Post System























Article
3.7.3
is
amended
in
accordance
with
Article
33
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
Paragraph 2 of this
Article is amended in
accordance
with
regulations
of
the
Taiwan
Stock
Exchange
regarding
the
disclosure
and
reporting of matters
listed in Paragraph 2
of this Article on the
Market
Observation
Post System.
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hoursbefore trading commences on
the business day after the board
resolution is made:
(1) Objections or qualified opinions
expressed
by
Independent
Directors on record or in writing.
(2) Items
that have not been
approved
by
the
Audit
Committee shall require the
approval of more than two-thirds
of all Directors.
During
a
board
meeting,
the
Company may, based on the content
of the agenda, notify managers of
relevant departments who are not
board
members
to
attend
the
meeting as non-voting participants
to report the Company's current
business
status
and
answer
Directors'
questions.
Certified
public accountants, lawyers, or
other professionals may also be
invited to participate in board
meetings where necessary to help
Directors understand situations and
make decisions accordingly but they
shall leave the meeting during
discussions and votes.























before trading commences on the
business
day
after
the
board
resolution is made:
(1) Objections or qualified opinions
expressed
by
Independent
Directors on record or in writing.
(2) Items
that have not been
approved
by
the
Audit
Committee shall require the
approval of more than two-thirds
of all Directors.
During
a
board
meeting,
the
Company may, based on the content
of the agenda, notify managers of
relevant departments who are not
board
members
to
attend
the
meeting as non-voting participants
to report the Company's current
business
status
and
answer
Directors'
questions.
Certified
public accountants, lawyers, or
other professionals may also be
invited to participate in board
meetings where necessary to help
Directors understand situations and
make decisions accordingly but they
shall leave the meeting during
discussions and votes.






















3.7.5 The following issues shall be
raised for discussion in board
meetings of the Company:
(1) The Company’s Business Plan.
(2) The Annual Financial Report.
(3) Establishment or amendment to
the internal control systemand
review of its effectiveness.
(4) Establishment or amendments
to
asset
acquisition/disposal
procedures, derivative trading
procedures, procedures on loans
to
others,
endorsement
and








3.7.5 The following issues shall be
raised for discussion in board
meetings of the Company:
(1) The Company’s Business Plan.
(2) The Annual Financial Report.
(3) Establishment or amendment of
the Company's internal control
system.
(4) Establishment or amendments
to
asset
acquisition/disposal
procedures, derivative trading
procedures, procedures on loans
to
others,
endorsement
and








Article
3.7.5
is
amended
in
accordance
with
Article
35
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
Subparagraph (3) and
Subparagraph (8) of
this
Article
are
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guarantee procedures, and other
procedures of major financial
consequences.
(5) Offering, issuance, or private
placement of securities with
equity characteristics.
(6) Appointment and removal of
the financial, accounting, or
internal auditing officers.
(7) Donations to related parties or
major donations to non-related
parties. However, in the event of
a
major
natural
disaster,
emergency aids of charitable
nature can be made first and
ratified later in the next board
meeting.
(8) Decisions that shall beresolved
through a shareholders' meeting
or a board meeting according to
Article 14-3 of the Securities and
Exchange Act, the Articles of
Incorporation or other laws, and
any major issues prompted by
the competent authority.
Except for the items listed in the
preceding paragraph that shall be
resolved through a board meeting,
the
Board
of
Directors
may
authorize other parties to exercise
duties on their behalf in manners
that comply with laws and the
Articles of Incorporation during
periods where board meetings are
not convened. In which case, the
level, the extent and details of such
authorization shall be clearly stated
and general authorization may not
begranted.
































guarantee procedures, and other
procedures of major financial
consequences.
(5) Offering, issuance, or private
placement of securities with
equity characteristics.
(6) Appointment and removal of
the financial, accounting, or
internal auditing officers.
(7) Donations to related parties or
major donations to non-related
parties. However, in the event of
a
major
natural
disaster,
emergency aids of charitable
nature can be made first and
ratified later in the next board
meeting.
(8) Decisions that shallberesolved
through a shareholders' meeting
or a board meeting according to
Article 14-3 of the Securities and
Exchange Act, the Articles of
Incorporation or other laws, and
any major issues prompted by
the competent authority.
Except for the items listed in the
preceding paragraph that shall be
resolved through a board meeting,
the
Board
of
Directors
may
authorize other parties to exercise
duties on their behalf in manners
that comply with laws and the
Articles of Incorporation during
periods where board meetings are
not convened. In which case, the
level, the extent and details of such
authorization shall be clearly stated
and general authorization may not
begranted.
































amended
in
accordance
with
Article 7, Paragraph 1
of
the
Regulations
Governing Procedure
for Board of Directors
Meetings
of
Public
Companies.
3.8.1 Board members shall perform
duties and exercise due care of a

3.8.1 Board members shall perform
duties and exercise due care of a

Article 3.8.1 is revised
in
accordance
with
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prudent manager. They shall also
exercise their powers with high
levels
of
self-discipline
and
prudence. Business operations shall
be
executed
pursuant
to
the
resolutions to be adopted by the
Board of Directors except for
matters that require resolutions of
the
shareholders'
meeting
as
specified in laws or the Articles of
Incorporation of the Company.








prudent manager. They shall also
exercise their powers with high
levels
of
self-discipline
and
prudence. Business operations shall
be
executed
pursuant
to
the
resolutions to be adopted by the
Board of Directors except for
matters that require resolutions of
the
shareholders'
meeting
as
specified in laws or the Articles of
Incorporation of the Company.
Where resolution of the Board of
















Article
37
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
Paragraph 1 of this
Article
includes
content in Paragraph 2
which
is
therefore
deleted.
Directors
affects
business
development and material decisions,

the
Company
shall
carefully


consider the implementation of the

resolution. The resolution may not

affect
the
advancement
and
operations of corporate governance.
3.8.3 The Companyshall take out
liability insurance for its Directors
to cover their terms of service based
on the compensation liabilities
associated
with
their
business
liabilities to reduce and diversify the
risk of any material damages to the
Company
and
its
shareholders
caused by any error or negligence of
its Directors.
The Companyshallreport the
insured amount, coverage, premium
rate, and other major contents of the
liability insurance it haspurchased
or renewed for Directors at the next
board meeting.		 shall take out












3.8.3 The Companymay purchase
liability insurance for its Directors
to cover their terms of service based
on the compensation liabilities
associated
with
their
business
liabilities to reduce and diversify the
risk of any material damages to the
Company
and
its
shareholders
caused by any error or negligence of
its Directors.
The Companyis advised toreport
the
insured
amount,
coverage,
premium rate, and other major
contents of the liability insurance it
haspurchasedor renewed for
Directors at the next board meeting.		 may purchase













Article
3.8.3
is
amended
in
accordance
with
Article
39
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
This
Article
is
amended
in
accordance with the
requirements
for
directors'
liability
insurance in Article
193-1 of the Company
Act to allow Directors
to dedicate their full
attention
to
their
duties and maximize
benefits
for
shareholders.
  • 25 -

==> picture [148 x 47] intentionally omitted <==

Comparison Table of Revision of Rules

Name of Rules: Corporate Governance Best Practice Principles

Clause after Revision Clause after Revision ExistingClauses Description
3.10.1 Disclosure of information is
one
of
the
Company's
key
responsibilities and Company shall
be performed with due diligence in
accordance with applicable laws,
and the regulations of the Taiwan
Stock Exchange Corporation and
Taipei Exchange.
The Company should report the
financial reports for the first,
second, and third quarters, annual
financial
reports,
and
monthly
operations before the specified
deadline.
The Company shall establish an
online
reporting
system
for
information disclosure and assign
designated
personnel
to
be
responsible for the collection and
disclosure of data. The Company
shall appoint a spokesperson to
ensure that information which may
have
an
impact
on
the
decision-making
processes
of
shareholders and stakeholders is
disclosed
in
a
timely
and
appropriate manner.























3.10.1 Disclosure of information is
one
of
the
Company's
key
responsibilities and Company shall
be performed with due diligence in
accordance with applicable laws,
and the regulations of the Taiwan
Stock Exchange Corporation and
Taipei Exchange.
The Company shall establish an
online
reporting
system
for
information disclosure and assign
designated
personnel
to
be
responsible for the collection and
disclosure of data. The Company
shall appoint a spokesperson to
ensure that information which may
have
an
impact
on
the
decision-making
processes
of
shareholders and stakeholders is
disclosed
in
a
timely
and
appropriate manner.


















Article
3.10.1
is
amended
in
accordance
with
Article
55
of
the
"Corporate
Governance
Best
Practice Principles for
TWSE/TPEx
Listed
Companies":
Paragraph 2 of this
Article is added to
allow shareholders to
gain information on
quarterly and annual
financial
reports
as
well
as
financial
information
in
monthly operations for
use in their decisions.

financial reports for the first,

second, and third quarters, annual

financial
reports,
and
monthly


operations before the specified

deadline.
The Company shall establish an
online
reporting
system
for
information disclosure and assign
designated
personnel
to
be
responsible for the collection and
disclosure of data. The Company
shall appoint a spokesperson to
ensure that information which may
have
an
impact
on
the
decision-making
processes
of
shareholders and stakeholders is
disclosed
in
a
timely
and
appropriate manner.
  • 26 -

Chapter 3 Ratifications and discussions

Agenda item #1 Proposed by the Board of Directors

Agenda: Ratification of the company's 2018 business report and financial statements. Explanation: The Company's 2018 Individual Financial Statements and Consolidated Financial Statements have been audited and certified by CPAs Jui-Hsuan Hsu and Yu-Hsiang Liu of Deloitte, Taiwan. The Audit Committee submitted the Audit Report which found them to be compliant with regulations.

Resolution:

  • 27 -

Attachment

2018 Business Report

(I) Business policies

  • Vision: Chung Hung maintains ethical business operations and strives to become a sustainable, reliable, and approachable steel company.

  • Philosophy: Flexibility in response to changes, streamlined efficiency, development of niches, and value creation

  • Tangible actions: ◎Make full use of resources and equipment production capacity;

  • ◎Flexible production and sales to reduce lead time;

  • ◎Diverse career development to pass on knowledge;

  • ◎Ensure environmental protection and occupational safety and fulfill social responsibilities.”

(II) Implementation overview

  1. The Company's consolidated operating revenue in 2018 was NT$48.239 billion which was an increase of approximately 18.26% from the operating revenue of NT$40.792 billion in 2017. Consolidated operating costs and consolidated operating expenses totaled NT$45.363 billion which was a 18.69% increase from NT$38.219 billion in 2017.

  2. The following new products were developed in 2018: Development of hot-rolling SAE4130 products, hot-rolling QStE380TM products, development of cold-rolling SPCC-1D, and development of hot-dipped galvanized steel plates for the bottom of containers.

  3. The Company continues to update various plant equipment, make improvements, and optimize the process control system to improve product quality and grade and expand the variety of steel types for production. The specific accomplishments in 2018 are as follows:

  4. (1)Improvements in crowning of hot-rolling fineblanking materials.

  5. (2)Continuous improvement for drilling marks cold-rolled fineblanking materials.

  6. (3)Improvement of continuous scratch marks on the surface of pickled steel rolls of the Pickling and Galvanizing Department.

  7. (4)Improvement for spark marks on pickled steel coils in the Pickling and Galvanizing Department.

  8. 28 -

  9. The Company implements occupational safety systems such as OHSAS 18001 and TOSHMS and it received the following honors from related agencies for its outstanding performance:

  10. (1) The Hot Rolling Department was recognized as an “Outstanding Unit in the Advancement of Occupational Safety and Health in Kaohsiung City in 2017” and received the “Five-Star Award” as a “2017 Outstanding Occupational Safety and Health Unit” from the Ministry of Labor, Executive Yuan on September 5, 2018.

  11. (2) The engineer Meng-Pin Lin of the Hot Rolling Department was recognized as an “Outstanding Employee in the Advancement of Occupational Safety and Health in Kaohsiung City in 2017” and received the “2017 Outstanding Occupational Safety and Health Employee Award” from the Ministry of Labor, Executive Yuan on September 5, 2018.

  12. (3) Lukang Steel Pipe Plant received the “Excellence Award” for safety and health performance in 2017 from Taiwan Steel & Iron Industries Association on October 31, 2018.

  13. The Company implements ISO 14001 and ISO 50001 to strengthen environment and energy management, actively conserve energy and reduce waste, and fulfill its corporate social responsibilities. It received recognition for inter-department greenhouse gas reduction and cooperation program in 2018 from the Environmental Protection Bureau of Kaohsiung City Government.

  14. Certifications:

  15. (1)The Hot Rolling Department and Dafa Steel Pipe Plant passed the three-year extension of the JIS Mark certification.

  16. (2)The Hot Rolling Department, Cold Rolling Department, Dafa Steel Pipe Plant, and Lukang Steel Pipe Plant passed ISO 14001: 2015 certification review.

  17. (3)Lukang steel pipe plant passed ISO 50001 certification.

  18. (4)Lukang steel pipe plant obtained JIS Mark Certification.

  19. (5)Awarded the silver medal certification in the Talent Quality-management System (TTQS) of the Ministry of Labor.

  20. (6)The Company received the “Authorized Economic Operator” (AEO) certification from the Customs Administration of the Ministry of Finance.

(III) Business plan implementation results

  • 1.Production plan implementation status:

  • Steel demand has continued to increase in the first three quarters of 2018 due to the status of supply and demand on the international market but a decline became apparent in the fourth quarter. The Company adjusted its production and sales plan in response

  • 29 -

and the product output compared to the previous year is listed as follows:

Year
Item		 2018 production
(10,000 tons)		 2017 production
(10,000 tons)		 Difference
(10,000 tons)		 Difference %
Hot-rolled
products		 225.25 223.46 1.79 0.80%
Cold-rolled
products		 39.98 40.25 -0.27 -0.67%
Steel pipe
products		 17.40 13.10 4.30 32.82%
Galvanized
products		 2.86 3.16 -0.30 -9.49%
Total 285.49 279.97 5.52 1.97%

2.Sales plan implementation status:

The price of steel products has continued to recover due to the reduced supply in the global steel market in 2018. Demand continues to grow but the increase in material prices and adjustments in upstream suppliers’ production and sales contributed to the consolidated sales volume of 2.4793 million tons in 2018 which was a 6.73% increase from 2017.

(IV) Analysis of operating income/expenses and profitability

The after-tax net profit was NT$3.033 billion in 2018. The operating revenue/expenses and profitability are as follows:

1.Revenue:

The Company's consolidated operating revenue in 2018 was NT$48.239 billion which was an increase of approximately 18.26% from the operating revenue of NT$40.792 billion in 2017.

2.Expenditures:

The Company's consolidated operating costs and consolidated operating expenses in 2018 totaled NT$45.363 billion which was a 18.69% increase from NT$38.219 billion in 2017.

3.Profitability:

The increase in sales price in 2018 was greater than the increase in costs and it increased pre-tax profit by NT$427 million from 2017.

(V) Research and development status

The Company continues to update the hot rolling, cold rolling, galvanized products, and

steel pipe equipment, refine the process, and advance personal quality accountability to

  • 30 -

improve product quality. It also actively expands the product line and seeks to develop high add-value products with steel slab suppliers to improve the Company’s overall competitiveness. The Company’s material R&D and improvement in 2018 were as follows:

  • 1.Product development:

  • Development of hot-rolling SAE4130 products, hot-rolling QStE380TM products, development of cold-rolling SPCC-1D, and development of hot-dipped galvanized steel plates for the bottom of containers.

  • 2.Product improvement:

  • Improved the break-off rust on hot-rolled API steel pipe materials, continuous improvement for tail stamp marks on hot-rolled coils, continuous improvement for rust on high-quality PO materials, improvement for crowning on hot-rolled fineblanking materials, improvement for hot-rolled coiling form, continuous improvement for cold-rolled fineblanking drilling marks, continuous improvement for tearing of adhesives on cold-rolled products, improvement of cleanliness on cold-rolled steel coils, improvement of external press marks on cold-rolled products, improvement of continuous scratch marks on the surface of pickled steel rolls of the Pickling and Galvanizing Department, and improvement for spark marks on pickled steel coils in the Pickling and Galvanizing Department.

  • 3.Process research and improvement:

  • Establishment of the technology for controlling the difference in thickness of hot-rolling fineblanking materials.

  • 4.Equipment technology establishment:

  • Establishment of horizontal setting technologies of the hot-rolling finishing mill, replacement of tube and skids in the No.1 furnace boiler, update of No. 1 cold-rolling product line equipment, replacement of air compressor for cold-rolling, replacement and update of the cleaning tank on the cold-rolling pickling line, replacement and update of the deviation correction system on the tension leveler for cold-rolling, installation of the welding brush roller at the exit of the pickling and galvanizing CPL welding machine, update of the pickling CGL galvanizing and film machine, energy efficiency improvement of the pickling and galvanizing chiller machine room, increase in the speed of the No. 1 process in Lukang Plant, supplementary welding for incomplete welding during outages to reduce wear for the production of steel pipes, establishment

  • 31 -

of heat treatment simulation and test capabilities for the production of steel pipes, and additional crane for Building Q in the storage area in Lukang Plant.

Chairman: I-Chung Han Managerial Officer: Tsung-Chang Lee

Chief Accounting Officer: Pei-Yu Lee

  • 32 -

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the shareholders Chung Hung Steel Corporation

Opinion

We have audited the accompanying standalone financial statements of Chung Hung Steel Corporation (the “Corporation”), which comprise the standalone balance sheets as of December 31, 2018 and 2017, and the standalone statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the standalone financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying standalone financial statements present fairly, in all material respects, the standalone financial position of the Corporation as of December 31, 2018 and 2017, and its standalone financial performance and its standalone cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the standalone financial statements section of our report. We are independent of the Corporation in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

As disclosed in Note 3 to the standalone financial statements, in 2018 the Corporation adopted the revised Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the FSC.

As disclosed in Note 15 to the standalone financial statements, in 2018 the Corporation merged the subsidiary Hung Li Steel Corporation, which is classified as structure reorganizations under joint control, pursuant to EITF 101-301 of the Accounting Research and Development Foundation, R.O.C. and questions and answers of IFRSs issued by Accounting Research and Development Foundation, R.O.C. In the comparative financial statements are regarded it as the initial merger and restating the prior years’ standalone financial statements. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters for the Corporation’s standalone financial statements for the year ended December 31, 2018 are stated as follows:

Measurement of Inventories

Inventories are one of the significant assets in the balance sheet. As of December 31, 2018 the carrying amount

  • 33 -

of inventories held by the Corporation, amounted to NT$8,240,151 thousand, which accounted for 25% of total assets. Due to the fluctuations in the prices of raw materials and finished goods in steel industry and due to the use of accounting estimates, inventory valuation is deemed to be a key audit matter.

For the accounting policies on inventories and critical accounting estimates and judgments on inventories, refer to Note 4 and Note 5 to the standalone financial statements, respectively.

We focused on the inventory valuation, including valuation of obsolete inventory and the measurement of inventories. Our main audit procedures performed included the following:

  1. We observed year-end inventory counts and assessed the condition of inventory to evaluate the adequacy of inventory provisions for obsolete goods;

  2. We obtained the year-end inventory aging profile and tested whether its accuracy based on supporting documents and we evaluated the provision for slow-moving and obsolete inventory was made according to the Corporation’s policy;

  3. We evaluated the appropriateness of the methodology used to value the inventory at the year end.

  4. We checked the calculation of inventory provisions, the market value of inventory from supporting documentation and the amounts of inventory.

Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements

Management is responsible for the preparation and fair presentation of the standalone financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of standalone financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, management is responsible for assessing the Corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Corporation, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Corporation’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  1. Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  2. 34 -

  3. 2 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control.

  4. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

  5. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Corporation to cease to continue as a going concern.

  6. Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

  7. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Corporation to express an opinion on the standalone financial statements. We are responsible for the direction, supervision, and performance of the Corporation audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

  • 35 -

The engagement partners on the audit resulting in this independent auditors’ report are Jui-Hsuan Hsu and Yu-Hsiang Liu.

Deloitte & Touche Taipei, Taiwan Republic of China

March 19, 2019

Notice to Readers

The accompanying standalone financial statements are intended only to present the standalone financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such standalone financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying standalone financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and standalone financial statements shall prevail.

36

CHUNG HUNG STEEL CORPORATION

STANDALONE BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ASSETS
CURRENT ASSETS
Cash (Notes 4 and 6)

Financial assets at fair value through profit or loss - current
(Notes 3, 4 and 7)
Financial assets at fair value through other comprehensive income -
current (Notes 3,4 and 8)
Available-for-sale financial assets - current (Notes 3, 4 and 9)
Accounts receivable (Notes 4, 10 and 23)
Accounts receivable from related parties (Notes 4, 10, 23 and 30)
Other receivables (Note 10)
Other receivables from related parties (Notes 10 and 30)
Current tax assets (Note 25)
Inventories (Notes 4, 5 and 11)
Prepayments (Note 12)
Non-current assets held for sale (Notes 4 and 13)
Other financial assets - current (Notes 13, 14 and 31)
Other current assets

Total current assets

NONCURRENT ASSETS
Financial assets at fair value through other comprehensive income -
noncurrent (Notes 3, 4 and 8)
Available-for-sale financial assets - noncurrent (Notes 3, 4 and 9)
Investments accounted for using equity method (Notes 4 and 15)
Property, plant and equipment (Notes 4, 16, 30 and 31)
Investment properties (Notes 4, 13, 17 and 24)
Prepayments for equipment
Refundable deposits
Other financial assets - noncurrent (Notes 13 and 14)

Total noncurrent assets

TOTAL
 December 31, 2018
Amount
%
$ 195,675
1
217,281
1
802,899
2
-
-
948,932
3
183,440
-
16,002
-
344,560
1
392
-
8,240,151
25
373,650
1
22,525
-
302,897
1

6,590

-


11,654,994

35

51,219
-
-
-
2,493,577
7
13,249,030
40
5,907,018
18
57,694
-
5,632
-

-

-


21,764,170

65

$ 33,419,164
100
 December 31, 2017
Amount
%
LIABILITIES AND EQUITY
CURRENT LIABILITIES
$ 214,788
1
Short-term borrowings (Notes 18, 30 and 31)

Short-term bills payable (Note 18)

215,464
1
Contract liabilities - current (Notes 3, 4, 13 and 23)
Accounts payable (Note 19)

-
-
Accounts payable to related parties (Notes 19 and 30)

819,454
3
Other payables (Note 20)

1,291,784
4
Current portion of long-term bank borrowings (Notes 18 and 31)

168,187
-
Refund liabilities - current (Note 3)

10,433
-
Other current liabilities (Note 20)


398,509
1

279
-
Total current liabilities


5,019,625
16

202,644
1
NONCURRENT LIABILITIES

-
-
Long-term bank borrowings (Notes 18 and 31)

500,000
1
Long-term bills payable (Note 18)

6,392

-
Deferred tax liabilities (Notes 4 and 25)
Net defined benefit liabilities (Notes 4, 5 and 21)

8,847,559

28
Guarantee deposits received (Note 27)
Other noncurrent liabilities (Notes 3 and 13)

Total noncurrent liabilities


-
-

54,563
-
Total liabilities


2,455,462
8

14,031,648
45
EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION
(Notes 4 and 22)

5,940,891
19
Ordinary shares

37,185
-
Capital surplus

5,847
-
Retained earnings (Accumulated deficit)

2,385

-
Other equity


22,527,981

72
Total equity

TOTAL

$ 31,375,540
100		 December 31, 2018
Amount
%
$ 6,381,773
19
3,198,953
10
96,445
-
45,304
-
595,764
2
1,013,366
3
950,000
3
115,720
-

30,974

-


12,428,299

37

3,900,000
12
1,679,558
5
182,222
1
430,719
1
35,120
-

-

-


6,227,619

19


18,655,918

56

14,355,444
43
903
-
904,506
3

(497,607)

(2)


14,763,246

44

$ 33,419,164
100
 December 31, 2017




























































Amount
%
$ 7,464,815
24

669,849
2

-
-

56,160
-

1,219,265
4

874,129
3

150,000
-

-
-

183,673

1

10,617,891

34

5,097,450
16

3,149,062
10

182,222
1

365,756
1

35,120
-

2,380

-

8,831,990

28

19,449,881

62

14,355,444
46

903
-

(2,083,776)
(7)

(346,912)

(1)

11,925,659

38
$ 31,375,540
100

The accompanying notes are an integral part of the standalone financial statements.

(With Deloitte & Touche audit report dated March 19, 2019)

37

CHUNG HUNG STEEL CORPORATION

STANDALONE STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4, 23 and 30)
Sales

Service revenue
Other operating revenue

Total operating revenue
OPERATING COSTS (Notes 11, 24 and 30)

GROSS PROFIT

OPERATING EXPENSES (Note 24)
Selling and marketing expenses
General and administrative expenses

Total operating expenses

PROFIT FROM OPERATIONS

NON-OPERATING INCOME AND EXPENSES
(Notes 15, 24, 27 and 30)
Other income
Other gains and losses
Finance costs
Share of profit of subsidiaries and associates

Total non-operating income and expenses

PROFIT BEFORE INCOME TAX
INCOME TAX (Notes 4, 5 and 25)

NET PROFIT FOR THE YEAR

OTHER COMPREHENSIVE INCOME (LOSS)
(Notes 4, 5, 21 and 22)
Items that will not be reclassified subsequently to
profit or loss		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2018
Amount
%
$ 47,565,824 99
600,922
1

66,975

-

48,233,721 100

43,853,999
91


4,379,722

9

1,117,746
2

390,078

1


1,507,824

3


2,871,898

6

129,822
-
79,374
-
(139,883)
-

92,012

-


161,325

-

3,033,223
6

0

-


3,033,223

6
 2017



























Amount
%
$ 39,693,097 97

1,039,390
3

56,103

-

40,788,590 100

36,903,341
91

3,885,249

9

940,718
2

373,225

1

1,313,943

3

2,571,306

6

143,588
-

(12,152)
-

(180,936)
-

84,322

-

34,822

-

2,606,128
6

(145)

-

2,606,273

6
(Continued)

38

CHUNG HUNG STEEL CORPORATION

STANDALONE STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Remeasurement of defined benefit plans

Unrealized gains and losses on investments in
equity instruments at fair value through other
comprehensive income
Share of the other comprehensive income of
subsidiaries and associates


Items that may be reclassified subsequently to profit
or loss
Unrealized gains on available-for-sale financial
assets
Share of the other comprehensive income of
subsidiaries and associates


Other comprehensive income (loss) for the year,
net of income tax

TOTAL COMPREHENSIVE INCOME FOR THE
YEAR

EARNINGS PER SHARE (Note 26)
Basic
Diluted		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2018
Amount
%
(128,800)
-
(13,975)
-
(52,861)

-

(195,636)

-

-
-
-

-

-

-

(195,636)

-

2,837,587

6

$ 2.11
$ 2.11		 2017






$







$
Amount
%
(109,039)
-
-
-
-

-
(109,039)

-
7,700
-
10,911

-
18,611

-
(90,428)

-
2,515,845

6
$ 1.82
$ 1.82

$ $


The accompanying notes are an integral part of the standalone financial statements.

(Concluded)

(With Deloitte & Touche audit report dated March 19, 2019)

39

CHUNG HUNG STEEL CORPORATION

STANDALONE STATEMENTS OF CHANGES IN EQUITY YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)


Issued and
Retained Earnings
Outstanding
(Accumulated
Ordinary Shares
Capital Surplus
Deficit)
BALANCE AT JANUARY 1, 2017
$ 14,355,444
$ 903
$ (4,581,010)
Net profit for the year ended December 31, 2017
-
-
2,606,273
Other comprehensive loss for the year ended December 31, 2017,
net of income tax

-

-

(109,039)
Total comprehensive income for the year ended December 31, 2017

-

-

2,497,234
BALANCE AT DECEMBER 31, 2017
14,355,444
903
(2,083,776)
Effect of retrospective application (Note 3)

-

-

84,398
BALANCE AFTER ADJUSTMENT AT JANUARY 1, 2018

14,355,444

903

(1,999,378)
Net profit for the year ended December 31, 2018
-
-
3,033,223
Other comprehensive loss for the year ended December 31, 2018,
net of income tax

-

-

(128,800)
Total comprehensive income for the year ended December 31, 2018

-

-

2,904,423
Disposal of investments in equity instruments at fair value through
other comprehensive income

-

-

(539)
BALANCE AT DECEMBER 31, 2018
$ 14,355,444
$ 903
$ 904,506		 Other Equity Total
$ (365,523)

-

18,611


18,611

(346,912)

(84,398)


(431,310)

-

(66,836)


(66,836)


539

$ (497,607)
 Total Equity
$ 9,409,814
2,606,273

(90,428)

2,515,845
11,925,659

-

11,925,659
3,033,223

(195,636)

2,837,587

-
$ 14,763,246
Unrealized Gain
(Loss) on Financial
Assets at Fair Value
Unrealized Gain

Through Other
(Loss) on
Comprehensive
Available-for-sale
Income
Financial Assets
$ -
$ (365,523)

-
-

-

18,611


-

18,611

-
(346,912)

(431,310)

346,912


(431,310)

-

-
-

(66,836)

-


(66,836)

-


539

-

$ (497,607)
$ -

The accompanying notes are an integral part of the standalone financial statements.

(With Deloitte & Touche audit report dated March 19, 2019)

40

CHUNG HUNG STEEL CORPORATION

STANDALONE STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)


CASH FLOWS FROM OPERATING ACTIVITIES

Profit before income tax

Adjustments for:
Depreciation expense
Net gain on financial assets at fair value through profit or loss
Finance costs
Interest income
Dividend income
Share of profit of subsidiaries and associates
Gain on disposal of property, plant and equipment
Write-downs (reversal) of inventories
Changes in operating assets and liabilities
Financial instruments held for trading
Financial assets mandatorily classified as at fair value through profit
or loss
Accounts receivable
Accounts receivable from related parties
Other receivables
Other receivables from related parities
Inventories
Prepayments
Other current assets
Contract liabilities
Accounts payable
Accounts payable to related parties
Other payables
Other current liabilities
Net defined benefit liabilities
Refund liabilities

Cash generated from operations
Income taxes refund(paid)

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of financial assets at fair value through other
comprehensive income
Proceeds from the capital reduction on financial assets at fair value
through other comprehensive income
Proceeds from the capital reduction on available-for-sale financial
assets
Proceeds from the capital reduction on investments accounted for
using
equity method
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment		 **For the Year Ended December 31 ** **For the Year Ended December 31 ** **For the Year Ended December 31 **




2018
$ 3,033,223
1,181,132
(3,057)
139,883
(4,154)
(41,894)
(92,012)
-
417,871
-
1,240
342,852
(15,253)
(5,579)
53,949
(3,638,397)
(171,006)
(198)
(67,300)
(10,856)
(623,501)
309,457
8,666
(63,837)

(47,715)

703,514

(113)


703,401

962
4,962
-
-
(412,440)
-		 2017
$ 2,606,128

1,418,660

(7,059)

180,936

(3,749)

(61,399)

(84,322)

(290)

(148,046)

23,548

-

(574,617)

76,346

(2,820)

(256,322)

(281,275)

104,263

(3,087)

-

7,640

(111,561)

38,210

39,136

(59,384)

-

2,900,936

112

2,901,048

-

-

4,489
25,000

(553,808)

12,233

41

CHUNG HUNG STEEL CORPORATION

STANDALONE STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)


Decrease in refundable deposits

Decrease(increase) in other financial assets
Interest received
Dividends received from subsidiaries and associates
Dividends received from others

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings

Repayments of short-term borrowings

Increase (decrease) in short-term bills payable
Proceeds from long-term borrowings
Repayments of long-term borrowings
Proceeds from long-term bills payable
Repayments of long-term bills payable
Interest paid

Net cash used in financing activities

NET INCREASE (DECREASE) IN CASH
CASH AT THE BEGINNING OF THE YEAR

CASH AT THE END OF THE YEAR
 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31








2018
$ 215
199,488
4,164
1,036

41,894


(159,719)

109,451,453
(110,534,495)
2,529,104
3,500,000
(3,900,000)
1,600,496
(3,070,000)

(139,353)


(562,795)

(19,113)

214,788

$ 195,675
 2017
$ 543

(2)

3,749
1,169

61,399

(445,228)
118,734,081
(119,686,547)

(1,249,028)

2,300,000

(3,272,308)

1,200,283

(100,000)

(179,688)

(2,253,207)

202,613

12,175
$ 214,788

The accompanying notes are an integral part of the standalone financial statements.

(Concluded)

(With Deloitte & Touche audit report dated March 19, 2019)

42

REPRESENTATION LETTER

The entities that are required to be included in the combined financial statements of Chung Hung Steel Corporation as of and for the year ended December 31, 2018, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standard 10, “Consolidated Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Chung Hung Steel Corporation and its subsidiaries do not prepare a separate set of combined financial statements. Very truly yours,

Chung Hung Steel Corporation

By

Yi-Chung Han Chairman

March 19, 2019

43

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the shareholders Chung Hung Steel Corporation

Opinion

We have audited the accompanying consolidated financial statements of Chung Hung Steel Corporation (the “Corporation”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC) of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

As disclosed in Note 3 to the consolidated financial statements, in 2018 the Group adopted the revised Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the FSC. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

44

Key audit matters for the Group’s consolidated financial statements for the year ended December 31, 2018 are stated as follows:

Measurement of Inventories

Inventories are one of the significant assets in the balance sheet. As of December 31, 2018 the carrying amount of inventories held by the Group, amounted to NT$8,240,151 thousand, which accounted for 25% of total assets. Due to the fluctuations in the prices of raw materials and finished goods in steel industry and due to the use of accounting estimates, inventory valuation is deemed to be a key audit matter.

For the accounting policies on inventories and critical accounting estimates and judgments on inventories, refer to Note 4 and Note 5 to the consolidated financial statements, respectively.

We focused on the inventory valuation, including valuation of obsolete inventory and the measurement of inventories. Our main audit procedures performed included the following:

  1. We observed year-end inventory counts and assessed the condition of inventory to evaluate the adequacy of inventory provisions for obsolete goods;

  2. We obtained the year-end inventory aging profile and tested whether its accuracy based on supporting documents and we evaluated the provision for slow-moving and obsolete inventory was made according to the Group’s policy;

  3. We evaluated the appropriateness of the methodology used to value the inventory at the year end.

  4. We checked the calculation of inventory provisions, the market value of inventory from supporting documentation and the amounts of inventory.

Other Matter

We have also audited the standalone financial statements of the Corporation as of and for the years ended December 31, 2018 and 2017 on which we have issued an unmodified opinion with emphasis of a matter paragraphs and an unmodified opinion, respectively.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always

45

detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  2. 2 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

  3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

  4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

  5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

  6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

46

The engagement partners on the audit resulting in this independent auditors’ report are Jui-Hsuan Hsu and Yu-Hsiang Liu.

Deloitte & Touche Taipei, Taiwan Republic of China

March 19, 2019

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

47

CHUNG HUNG STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ASSETS
CURRENT ASSETS
Cash (Notes 4 and 6)

Financial assets at fair value through profit or loss - current
(Notes 3, 4 and 7)
Financial assets at fair value through other comprehensive income -
current (Notes 3,4 and 8)
Available-for-sale financial assets - current (Notes 3, 4 and 9)
Accounts receivable (Notes 4, 10 and 23)
Accounts receivable from related parties (Notes 4, 10, 23 and 30)
Other receivables (Note 10)
Other receivables from related parties (Notes 10 and 30)
Current tax assets (Note 25)
Inventories (Notes 4, 5 and 11)
Prepayments (Note 12)
Non-current assets held for sale (Notes 4 and 13)
Other financial assets - current (Notes 13, 14 and 31)
Other current assets

Total current assets

NONCURRENT ASSETS
Financial assets at fair value through other comprehensive income -
noncurrent (Notes 3, 4 and 8)
Available-for-sale financial assets - noncurrent (Notes 3, 4 and 9)
Investments accounted for using equity method (Notes 4 and 15)
Property, plant and equipment (Notes 4, 16, 30 and 31)
Investment properties (Notes 4, 13, 17 and 24)
Prepayments for equipment
Refundable deposits
Other financial assets - noncurrent (Notes 13 and 14)

Total noncurrent assets

TOTAL
 December 31, 2018
Amount
%
$ 200,081
1
217,281
1
802,899
2
-
-
948,932
3
183,440
-
16,002
-
348,709
1
420
-
8,240,151
25
373,830
1
22,525
-
302,897
1

6,590

-


11,663,757

35

75,565
-
-
-
2,462,217
7
13,249,030
40
5,907,018
18
57,694
-
5,632
-

-

-


21,757,156

65

$ 33,420,913
100
 December 31, 2017
Amount
%
$ 217,955
1

215,464
1

-
-

819,454
3

1,291,784
4

168,187
-

10,433
-

401,324
1

339
-

5,019,625
16

202,824
1

-
-

500,000
1

6,393

-

8,853,782

28

-
-

79,411
-

2,425,702
8

14,031,648
45

5,940,891
19

37,185
-

5,847
-

2,385

-

22,523,069

72
$ 31,376,851
100






























LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term borrowings (Notes 18, 30 and 31)

Short-term bills payable (Note 18)
Contract liabilities - current (Notes 3, 4, 13 and 23)
Accounts payable (Note 19)
Accounts payable to related parties (Notes 19 and 30)
Other payables (Note 20)
Current tax liabilities (Note 25)
Current portion of long-term bank borrowings (Notes 18 and 31)
Refund liabilities - current (Note 3)
Other current liabilities (Note 20)

Total current liabilities

NONCURRENT LIABILITIES
Long-term bank borrowings (Notes 18 and 31)
Long-term bills payable (Note 18)
Deferred tax liabilities (Notes 4 and 25)
Net defined benefit liabilities (Notes 4, 5 and 21)
Guarantee deposits received (Note 27)
Other noncurrent liabilities (Notes 3 and 13)

Total noncurrent liabilities

Total liabilities

EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION
(Notes 4 and 22)
Ordinary shares
Capital surplus
Retained earnings (Accumulated deficit)
Other equity

Total equity

TOTAL
 December 31, 2018
Amount
%
$ 6,381,773
19
3,198,953
10
96,445
-
45,304
-
595,764
2
1,014,578
3
537
-
950,000
3
115,720
-

30,974

-


12,430,048

37

3,900,000
12
1,679,558
5
182,222
1
430,719
1
35,120
-

-

-


6,227,619

19


18,657,667

56

14,355,444
43
903
-
904,506
3

(497,607)

(2)


14,763,246

44

$ 33,420,913
100
 December 31, 2017
































Amount
%
$ 7,464,815
24

669,849
2

-
-

56,160
-

1,219,265
4

875,367
3

73
-

150,000
-

-
-

183,673

1

10,619,202

34

5,097,450
16

3,149,062
10

182,222
1

365,756
1

35,120
-

2,380

-

8,831,990

28

19,451,192

62

14,355,444
46

903
-

(2,083,776)
(7)

(346,912)

(1)

11,925,659

38
$ 31,376,851
100

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche audit report dated March 19, 2019)

48

CHUNG HUNG STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4, 23 and 30)
Sales

Investment revenue
Service revenue
Other operating revenue

Total operating revenue
OPERATING COSTS (Notes 11, 24 and 30)

GROSS PROFIT

OPERATING EXPENSES (Note 24)
Selling and marketing expenses
General and administrative expenses

Total operating expenses

PROFIT FROM OPERATIONS

NON-OPERATING INCOME AND EXPENSES
(Notes 15, 24, 27 and 30)
Other income
Other gains and losses
Finance costs
Share of the profit of associates

Total non-operating income and expenses

PROFIT BEFORE INCOME TAX
INCOME TAX (Notes 4, 5 and 25)

NET PROFIT FOR THE YEAR

OTHER COMPREHENSIVE INCOME (LOSS)
(Notes 4, 5, 21 and 22)
Items that will not be reclassified subsequently to
profit or loss
Remeasurement of defined benefit plans		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2018
Amount
%
$ 47,565,824 99
884
-
605,202
1

66,975

-

48,238,885 100

43,853,999
91


4,384,886

9

1,117,746
2

391,363

1


1,509,109

3


2,875,777

6

129,705
-
79,374
-
(139,883)
-

88,875

-


158,071

-

3,033,848
6

625

-


3,033,223

6

(128,800)
-		 2017





























Amount
%
$ 39,693,097 97

853
-

1,042,391
3

56,103

-

40,792,444 100

36,903,341
91

3,889,103

9

940,718
2

374,645

1

1,315,363

3

2,573,740

6

142,354
-

(12,152)
-

(180,936)
-

83,297

-

32,563

-

2,606,303
6

30

-

2,606,273

6

(109,039)
-
(Continued)

49

CHUNG HUNG STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Unrealized gains and losses on investments in
equity instruments at fair value through other
comprehensive income

Share of the other comprehensive income of
associates


Items that may be reclassified subsequently to profit
or loss
Unrealized gains on available-for-sale financial
assets
Share of the other comprehensive income of
associates


Other comprehensive income (loss) for the year,
net of income tax

TOTAL COMPREHENSIVE INCOME FOR THE
YEAR

NET PROFIT ATTRIBUTABLE TO:
Owners of the Corporation

TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Owners of the Corporation

EARNINGS PER SHARE (Note 26)
Basic
Diluted		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2018
Amount
%
(14,477)
-
(52,359)

-

(195,636)

-

-
-
-

-

-

-

(195,636)

-

2,837,587

6

3,033,223

6

2,837,587

6

$ 2.11
$ 2.11		 2017








$








$ Amount
%
-
-
-

-
(109,039)

-
7,800
-
10,811

-
18,611

-
(90,428)

-
2,515,845

6
2,606,273

6
2,515,845

6
$ 1.82
$ 1.82

$ $
$ $
$ $


The accompanying notes are an integral part of the consolidated financial statements.

(Concluded)

(With Deloitte & Touche audit report dated March 19, 2019)

50

CHUNG HUNG STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)


Issued and
Retained Earnings
Outstanding
(Accumulated
Ordinary Shares
Capital Surplus
Deficit)
BALANCE AT JANUARY 1, 2017
$ 14,355,444
$ 903
$ (4,581,010)
Net profit for the year ended December 31, 2017
-
-
2,606,273
Other comprehensive loss for the year ended December 31, 2017,
net of income tax

-

-

(109,039)
Total comprehensive income for the year ended December 31, 2017

-

-

2,497,234
BALANCE AT DECEMBER 31, 2017
14,355,444
903
(2,083,776)
Effect of retrospective application (Note 3)

-

-

84,398
BALANCE AFTER ADJUSTMENT AT JANUARY 1, 2018

14,355,444

903

(1,999,378)
Net profit for the year ended December 31, 2018
-
-
3,033,223
Other comprehensive loss for the year ended December 31, 2018,
net of income tax

-

-

(128,800)
Total comprehensive income for the year ended December 31, 2018

-

-

2,904,423
Disposal of investments in equity instruments at fair value through
other comprehensive income

-

-

(539)
BALANCE AT DECEMBER 31, 2018
$ 14,355,444
$ 903
$ 904,506		 Other Equity Total
$ (365,523)

-

18,611


18,611

(346,912)

(84,398)


(431,310)

-

(66,836)


(66,836)


539

$ (497,607)
 Total Equity
$ 9,409,814
2,606,273

(90,428)

2,515,845
11,925,659

-

11,925,659
3,033,223

(195,636)

2,837,587

-
$ 14,763,246
Unrealized Gain
(Loss) on Financial
Assets at Fair Value
Unrealized Gain

Through Other
(Loss) on
Comprehensive
Available-for-sale
Income
Financial Assets
$ -
$ (365,523)

-
-

-

18,611


-

18,611

-
(346,912)

(431,310)

346,912


(431,310)

-

-
-

(66,836)

-


(66,836)

-


539

-

$ (497,607)
$ -

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche audit report dated March 19, 2019)

51

CHUNG HUNG STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)


CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income tax

Adjustments for:
Depreciation expense
Net gain on financial assets at fair value through profit or loss
Finance costs
Interest income
Dividend income
Share of the profit of associates
Gain on disposal of property, plant and equipment
Write-downs (reversal) of inventories
Changes in operating assets and liabilities
Financial instruments held for trading
Financial assets mandatorily classified as at fair value through profit
or loss
Accounts receivable
Accounts receivable from related parties
Other receivables
Other receivables from related parities
Inventories
Prepayments
Other current assets
Contract liabilities
Accounts payable
Accounts payable to related parties
Other payables
Other current liabilities
Net defined benefit liabilities
Refund liabilities

Cash generated from operations
Income taxes paid

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of financial assets at fair value through other
comprehensive income
Proceeds from the capital reduction on financial assets at fair value
through other comprehensive income
Proceeds from the capital reduction on available-for-sale financial
assets
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment		 For the Year Ended December 31 For the Year Ended December 31



2018
2017
$ 3,033,848 $ 2,606,303
1,181,132
1,418,660
(3,057)
(7,059)
139,883
180,936
(4,157)
(3,847)
(42,778)
(62,252)
(88,875)
(83,297)
-
(290)
417,871
(148,046)
-
23,548
1,240
-
342,852
(574,617)
(15,253)
76,346
(5,579)
(2,821)
52,615
(256,298)
(3,638,397)
(281,275)
(171,006)
104,257
(197)
(3,088)
(67,300)
-
(10,856)
7,640
(623,501)
(111,561)
309,432
38,235
8,666
39,137
(63,837)
(59,384)

(47,715)

-
705,031
2,901,227

(242)

(170)

704,789

2,901,057
962
-
4,962
-
-
4,489
(412,440)
(553,808)
-
12,233
(Continued)

52

CHUNG HUNG STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)


Decrease in refundable deposits

Decrease in other financial assets
Interest received
Dividends received from others

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings

Repayments of short-term borrowings

Increase (decrease) in short-term bills payable
Proceeds from long-term borrowings
Repayments of long-term borrowings
Proceeds from long-term bills payable
Repayments of long-term bills payable
Interest paid

Net cash used in financing activities

NET INCREASE (DECREASE) IN CASH
CASH AT THE BEGINNING OF THE YEAR

CASH AT THE END OF THE YEAR
 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31








2018
$ 215
199,488
4,167

42,778


(159,868)

109,451,453
(110,534,495)
2,529,104
3,500,000
(3,900,000)
1,600,496
(3,070,000)

(139,353)


(562,795)

(17,874)

217,955

$ 200,081
 2017
$ 543

25,498

4,068

62,252

(444,725)
118,734,081
(119,686,547)

(1,249,028)

2,300,000

(3,272,308)

1,200,283

(100,000)

(179,688)

(2,253,207)

203,125

14,830
$ 217,955

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 19, 2019)

(Concluded)

53

To help shareholders learn more and download the contents of the full financial report,

please visit Chung Hung Steel’s website

(URL: http: //www.chsteel.com.tw )

and inquire in “Financial Information” under “Stockholder Services”

54

Agenda item #2 Proposed by the Board of Directors

Agenda: The Company’s 2018 earnings distribution proposal is filed for acknowledgment.

Explanation:

  • I. The earnings distribution is processed in accordance with Article 228 of the Company Act and Article 28-1 of the Company’s Articles of Incorporation.

  • II. After making up for losses and appropriating special earnings reserve, the Company plans to distribute shareholder bonuses in common stocks at NT$0.1 per share.

  • III. The Company plans to authorize the Chairman to determine the ex-dividend date for the cash dividends after the shareholder's meeting passes the earnings distribution proposal. Cash dividends shall be issued to the "NTD" to each shareholder. The decimals shall be rounded up to the nearest NTD and the difference shall be listed as company expenses.

  • IV. The Company has drafted the earnings distribution statement for 2018 as follows:

Earnings Distribution Statement 2018

Earnings Distribution Statement
2018		 Earnings Distribution Statement
2018
Unit: NT$ Item
Amount
Balance of losses to be made up at the
beginning of the year
Effects of retrospective application and
retrospective restatement
Balance of losses to be made up at the
beginning of the year after adjustment
Remeasurement of defined benefit plan
converted into retained earnings
Disposal of investments in equity
instruments measured at fair value
through other comprehensive gain and
loss with accumulated profit or loss
transferred directly to retained earnings
Balance of losses to be made up after
adjustment
After-tax net profit of 2018
Minus: Statutory surplus reserves		 (2,083,776,774)
84,398,330
(1,999,378,444)
(128,800,271)
(539,151)
(2,128,717,866)
3,033,223,430
(90,450,556)

55

Minus: Appropriation for special earnings
reserve
Distributable earnings
Common stock bonus available for
distribution - 1,435,544,446 common
stocks at NT$0.1 per share (cash NT$0.1)
Undistributed earnings at the end of the
period		 (497,607,149)
316,447,859
(143,554,445)
172,893,414

Chairman: I-Chung Han Managerial Officer: Tsung-Chang Lee

Chief Accounting Officer: Pei-Yu Lee

Resolution:

56

Agenda item #3 Proposed by the Board of Directors

Agenda: The amendment of the Company's "Procedures for the Acquisition or Disposal of Assets" is filed for approval.

Explanation:

  • I. The Company's "Procedures for the Acquisition or Disposal of Assets" is amended based on an amendment of the "Regulations Governing the Acquisition and Disposal of Assets by Public Companies", adoption of IFRS 9 Financial instruments, IFRS 16 Leases, and the "Regulations Governing the Preparation of Financial Reports by Securities Issuers".

  • II. The amendments included Article 3, Paragraph 1, Subparagraph 5; Article 4, Paragraph 1, Subparagraph 1-3 and Subparagraph 11; Article 5, Paragraph 1, Subparagraph 1-3 and Paragraph 2; Article 7, Paragraph 1 and Paragraph 2; Article 8, Paragraph 1, Subparagraph 1-4 and Subparagraph 6; Article 10, Paragraph 1, Subparagraph 2 and Subparagraph 3; Article 13, Paragraph 2; Article 17, Paragraph 1, Subparagraph 1 and Subparagraph 3.

  • III. The comparison table for revised clauses is provided in the Attachment.

Resolution:

57

Attachment

==> picture [147 x 47] intentionally omitted <==

Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision ExistingClauses Description
Article
I.
II.
III.
IV.
V.
VI.		 3 The term "assets" as used in
these Procedures includes the
following:
Investments
in
stocks,
government
bonds,
corporate
bonds, financial bonds, securities
representing interest in a fund,
depositary receipts, call (put)
warrants,
beneficial
interest
securities,
and
asset-backed
securities.
The
funds
specified
in
the
preceding subparagraph refers to
securities
investment
funds
publicly or privately offered by
securities
investment
trust
enterprises, mutual funds publicly
or privately offered by foreign
companies,
beneficiary
certificates of unit trusts and
investment
trusts,
shares
or
investment units in funds, or other
forms of securities for other funds.
Real property (including land,
houses and buildings, investment
property,
inventory
in
construction
business)
and
equipment.
Memberships.
Patents, copyrights, trademarks,
franchise
rights,
and
other
intangible assets.
Right-of-use assets.
Creditor
rights
of
financial
institutions (including receivables,
billspurchased and discounted,




























Article 3 The term "assets" as used in
these
Procedures
includes
the
following:
I.
Investments in stocks, government
bonds, corporate bonds, financial
bonds,
securities
representing
interest in a fund, depositary
receipts,
call
(put)
warrants,
beneficial interest securities, and
asset-backed securities.
The
funds
specified
in
the
preceding subparagraph refers to
securities investment funds publicly
or privately offered by securities
investment trust enterprises, mutual
funds publicly or privately offered
by foreign companies, beneficiary
certificates of unit trusts and
investment
trusts,
shares
or
investment units in funds, or other
forms of securities for other funds.
II. Real
property
(including
land,
houses and buildings, investment
property, land use rights,inventory
in
construction
business)
and
equipment.
III. Memberships.
IV. Patents,
copyrights,
trademarks,
franchise
rights,
and
other
intangible assets.
V.
Creditor
rights
of
financial
institutions (including receivables,
billspurchased and discounted,

























This
Article
is
amended
in
accordance with the
amendment to Article
3 of the "Regulations
Governing
the
Acquisition
and
Disposal of Assets by
Public
Companies"
(hereinafter referred to
as the Regulations)
promulgated by the
Financial Supervisory
Commission:
1. Paragraph
1,
Subparagraph 5 is
added in accordance
with
the
amendments
to
IFRS 16 "Leases" to
expand the scope of
the
right-of-use
assets.
The
land
usage
right
in
Subparagraph 2 is
incorporated
into
Subparagraph 5.
2. The
original
Subparagraphs 5 to
8 of Paragraph 1 are
transferred
to
Subparagraphs 6 to
9.

58

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Clause after Revision Clause after Revision Clause after Revision ExistingClauses ExistingClauses Description
loans, and non-accrual loans).
VII.Derivatives.
VIII.Assets
legally
acquired
or
disposed of through mergers,
divestments, business acquisitions
or share exchange.
IX.Other important assets.

loans, and non-accrual loans).
VI.Derivatives.
VII.Assets legally acquired or disposed
of through mergers, divestments,
business
acquisitions
or
share
exchange.
VIII.Other important assets.

IX.
Article
I.
II.
III.		 4 Terms used these Procedures
are defined as follows:
Right-of-use assets: Assets in

























Article
I.
II.		 4 Terms used these Procedures are
defined as follows:
Derivatives:
Forward
contracts,
options contracts, futures contracts,
leverage
contracts,
and
swap
contracts, andcompound contracts
combining the above products,
whose value is derived fromassets,
interest rates,foreign exchange
rates, indexesor other interests. The
term "forward contracts" does not
include
insurance
contracts,
performance contracts, after-sales
service contracts, long-term leasing
contracts, or long-term purchase
(sales)agreements.
Assets acquired or disposed of
through
mergers,
demergers,














1. The definitions of
the
right-of-use
assets in Paragraph
1, Subparagraph 1
of this article are
added in accordance
with
Article
9,
Paragraph
4,
Subparagraph 3 of
the
"Regulations
Governing
the
Preparation
of
Financial
Reports
by
Securities
Issuers".
2. The
original
Subparagraphs 1 to
9 of Paragraph 1 are
transferred
to
Subparagraph 2 to
10.
3. Paragraph
1,
Subparagraph 2 and
3 are amended and
Subparagraph 11 of
this Article is added
in accordance with
Article 4 of the
Procedures:
(1)Paragraph
1,
which the lessee retains control in
the lease tenure as defined in the
"Regulations
Governing
the


Preparation of Financial Reports

by Securities Issuers".
Derivatives: Forward contracts,
options
contracts,
futures
contracts, leverage contracts, or
swap contracts, whose value is
derived from aspecified interest
rate, financial instrument price,

commodity
price,
foreign
index of prices or

or other variable;or
contracts combining the
hybrid

above

contracts; or hybrid contracts or

structured
products
containing


embedded derivatives.The term
"forward contracts" does not
include
insurance
contracts,
performance contracts, after-sales
service
contracts,
long-term
leasing contracts, or long-term
purchase (sales)contracts.
Assets acquired or disposed of
through
mergers,
demergers,

59

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description acquisitions or transfer of shares acquisitions or transfer of shares in Subparagraph 2 in accordance with law: Refers to accordance with law: Refers to of this Article is assets acquired or disposed assets acquired or disposed through amended and through mergers, demergers, or mergers, demergers, or acquisitions wording is acquisitions conducted under the conducted under the Business revised in Business Mergers and Mergers and Acquisitions Act, accordance with Acquisitions Act, Financial Financial Holding Company Act, amendments of Holding Company Act, Financial Financial Institution Merger Act definitions in Institution Merger Act and other and other acts, or to transfer of IFRS 9 acts, or to transfer of shares from shares from another company "Financial another company through through issuance of new shares of instruments". issuance of new shares of its own its own as the consideration (2) The amended as the consideration therefor therefor (hereinafter "transfer of articles of the (hereinafter "transfer of shares") shares") under Article 156, Company Act under Article 156-3 of the Paragraph 8 of the Company Act. promulgated on Company Act. August 1, 2018 IV. Related party and subsidiary: As III. Related party and subsidiary: As were defined in the Regulations defined in the Regulations implemented on Governing the Preparation of Governing the Preparation of November 1, Financial Reports by Securities Financial Reports by Securities 2018. The Issuers. Issuers. "Article 156, V. Professional appraiser: Refers to a IV. Professional appraiser: Refers to a Paragraph 8" real property appraiser or other real property appraiser or other specified in person duly authorized by law to person duly authorized by law to Paragraph 1, engage in the value appraisal of engage in the value appraisal of real Subparagraph 3 real property or equipment. property or equipment. of this Article is VI. Date of occurrence: Refers to the V. Date of occurrence: Refers to the therefore date of contract signing, date of date of contract signing, date of amended to payment, date of consignment payment, date of consignment "Article 156-3" trade, date of transfer, dates of trade, date of transfer, dates of based on the board resolutions, or other date board resolutions, or other date that amended article that can confirm the counterpart can confirm the counterpart and number. and monetary amount of the monetary amount of the transaction, (3) Subparagraph transaction, whichever date is whichever date is earlier; provided, 11 is added to earlier; provided, for investment for investment for which approval clarify the scope for which approval of the of the competent authority is of the domestic competent authority is required, required, the earlier of the above and foreign

60

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Clause after Revision ExistingClauses Description
the earlier of the above date or the
date of receipt of approval by the
competent authority shall apply.
VII.Mainland China area investment:
Refers to investments in the
mainland China area approved by
the Ministry of Economic Affairs
Investment
Commission
or
conducted in accordance with the
provisions of the Regulations
Governing
Permission
for
Investment
or
Technical
Cooperation in the Mainland
Area.
VIII.Total Assets: The total assets
stated in the most recent parent
company-only financial report or
individual
financial
report
prepared under the Regulations
Governing the Preparation of
Financial Reports by Securities
Issuers shall be used.
IX.All
members
of
the
Audit
Committee: "All members of the
Audit Committee" shall include
only
the
persons
who
are
currently holding such offices.
X.All Directors: "All Directors"
shall refer to the actual number of
Directors
who
are
currently
holding the such offices.
XI. Securities brokerage
operation






























date or the date of receipt of
approval
by
the
competent
authority shall apply.
VI.Mainland China area investment:
Refers
to
investments
in
the
mainland China area approved by
the Ministry of Economic Affairs
Investment
Commission
or
conducted in accordance with the
provisions
of
the
Regulations
Governing
Permission
for
Investment
or
Technical
Cooperation in the Mainland Area.
VII.Total Assets: The total assets stated
in
the
most
recent
parent
company-only financial report or
individual financial report prepared
under the Regulations Governing
the
Preparation
of
Financial
Reports by Securities Issuers shall
be used.
VIII.All members of the Audit
Committee: "All members of the
Audit Committee" shall include
only the persons who are currently
holding such offices.
IX.All Directors: "All Directors" shall
refer to the actual number of
Directors who are currently holding
the such offices.
























securities
brokerage
operation venue
for
compliance
by the Company.
IX.
X.
XI.


venue: A domestic OTC venue
refers to a venue for OTC trading

provided by a securities firm in

accordance with the Regulations

Governing Securities Trading on

61

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description the Taipei Exchange. A foreign OTC venue refers to a venue at a financial institution that is regulated by a foreign competent authority and permitted to conduct securities business. Article 5 Professional appraisers and Article 5 Professional appraisers and their This Article is their officers, certified public officers, certified public amended in accountants, attorneys, and accountants, attorneys, and accordance with securities underwriters that securities underwriters that provide Article 5 of the provide public companies with public companies with appraisal Regulations: appraisal reports, certified public reports, certified public 1. Paragraph 1, accountant's opinions, attorney's accountant's opinions, attorney's Subparagraph 1 to 3 opinions, or underwriter's opinions, or underwriter's opinions of this Article are opinions shall meet the following shall not be a related party of any added to clarify the requirements: party to the transaction. negative I. May not have previously received qualifications of a final and unappealable sentence related experts and to imprisonment for 1 year or the regulations longer for a violation of the regarding the Securities and Exchange Act, the transaction Company Act, the Banking Act of counterparties The Republic of China, the which should not be Insurance Act, the Financial related parties are Holding Company Act, or the transferred to Business Entity Accounting Act, Paragraph 1, or for fraud, breach of trust, Subparagraph 2 of embezzlement, forgery of this Article. documents, or occupational crime. 2. Paragraph 2 of this However, this provision does not Article is added to apply if 3 years have already clarify the appraisal passed since completion of reports or opinions, service of the sentence, since audits, and expiration of the period of a statements suspended sentence, or since a submitted by pardon was received. external experts.

  • I. May not have previously received a final and unappealable sentence to imprisonment for 1 year or longer for a violation of the Securities and Exchange Act, the Company Act, the Banking Act of The Republic of China, the Insurance Act, the Financial Holding Company Act, or the Business Entity Accounting Act, or for fraud, breach of trust, embezzlement, forgery of documents, or occupational crime. However, this provision does not apply if 3 years have already passed since completion of service of the sentence, since expiration of the period of a suspended sentence, or since a pardon was received.

  • II. May not be a related party or de

62

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description facto related party of any party to the transaction.

  • III. If the Company is required to obtain appraisal reports from two or more professional appraisers, the different professional appraisers or appraisal officers may not be related parties or de facto related parties of each other.

  • The aforementioned personnel shall meet the following criteria when submitting an appraisal report or opinion: I. Prior to accepting a case, they shall prudently assess their own professional capabilities, practical experience, and independence.

  • II. When examining a case, they shall appropriately plan and execute adequate working procedures, in order to produce a conclusion and use the conclusion as the basis for issuing the report or opinion. The related working procedures, data collected, and conclusion shall be fully and accurately specified in the case working papers.

  • III. They shall undertake an item-by-item evaluation of the comprehensiveness, accuracy, and reasonableness of the sources of data used, the parameters, and the information, as the basis for issuance of the appraisal report or the opinion.

  • IV. They shall issue a statement

63

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description attesting to the professional competence and independence of the personnel who prepared the report or opinion, and that they have evaluated and found that the information used is reasonable and accurate, and that they have complied with applicable laws and regulations. Article 7 Restrictions on the total amount Article 7 Restrictions on the total amount This Article is of real property, right-of-use of real property and securities amended in assets thereof, and securities acquired by the Company not for accordance with acquired by the Company not for business use Article 7, Paragraph 1, business use Subparagraph 5 of the The restrictions on the total The restrictions on the total amount Regulations: amount of real property, right of of real property and securities Paragraph 1, use assets thereof, and securities purchased by the Company and Paragraph 2, and acquired by the Company and subsidiaries not for business use Subparagraph 1 of subsidiaries not for business use shall be subject to the following Paragraph 2 are shall be subject to the following restrictions: amended in restrictions: accordance with IFRS I. The total amount of securities and I. The total amount of securities and 16 "Leases. The real real property or right-of-use assets real property purchased by the property right-of-use thereof acquired by the Company Company not for business use may assets not for business not for business use may not not exceed the Company's net value use are included into exceed the Company's net value at at the time of the purchase. The the scope governed by the time of the purchase. The total total amount of securities and real the Company's amount of securities and real property purchased by a subsidiary Procedures. Wording property or right-of-use assets not for business use may not exceed is also revised. thereof acquired by a subsidiary the subsidiary's net value at the not for business use may not time of the purchase. exceed the subsidiary's net value at the time of the purchase. II. The Company's investment in II. The Company's investment in individual securities shall be individual securities shall be restricted to 90% of the restricted to 90% of the Company's Company's net value at the time net value at the time of the

64

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision ExistingClauses Description
of the purchase. A subsidiary's
investment in individual securities
shall be restricted to 90% of the
subsidiary's net value at the time
of thepurchase.



purchase. A subsidiary's investment
in individual securities shall be
restricted to 90% of the subsidiary's
net value at the time of the
purchase.


Article 8 Procedures for the acquisition
or disposal of assets
I.
Evaluation
and
operating
procedures
(I) The Company's acquisition
or disposal of real property,
equipment,or right-of-use
assets
thereof
shall
be
processed in accordance with
the related procedures in the
real
property,
plant
and
equipment cycle procedures
in the Company's internal
control system.
(II) The Company's procedures
for the purchase and sales of
long-term
or
short-term
securities shall be processed
in
accordance
with
regulations
regarding
investment cycles in the
Company's internal control
system.
II. Procedures
for
determining
transaction terms and the limit of
the authorized amount
(I) The disposal of investments
and shares for business use
shall be reported to the Board
of Directors for approval.
The management department
is
authorized
to
process

























Article 8 Procedures for the acquisition or
disposal of assets
I.
Evaluation
and
operating
procedures
(I) The Company's acquisition or
disposal of real propertyor
equipment shall be processed
in accordance with the related
procedures in the real property,
plant and equipment cycle
procedures in the Company's
internal control system.
(II) The Company's procedures for
the purchase and sales of
long-term
or
short-term
securities shall be processed in
accordance with regulations
regarding investment cycles in
the Company's internal control
system.
II. Procedures
for
determining
transaction terms and the limit of
the authorized amount
(I) The disposal of investments
and shares for business use
shall be reported to the Board
of Directors for approval. The
management
department
is
authorized toprocess low-risk























1. Item
(1)
of
Subparagraph
1,
Item (4) and (5) of
Subparagraph
2,
Subparagraph 3, and
Subparagraph 4 of
Paragraph
1
are
added in accordance
with
IFRS
16
"Leases" to include
right-of-use
assets
into the scope.

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Clause after Revision ExistingClauses Description
low-risk investments such as
government bonds, corporate
bonds,
financial
bonds,
domestic
and
foreign
currency funds, transferable
time
deposit
certificates,
short-term
commercial
promissory notes and bank
acceptance bills acquired or
disposed of for financial
planning purposes at its sole
discretion.
(II) Purchase or sales of other
singular
long-term
or
short-term securities with a
singular
or
cumulative
transaction amount within
one year exceeding NT$200
million
(in
NTD,
same
hereunder) shall be reported
to the Board of Directors for
approval. If it does not
exceed NT$200 million, the
Chairman or management
unit shall be authorized to
process such transactions at
its sole discretion and report
to the next board meeting for
records.
(III) The acquisition or disposal
of real property or equipment
shall
be
processed
in
accordance
with
the
following regulations:
(1) Acquisition: Items listed
in the annual operations
budget shall be approved

































investments
such
as
government bonds, corporate
bonds,
financial
bonds,
domestic and foreign currency
funds,
transferable
time
deposit certificates, short-term
commercial promissory notes
and bank acceptance bills
acquired or disposed of for
financial planning purposes at
its sole discretion.
(II) Purchase or sales of other
singular
long-term
or
short-term securities with a
singular
or
cumulative
transaction amount within one
year
exceeding
NT$200
million
(in
NTD,
same
hereunder) shall be reported to
the Board of Directors for
approval. If it does not exceed
NT$200 million, the Chairman
or management unit shall be
authorized to process such
transactions
at
its
sole
discretion and report to the
next board meeting for records.
(III) The acquisition or disposal of
real property or equipment
shall
be
processed
in
accordance with the following
regulations:
(1) Acquisition: Items listed in
the
annual
operations
budget shall be approved by






























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Clause after Revision Existing Clauses Description by the President or a the President or a supervisor supervisor authorized by authorized by the President the President for for processing. Items not processing. Items not listed in the budget or items listed in the budget or that exceed the original items that exceed the budget shall be approved by original budget shall be the President or a supervisor approved by the President authorized by the President or a supervisor authorized for processing after the by the President for Board of Directors or its processing after the Board authorized management of Directors or its level approves the use or authorized management increases the budget. level approves the use or increases the budget. (2) Disposal: Unless (2) Disposal: Unless otherwise otherwise specified in specified in Subparagraph Subparagraph 4, Item (1) 4, Item (1) of this Article, of this Article, items for items for which discarding which discarding procedures have been procedures have been completed shall be completed shall be approved by the President approved by the President or a supervisor authorized or a supervisor authorized by the President for by the President for processing. Items for which processing. Items for discarding procedures have which discarding not been completed shall be procedures have not been approved by the President completed shall be or a supervisor authorized approved by the President by the President for disposal or a supervisor authorized after the Board of Directors by the President for or its authorized disposal after the Board of management level approves Directors or its authorized the disposal. management level approves the disposal. (IV) The definitions of

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Clause after Revision Existing Clauses Description right-of-use assets and the calculations of the transaction amount shall be processed by the Finance Department in accordance with IFRS regulations. The authorization and responsibilities for acquisition and disposal shall be determined based on the Company's Duties Division Manual. (V) The Company's total (IV) The Company's total investment in securities investment in securities (including investment in (including investment in other other entities) shall not entities) shall not exceed 60% exceed 60% of the of the Company's paid-up Company's paid-up capital; capital; the total investment in the total investment in other other securities shall not securities shall not exceed exceed 40% of the Company's 40% of the Company's paid-up capital; investments in paid-up capital; investments individual securities may not in individual securities may exceed 40% of the Company's not exceed 40% of the paid-up capital; however, the Company's paid-up capital; securities shall not include however, the securities shall low-risk investments acquired not include low-risk or disposed of for the purpose investments acquired or of financial operations as disposed of for the purpose specified in Item (1) of this of financial operations as Subparagraph. Acquisition of specified in Item (1) of this real property for non-business Subparagraph. Acquisition of use may not exceed 10% of the real property or right-of-use Company's paid-up capital. assets thereof for non-business use may not exceed 10% of the Company's paid-up capital.

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Clause after Revision Existing Clauses Description III. Execution unit III. Execution unit The Company's acquisition or The Company's acquisition or disposal of real property, disposal of real property or equipment, or right-of-use assets equipment shall be implemented by thereof shall be implemented by the usage department and the the usage department and the authorized department based on the authorized department based on approval granted in accordance the approval granted in with the Company's approval accordance with the Company's procedures in the preceding approval procedures in the subparagraph. preceding subparagraph. IV. Where the Company acquires or IV. Where the Company acquires or 2. Subparagraph 4 disposes of real property, disposes of real property or and Subparagraph 6 equipment, or right-of-use assets equipment and the transaction in Paragraph 1 of thereof and the transaction amount reaches 20% or more of this Article are amount reaches 20% or more of paid-in capital or NT$300 million revised in paid-in capital or NT$300 million or more, except in transactions with accordance with or more, except in transactions a domestic government agency, Article 9 of the with a domestic government engaging others to build on its own Regulations to agency, engaging others to build land or on rented land, or acquiring specify conditions on its own land or on rented land, or disposing of equipment for only apply for or acquiring or disposing of business use, the Company shall transactions with equipment or right-of-use assets obtain an appraisal report (items domestic thereof for business use, the that must be specified in the government Company shall obtain an appraisal report are detailed in agencies. This is appraisal report (items that must Attachment 1) prior to the date of added as be specified in the appraisal report occurrence of the event from a transactions with are detailed in Attachment 1) prior professional appraiser and shall central and local to the date of occurrence of the comply with the following government event from a professional provisions: agencies require appraiser and shall comply with tenders and price the following provisions: competition in (I) Where due to special (I) Where due to special accordance with circumstances it is necessary circumstances it is necessary to related regulations to give a limited price, give a limited price, specified and the possibilities specified price, or special price, or special price as a of price price as a reference basis for reference basis for the manipulation is less

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Clause after Revision Existing Clauses Description the transaction price, the transaction price, the likely, expert transaction shall be submitted transaction shall be submitted opinions may be for approval in advance by for approval in advance by the waived in such the Board of Directors; the Board of Directors and the cases. same procedure shall also be same procedure shall be 3. Wording is revised followed whenever there is followed for any future in Paragraph 1, any subsequent change to the changes to the terms and Subparagraph 4, terms and conditions of the conditions of the transaction. Item (1) of this transaction. Article in (II) Where the transaction (II) Where the transaction amount accordance with amount is NT$1 billion or is NT$1 billion or more, Article 9, Paragraph more, appraisals from two or appraisals from two or more 1, Subparagraph 1 more professional appraisers professional appraisers shall be of the Regulations shall be obtained. obtained. to meet legal (III) Where any one of the (III) Where any one of the requirements. following circumstances following circumstances applies with respect to the applies with respect to the professional appraiser's professional appraiser's appraisal results, unless all appraisal results, unless all the the appraisal results for the appraisal results for the assets assets to be acquired are to be acquired are higher than higher than the transaction the transaction amount, or all amount, or all the appraisal the appraisal results for the results for the assets to be assets to be disposed of are disposed of are lower than lower than the transaction the transaction amount, a amount, a certified public certified public accountant accountant shall be engaged to shall be engaged to perform perform the appraisal in the appraisal in accordance accordance with the provisions with the provisions of of Statement of Auditing Statement of Auditing Standards No. 20 published by Standards No. 20 published the ROC Accounting Research by the ROC Accounting and Development Foundation Research and Development (ARDF) and render a specific Foundation (ARDF) and opinion regarding the reason render a specific opinion for the discrepancy and the regarding the reason for the appropriateness of the

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  • Clause after Revision Existing Clauses Description discrepancy and the transaction price: appropriateness of the transaction price: (1) The discrepancy between (1) The discrepancy between the appraisal result and the the appraisal result and the transaction amount is 20% transaction amount is 20% or more of the transaction or more of the transaction amount. amount.

  • (2) The discrepancy between (2) The discrepancy between the appraisal results of the appraisal results of two two or more professional or more professional appraisers is 10% or more appraisers is 10% or more of the transaction amount. of the transaction amount.

  • (IV) No more than three months (IV) No more than three months may elapse between the date may elapse between the date of of the appraisal report issued the appraisal report issued by a by a professional appraiser professional appraiser and the and the contract execution contract execution date. date. However, if either of However, if either of the the appraisals complies with appraisals complies with the the current assessed value current assessed value and the and the appraisal is dated less appraisal is dated less than six than six months ago, the months ago, the original original professional professional appraiser may appraiser may issue a issue a statement of opinion.

(IV) No more than three months may elapse between the date of the appraisal report issued by a professional appraiser and the contract execution date. However, if either of the appraisals complies with the current assessed value and the appraisal is dated less than six months ago, the original professional appraiser may issue a statement of opinion.

  • (V) Where the Company acquires (V) Where the Company acquires or disposes of assets through or disposes of assets through court auction procedures, the court auction procedures, the evidentiary documentation evidentiary documentation issued by the court may be issued by the court may be used as a substitute for the used as a substitute for the appraisal report or CPA appraisal report or CPA opinion. opinion. However, if either of the However, if either of the appraisals complies with the appraisals complies with the current assessed value and current assessed value and the

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Clause after Revision Existing Clauses Description the appraisal is dated less appraisal is dated less than six than six months ago, the months ago, the original original professional professional appraiser may appraiser may issue a issue a statement of opinion. statement of opinion. V. Where the Company acquires or V. Where the Company acquires or disposes of securities, it shall disposes of securities, it shall obtain obtain the financial statements of the financial statements of the the issuing company for the most issuing company for the most recent period which shall be recent period which shall be certified or reviewed by a certified or reviewed by a certified certified public accountant as public accountant as reference for reference for the appraisal of the the appraisal of the transaction transaction price. Where the price. Where the transaction transaction amount reaches 20% amount reaches 20% or more of or more of paid-in capital or paid-in capital or NT$300 million NT$300 million or more, the or more, the Company shall engage Company shall engage a certified a certified public accountant prior public accountant prior to the date to the date of occurrence of the of occurrence of the event to event to render an opinion on the render an opinion on the reasonableness of the transaction reasonableness of the transaction price. Where the CPA requires the price. Where the CPA requires the use of expert reports, it shall use of expert reports, it shall comply with the provisions of comply with the provisions of Statement of Auditing Standards Statement of Auditing Standards No. 20 published by the ARDF. No. 20 published by the ARDF. This requirement does not apply, This requirement does not apply, however, to securities with publicly however, to securities with quoted prices from an active publicly quoted prices from an market, or if it has been otherwise active market, or if it has been provided by the regulations of the otherwise provided by the Financial Supervisory Commission. regulations of the Financial Supervisory Commission. VI. Where the Company acquires or VI. Where the Company acquires or disposes of intangible assets, disposes of membershipsor right-of-use assets thereof, or intangible assets and the transaction

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Clause after Revision Existing Clauses Description memberships and the transaction amount reaches 20% or more of 4. Wording in amount reaches 20% or more of paid-in capital or NT$300 million Paragraph 1, paid-in capital or NT$300 million or more, except in transactions with Subparagraph 6 of or more, except in transactions a government agency, the Company this Article is with a domestic government shall engage a certified public revised in agency, the Company shall accountant prior to the date of accordance with engage a certified public occurrence of the event to render an Article 11 of the accountant prior to the date of opinion on the reasonableness of Regulations. occurrence of the event to render the transaction price; the CPA shall an opinion on the reasonableness comply with the provisions of of the transaction price; the CPA Statement of Auditing Standards shall comply with the provisions No. 20 published by the ARDF. of Statement of Auditing Standards No. 20 published by the ARDF.

Article 10 Related party transaction Article 10 Related party transaction 1. Paragraph 1, processing procedures processing procedures Subparagraph 2 of II. Evaluation and operating II. Evaluation and operating this Article is procedures procedures revised in When the Company intends to When the Company intends to accordance with acquire or dispose of real property acquire or dispose of real property Article 15 of the or right-of-use assets thereof from from or to a related party, or when Regulations. or to a related party, or when it it intends to acquire or dispose of (1) As the credit intends to acquire or dispose of assets other than real property rom records of the assets other than real property or or to a related party and the central right-of-use assets thereof from or transaction amount reaches 20% or government and to a related party and the more of paid-in capital, 10% or local transaction amount reaches 20% more of the Company's total assets, governments of or more of paid-in capital, 10% or or NT$300 million or more, except Taiwan can be more of the Company's total in trading of government bonds or easily found, assets, or NT$300 million or bonds under repurchase and resale only domestic more, except in trading of agreements, or subscription or bonds are domestic government bonds or redemption of money market funds included in this bonds under repurchase and resale issued by domestic securities scope. agreements, or subscription or investment trust enterprises, the (2) Right-of-use redemption of money market Company may not proceed to enter assets are funds issued by domestic into a transaction contract or make included into the

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  • Clause after Revision Existing Clauses Description

  • securities investment trust a payment until the following scope of this enterprises, the Company may not matters have been approved by the Article in proceed to enter into a transaction Audit Committee and passed by the accordance with contract or make a payment until Board of Directors: IFRS 16 the following matters have been "Leases". approved by the Audit Committee (3) Relaxed and passed by the Board of regulations on Directors: the acquisition (I) The purpose, necessity and (I) The purpose, necessity and and disposal of anticipated benefit of the anticipated benefit of the equipment, acquisition or disposal of acquisition or disposal of right-of-use assets. assets. assets thereof, or

  • (II) The reason for choosing the (II) The reason for choosing the real property related party as a transaction related party as a transaction right-of-use counterparty. counterparty. assets held for

  • (III) With respect to the (III) With respect to the acquisition business use acquisition of real property of real property from a related between public or right-of-use assets thereof party, information regarding companies and from a related party, appraisal of the reasonableness their parent and information regarding of the preliminary transaction subsidiary appraisal of the terms in accordance with companies. The reasonableness of the Subparagraph 3, Item (1) to Chairman is preliminary transaction terms Item (5) of this Article. authorized to in accordance with decide on such Subparagraph 3, Item (1) to transactions. Item (5) of this Article.

  • (IV) The date and price at which (IV) The date and price at which the related party originally the related party originally acquired the assets, the acquired the assets, the original original trading counterparty, trading counterparty, and that and that trading trading counterparty's counterparty's relationship to relationship to the Company the Company and the related and the related party. party.

  • (V) Monthly cash flow forecasts (V) Monthly cash flow forecasts for the year commencing for the year commencing from from the anticipated month the anticipated month of

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Clause after Revision ExistingClauses Description
of signing of the contract,
and
evaluation
of
the
necessity of the transaction,
and reasonableness of the
funds utilization.
(VI) An appraisal report from a
professional appraiser or a
CPA's opinion obtained in
compliance
with
the
Subparagraph
1
of
this
Article.
(VII) Restrictive covenants and
other important stipulations
associated
with
the
transaction.
The calculation of the transaction
amounts
referred
to
in
the
preceding paragraph shall be
made in accordance with Article
17, Paragraph 1, Subparagraph 1,
Item (8) herein, and "within the
preceding year" as used herein
refers to the year preceding the
date of occurrence of the current
transaction. Items that have been
approved
by
the
Board
of
Directors need not be counted
toward the transaction amount.
Eachtransaction listed below
between the Company and its
parent or subsidiary company that
amounts to NT$200 million shall
be reported to the Board of
Directors for approval. If a
transaction
does
not
exceed
NT$200 million, the Chairman
shall be authorized toprocess






























signing of the contract, and
evaluation of the necessity of
the
transaction,
and
reasonableness of the funds
utilization.
(VI) An appraisal report from a
professional appraiser or a
CPA's opinion obtained in
compliance
with
the
Subparagraph 1 of this Article.
(VII) Restrictive
covenants
and
other important stipulations
associated with the transaction.
The calculation of the transaction
amounts
referred
to
in
the
preceding paragraph shall be made
in accordance with Article 17,
Paragraph 1, Subparagraph 1, Item
(8)
herein,
and
"within
the
preceding year" as used herein
refers to the year preceding the date
of
occurrence
of
the
current
transaction. Items that have been
approved by the Board of Directors
need not be counted toward the
transaction amount.
Eachacquisition or disposal of
equipment for business usebetween
the Company and its parent or
subsidiary company that amounts to
NT$200 million shall be reported to
the Board of Directors for approval.
If a transaction does not exceed
NT$200 million, the Chairman
shall be authorized toprocess such






























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Clause after Revision Existing Clauses such the transaction at its sole the transaction at its sole discretion discretion and report to the next and report to the next board board meeting for ratification. meeting for ratification. (I) Acquisition or disposal of equipment or right-of-use assets thereof held for business use. (II) Acquisition or disposal of real property right-of-use assets held for business use.

When proposed for discussion by the Board of Directors in accordance with this Subparagraph, Independent Directors' opinions must also be fully taken into consideration. Any objections or qualified opinions made by independent directors must be detailed in board meeting minutes.

When proposed for discussion by the Board of Directors in accordance with this Subparagraph, Independent Directors' opinions must also be fully taken into consideration. Any objections or qualified opinions made by independent directors must be detailed in board meeting minutes.

If the approval of a majority of all members of the Audit Committee is not obtained, the Procedures may be implemented if approved by more than two-thirds of all Directors, and the resolution of the Audit Committee shall be recorded in the minutes of the Board of Directors meeting.

If the approval of a majority of all members of the Audit Committee is not obtained, the Procedures may be implemented if approved by more than two-thirds of all Directors, and the resolution of the Audit Committee shall be recorded in the minutes of the Board of Directors meeting. III. Appraisal of the reasonableness of the transaction price

  • III. Appraisal of the reasonableness of the transaction price

Description

  • (I) When the Company acquires (I) When the Company acquires real property or right-of-use real property from a related assets thereof from a related party, it shall evaluate the party, it shall evaluate the reasonableness of the 2. Paragraph 1, reasonableness of the transaction costs by the Subparagraph 3, transaction costs by the following means: Item (1) to Item (4) following means: of this Article are

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Clause after Revision Existing Clauses Description (1) Based upon the related (1) Based upon the related revised in party's original acquisition party's transaction price accordance with transaction price plus plus necessary interest on Article 16 of the necessary interest on funding and the costs to be Regulations. funding and the costs to be duly borne by the buyer. (1) Right-of-use duly borne by the buyer. "Necessary interest on assets acquired "Necessary interest on funding" is imputed as the from related funding" is imputed as the weighted average interest parties through weighted average interest rate on borrowing in the leases are rate on borrowing in the year the company purchases included into the year the company the property; provided, it scope of this purchases the property; may not be higher than the Article in provided, it may not be maximum non-financial accordance with higher than the maximum industry lending rate IFRS 16 non-financial industry announced by the Ministry "Leases". lending rate announced by of Finance. (2) As public the Ministry of Finance. companies, their (2) Total loan value appraisal (2) Total loan value appraisal parent from a financial institution from a financial institution companies, where the related party where the related party has subsidiary has previously created a previously created a companies, or mortgage on the property mortgage on the property as subsidiaries in as security for a loan; security for a loan; which they provided, the actual provided, the actual directly or cumulative amount loaned cumulative amount loaned indirectly hold by the financial institution by the financial institution 100% of shares shall have been 70% or shall have been 70% or may, for overall more of the financial more of the financial business institution's appraised loan institution's appraised loan planning, require value of the property and value of the property and consolidated the period of the loan shall the period of the loan shall centralized have been 1 year or more. have been 1 year or more. purchases or However, this shall not However, this shall not transfer of leased apply where the financial apply where the financial equipment for institution is a related institution is a related party business use or party of one of the of one of the transaction sublease, transaction counterparties. counterparties. Subparagraph 3,

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  • (II) Where land and structures (II) Where land and structures Item (4), (4) is thereupon are combined as a thereupon are combined as a added and such single property purchased or single property purchased in transactions are leased in one transaction, the one transaction, the transaction excluded from transaction costs for the land costs for the land and the regulations and the structures may be structures may be separately regarding the separately appraised in appraised in accordance with appraisal of the accordance with either of the either of the means listed in the transaction cost means listed in the preceding preceding paragraph. (the transaction paragraph. price paid by the

  • (III) Where the Company (III) Where the Company acquires related party for acquires real property or real property from a related the acquisition or right-of-use assets thereof party, the Company shall lease of the real from a related party, the appraise the cost of the real property). Company shall appraise the property in accordance with cost of the real property or Item (1) and Item (2) of this right-of-use assets thereof in Subparagraph and engage a accordance with Item (1) and CPA to review the appraisal Item (2) of this Subparagraph and render a specific opinion. and engage a CPA to review the appraisal and render a specific opinion.

  • (IV) Where the Company (IV) Where the Company acquires acquires real property or real property from a related right-of-use assets thereof party and one of the following from a related party and one circumstances exists, the of the following acquisition shall be conducted circumstances exists, the in accordance with regulations acquisition shall be regarding evaluation and conducted in accordance with operating procedures in regulations regarding Subparagraph 2 of this Article, evaluation and operating and the regulations on procedures in Subparagraph evaluation of the 2 of this Article, and the reasonableness of the regulations on evaluation of transaction cost in the reasonableness of the Subparagraph 3, Item (1), Item transaction cost in (2), and Item (3) shall not

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Clause after Revision Clause after Revision Clause after Revision ExistingClauses Description
(V) Subparagraph 3, Item (1),
Item (2), and Item (3) shall
not apply:
(1) The
related
party
acquired the real property
or
right-of-use
assets
thereof
through
inheritance or as a gift.
(2) More than 5 years will
have elapsed from the
time the related party
signed the contract to
obtain the real propertyor
right-of-use assets thereof
to the signing date for the
current transaction.
(3) The real
property is
acquired through signing
of a joint development
contract with the related
party, or through engaging
a related party to build
real property, either on the
Company's own land or on
rented land.
(4) The
real
property





























apply:
(1) The related party acquired
the real property through
inheritance or as a gift.
(2) More than 5 years will
have elapsed from the time
the related party signed the
contract to obtain the real
property to the signing date
for the current transaction.
(3) The
real
property
is
acquired through signing of
a
joint
development
contract with the related
party, or through engaging a
related party to build real
property,
either
on
the
Company's own land or on
rented land.
(V) When the Company acquires
realpropertyfrom a related

















right-of-use
assets
for
business use are acquired
by the Company with its
parent
company,
subsidiaries, or by its
subsidiaries in which it
directly or indirectly holds
100% of the issued shares
or authorized capital.
When the Company acquires
realproperty or right-of-use

right-of-use
assets
for
business use are acquired

by the Company with its

parent
company,


subsidiaries, or by its

subsidiaries in which it
directly or indirectly holds

100% of the issued shares

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Clause after Revision Clause after Revision ExistingClauses Description
assets thereoffrom a related
party and appraises the cost
of the
real
property in
accordance
with
Subparagraph 3, Item (1) and
Item (2) of this Article and
the results are uniformly
lower than the transaction
price, the matter shall be
handled in compliance with
the regulations in Item (6) of
this Subparagraph. However,
where
the
following
circumstances
exist,
objective evidence has been
submitted
and
specific
opinions on reasonableness
have been obtained from a
professional
real
property
appraiser and a CPA have
been obtained, this restriction
shall not apply:
(1) Where the related party
acquired
undeveloped
land or leased land for
development,
it
may
submit
proof
of
compliance with one of
the following conditions:
1. Where
undeveloped
land is appraised in
accordance
with
the
means in Subparagraph
3, Item (1) to Item (4),
and structures according
to the related party's
construction costplus


































party and appraises the cost of
the real property in accordance
with Subparagraph 3, Item (1)
and Item (2) of this Article and
the results are uniformly lower
than the transaction price, the
matter shall be handled in
compliance
with
the
regulations in Item (6) of this
Subparagraph.
However,
where
the
following
circumstances exist, objective
evidence has been submitted
and
specific
opinions
on
reasonableness
have
been
obtained from a professional
real property appraiser and a
CPA have been obtained, this
restriction shall not apply:
(1) Where the related party
acquired undeveloped land
or
leased
land
for
development, it may submit
proof of compliance with
one
of
the
following
conditions:
1. Where undeveloped land
is
appraised
in
accordance
with
the
means in Subparagraph 3,
Item (1) to Item (4), and
structures according to
the
related
party's
construction
cost
plus































3. Paragraph
1,
Subparagraph
3,
Item (5) of this
Article are revised
in accordance with
Article 17 of the
Regulations.
Based on the actual
operations of real
property leases for
plants,
the
regulations
on
related
parties'
acquisition of real
property
right-of-use
assets
are relaxed to allow
the use of lease
transactions
of
non-related
parties
in
nearby
areas
within one year as
reference cases for
the calculation and
estimation
of the
reasonableness
of
the
transaction

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description reasonable construction reasonable construction price. Item (5), (1)-3 profit are valued in profit are valued in is incorporated into excess of the actual excess of the actual Item (5), Item (1)-2 transaction price. The transaction price. The and lease cases were "reasonable "reasonable construction added as transaction construction profit" profit" shall be deemed case samples. Item shall be deemed the the average gross (5), (2) is therefore average gross operating operating profit margin of added for profit margin of the the related party's clarification. related party's construction division over construction division the most recent 3 years or over the most recent 3 the gross profit margin years or the gross profit for the construction margin for the industry for the most construction industry recent period as for the most recent announced by the period as announced by Ministry of Finance, the Ministry of Finance, whichever is lower. whichever is lower. 2. Transactions by 2. Completed transactions unrelated parties within by unrelated parties the preceding year within the preceding year involving other floors of involving other floors of the same property or the same property or neighboring or closely neighboring or closely valued parcels of land, valued parcels of land, where the land area and where the land area and transaction terms are transaction terms are similar after calculation similar after calculation of reasonable price of reasonable price discrepancies in floor or discrepancies in floor or area land prices in area land prices in accordance with accordance with standard standard property property market sale market sale or leasing practices. practices. 3. Completed transactions

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Clause after Revision Clause after Revision ExistingClauses ExistingClauses Description
(2) Where the Company
acquiring real property, or
obtaining real property
right-of-use assets through
leasing,from a related
party provides evidence
that the terms of the
transaction are similar to
the terms oftransactions
involving neighboring or
closely valued parcels of
land of a similar size by
unrelated parties within
the
preceding
year.
Transactions
involving
neighboring
or
closely
valued parcels of land in
principle refers to parcels
on the same or an adjacent
block
and
within
a
distance of no more than
500 meters or parcels
close
in
publicly
announced current value;





















by
unrelated
parties
within the preceding year
involving other floors of
the same property, where
the
land
area
and
transaction
terms
are
similar after calculation
of
reasonable
price
discrepancies in floor or
area
land
prices
in
accordance with standard
property market leasing
practices.
(2) Where
the
Company
acquiring real property from
a related party provides
evidence that the terms of
the transaction are similar to
the terms ofcompleted
transactions
involving
neighboring
or
closely
valued parcels of land of a
similar size by unrelated
parties within the preceding
year.
Completed
transactions
involving
neighboring
or
closely
valued parcels of land in
principle refers to parcels
on the same or an adjacent
block and within a distance
of no more than 500 meters
or parcels close in publicly
announced current value;
transactions
involving
similarly sized parcels in
principle
refers
to		 by
unrelated
parties


































within the preceding year

involving other floors of

the same property, where

the
land
area
and
transaction
terms
are
similar after calculation
of
reasonable
price

discrepancies in floor or

area
land
prices
in

accordance with standard
property market leasing

right-of-use assets through

leasing,from a related
party provides evidence
that the terms of the
transaction are similar to
the terms oftransactions
involving neighboring or
closely valued parcels of
land of a similar size by
unrelated parties within
the
preceding
year.
Transactions
involving
neighboring
or
closely
valued parcels of land in
principle refers to parcels
on the same or an adjacent
block
and
within
a
distance of no more than
500 meters or parcels
close
in
publicly
announced current value;

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description transactions involving transactions completed by similarly sized parcels in unrelated parties for parcels principle refers to with a land area of no less transactions completed by than 50 percent of the unrelated parties for property in the planned parcels with a land area of transaction; within the no less than 50 percent of preceding year refers to the the property in the year preceding the date of planned transaction; occurrence of the within the preceding year acquisition of the real refers to the year property. preceding the date of occurrence of the acquisition of the real property or obtainment of the right-of-use assets thereof.

(VI) Where the Company acquires real property or right-of-use assets thereof from a related party and the results of appraisals conducted in accordance with Subparagraph 3, Item (1) to Item (5) of this Article are uniformly lower than the transaction price, the following steps shall be taken:

(VI) Where the Company acquires real property from a related party and the results of appraisals conducted in 4. Paragraph 1, accordance with Subparagraph Subparagraph 3, 3, Item (1) to Item (5) of this Item (6) to Item (8) Article are uniformly lower of this Article are than the transaction price, the revised in following steps shall be taken: accordance with Article 18 of the Regulations.

  • (1) Right-of-use

  • (1) The Company shall set (1) The Company shall set assets acquired aside a special reserve in aside a special reserve in from related accordance with Article accordance with Article 41, parties through 41, Paragraph 1 of the Paragraph 1 of the leases are Securities and Exchange Securities and Exchange included into the Act against the difference Act against the difference scope of this between the transaction between the transaction Article through price and the appraised price and the appraised cost the amendment

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Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision cost of the real property or right-of-use assets thereof, and may not be distributed or used for capital increase or issuance of bonus shares. Where the Company uses the equity method to account for its investment in another company, the special reserve called for under Article 41, Paragraph 1 of the Securities and Exchange Act shall be set aside pro rata in a proportion consistent with the share of the Company's equity stake in the other company.

  • (2) The Audit Committee shall comply with Article 218 of the Company Act.

Existing Clauses Description of the real property, and of the may not be distributed or introduction of used for capital increase or Subparagraph 3, issuance of bonus shares. Item (6), (1), and Where the Company uses Item (8) in the equity method to accordance with account for its investment in IFRS 16 another company, the "Leases". special reserve called for (2) Revised under Article 41, Paragraph wording in 1 of the Securities and Subparagraph 3, Exchange Act shall be set Item (7). aside pro rata in a proportion consistent with the share of the Company's equity stake in the other company.

  • (2) The Audit Committee shall comply with Article 218 of the Company Act.

  • (3) Actions taken pursuant to (3) Actions taken pursuant to Item (1) and Item (2) shall Item (1) and Item (2) shall be reported to the be reported to the shareholders meeting, and shareholders meeting, and the details of the the details of the transaction transaction shall be shall be disclosed in the disclosed in the annual annual report and any report and any investment investment prospectus. prospectus.

  • (VII) If the Company has set (VII) If the Company has set aside aside a special reserve in a special reserve in accordance accordance with the with the preceding item, it preceding item, it shall not shall not draw on the reserve draw on the reserve unless it unless it has recognized the has recognized the loss on loss on decline in market value

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Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description decline in market value of the of the assets it purchased at a assets it purchased or leased premium; has disposed of the at a premium; terminated the assets or made adequate lease contract; has disposed compensation; or has restored of the assets or made the status quo ante; or there is adequate compensation; or other evidence confirming that has restored the status quo there was nothing ante; or there is other unreasonable about the evidence confirming that transaction. Agreement from there was nothing the Securities and Futures unreasonable about the Bureau is also required. transaction. Agreement from the Securities and Futures Bureau is also required. (VIII) When the Company (VIII) When the Company obtains obtains real property or real property from a related right-of-use assets thereof party, it shall also comply with from a related party, it shall provisions in Subparagraph 3, also comply with provisions Item (6) and Item (7) of this in Subparagraph 3, Item (6) Article if there is other and Item (7) of this Article if evidence indicating that the there is other evidence acquisition was not an arm's indicating that the acquisition length transaction. was not an arm's length transaction.

Article 13 Monitor trading activities, Article 13 Monitor trading activities, gains Wording in Paragraph gains and losses, while executing and losses, while executing 2 of this Article is necessary response measures and necessary response measures and revised in accordance reporting to the Board of reporting to the Board of Directors with Article 21, Directors upon discovering any upon discovering any Paragraph 2 of the abnormalities. Independent abnormalities. Independent Regulations. Directors shall be present at Directors shall be present at board board meetings to express meetings to express opinions. opinions. Derivatives transactions that are Derivatives transactions that are carried out by personnel who have carried out by personnel who been authorized under the have been authorized under the Procedures for Engaging in

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Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Clause after Revision ExistingClauses Description
Procedures
for
Engaging
in
Financial Derivative Transactions
establishedby the Company must
be reported at the next board
meeting.


Financial Derivative Transactions
enactedby the Company must be
reported at the next board meeting.
Article 17 Information
disclosure
procedures
I. Public announcement items and
regulatory filing standards
(I) Acquisition or disposal of
real propertyor right-of-use
assets thereoffrom or to a
related party, or acquisition
or disposal of assets other
than
real
property
or
right-of-use assets thereof
from or to a related party
where the transaction amount
reaches 20% or more of
paid-in capital, 10% or more
of the company's total assets,
or NT$300 million or more;
provided, this shall not apply
to
trading
of
domestic
government bonds or bonds
under repurchase and resale
agreements, or subscription
or redemption of money
market
funds
issued
by
domestic
securities
investment trust enterprises.
(II) Merger,
demerger,
acquisition, or transfer of
shares.
(III) Losses
from
derivatives
trading reaching the limits on
aggregate losses or losses on

























Article 17 Information
disclosure
procedures
I. Public announcement items and
regulatory filing standards
(I) Acquisition or disposal of real
property from or to a related
party, or acquisition or disposal
of assets other than real
property from or to a related
party where the transaction
amount reaches 20% or more
of paid-in capital, 10% or more
of the company's total assets,
or NT$300 million or more;
provided, this shall not apply
to
trading
of
government
bonds
or
bonds
under
repurchase
and
resale
agreements, or subscription or
redemption of money market
funds
issued
by
domestic
securities
investment
trust
enterprises.
(II) Merger, demerger, acquisition,
or transfer of shares.
(III) Losses
from
derivatives
trading reaching the limits on
aggregate losses or losses on























This
Article
is
amended
in
accordance
with
Article
31
of
the
Regulations:
1. Item
(1)
of
Subparagraph
1,
Item (4) and (5), and
Item
(8)-(3)
are
added in accordance
with
IFRS
16
"Leases" to include
right-of-use
assets
into the scope.
2.
As
the
credit
records
of
the
central government
and
local
governments
of
Taiwan
can
be
easily found, only
domestic bonds are
included
in
this
scope. Paragraph 1,
Subparagraph
1,
Item (1) and Item
(7) of this Article
are
therefore
revised.
3. Due to materiality
concerns
for
information
from or to a related party
where the transaction amount
reaches 20% or more of
paid-in capital, 10% or more
of the company's total assets,
or NT$300 million or more;
provided, this shall not apply
to
trading
of
domestic
government bonds or bonds
under repurchase and resale
agreements, or subscription
or redemption of money
market
funds
issued
by
domestic
securities
investment trust enterprises.
Merger,
demerger,
acquisition, or transfer of
shares.
Losses
from
derivatives
trading reaching the limits on
aggregate losses or losses on

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Comparison Table of Revision of Rules

Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description individual contracts set out in individual contracts disclosure, a new the procedures adopted by established in the procedures section is added to the Company. adopted by the Company. Subparagraph 1, (IV) Where equipment or (IV) Where equipment for business Item (5) of this right-of-use assets thereof for use is acquired or disposed of, Article to relax the business use are acquired or and furthermore the transaction public disposed of, and furthermore counterparty is not a related announcement and the transaction counterparty party, and the transaction regulatory filing is not a related party, and the amount exceeds NT$1 billion. standards for certain transaction amount exceeds transactions where NT$1 billion. the transaction (V) Acquisition or disposal in the (V) Acquisition or disposal in the counterparty is not a construction business of real construction business of real related party based property or right-of-use property for construction use, on the regulations assets thereof for and furthermore the transaction for the construction use, and counterparty is not a related aforementioned furthermore the transaction party, and the transaction disposal. counterparty is not a related amount reaches NT$500 4. As Paragraph 1, party, and the transaction million. Subparagraph 1, amount reaches NT$500 Item (1) of this million; if the transaction Article already counterparty is not a related stipulated the party, then the threshold for regulations for disposing of real property announcement of from a completed related-party construction project that it transactions and constructed itself shall be a Item (6) in the same transaction amount reaching subparagraph NT$1 billion or more. regulates (VI) Where real property is (VI) Where real property is transactions for acquired under an acquired under an arrangement non-related parties. arrangement on engaging on engaging others to build on To facilitate others to build on the the Company's own land, compliance, Company's own land, engaging others to build on Paragraph 1, engaging others to build on rented land, joint construction Subparagraph 1, rented land, joint and allocation of housing units, Item (6) is added for construction and allocation of joint construction and clarification.

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Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Clause after Revision ExistingClauses Description
housing
units,
joint
construction and allocation of
ownership percentages, or
joint
construction
and
separate
sale,
and
furthermore the transaction
counterparty is not a related
party,and the amount the
company expects to invest in
the
transaction
reaches
NT$500 million.
(VII) Where an asset transaction
other than any of those
referred to in the preceding
six items, a disposal of
receivables by a financial
institution, or an investment
in the mainland China area
reaches 20% or more of
paid-in capital or NT$300
million; provided, this shall
not apply to the following
circumstances:
(1) Trading
of
domestic
government bonds.
(2) Trading of bonds under
repurchase
and
resale
agreements,
or
subscription
or
redemption
of
money
market funds issued by
domestic
securities
investment
trust
enterprises.
(VIII) The amount of transactions
above shall be calculated as
follows and "within one		 housing
units,
joint
construction and allocation of
ownership percentages, or
joint
construction
and
separate
sale,
and
furthermore the transaction
































allocation
of
ownership
percentages,
or
joint
construction and separate sale,
and the amount the company
expects
to
invest
in
the
transaction reaches NT$500
million.
(VII) Where an asset transaction
other than any of those referred
to in the preceding six items, a
disposal of receivables by a
financial institution, or an
investment in the mainland
China area reaches 20% or
more of paid-in capital or
NT$300 million; provided, this
shall not apply to the following
circumstances:
(1) Trading
of
government
bonds.
(2) Trading of bonds under
repurchase
and
resale
agreements, or subscription
or redemption of money
market funds issued by
domestic
securities
investment trust enterprises.
(VIII) The amount of transactions
above shall be calculated as
follows and "within oneyear"


























5. Revised wording in
Paragraph
1,
Subparagraph
3,
Item (2) of this
Article.
counterparty is not a related

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Clause after Revision Existing Clauses Description year" refers to the year refers to the year preceding the preceding the date of date of occurrence of the occurrence of the current current transaction. Items duly transaction. Items duly announced in accordance with announced in accordance these Regulations need not be with these Regulations need counted toward the transaction not be counted toward the amount. transaction amount. (1) The amount of any (1) The amount of any individual transaction. individual transaction. (2) The cumulative (2) The cumulative transaction transaction amount of amount of acquisitions and acquisitions and disposals disposals of the same type of the same type of of underlying asset with the underlying asset with the same transaction same transaction counterparty within the counterparty within the preceding year. preceding year. (3) The cumulative (3) The cumulative transaction transaction amount of amount of acquisitions and acquisitions and disposals disposals (cumulative (cumulative acquisitions acquisitions and disposals, and disposals, respectively) of real respectively) of real property within the same property or right-of-use development project within assets thereof within the the preceding year. same development project within the preceding year. (4) The cumulative (4) The cumulative transaction transaction amount of amount of acquisitions or acquisitions or disposals disposals (cumulative (cumulative acquisitions acquisitions and disposals, and disposals, respectively) of the same respectively) of the same security within the security within the preceding year.

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Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision ExistingClauses Description
preceding year.
II. Deadlines for announcement and
regulatory filing
Where the Company's acquisition
or disposal of assets is applicable
to
the
reporting
standards
specified in the Subparagraphs of
this Article, it shall publicly
announce and report the relevant
information within two days from
the date of occurrence of the
event.
III. Public
announcement
and
reporting procedures
(I) The Company shall publicly
announce and report the
relevant information on the
website designated by the
Securities
and
Futures
Bureau.
(II) The Company shall compile
monthly reports on the status
of
derivative
transactions
conducted up to the end of
the preceding month by itself
and any of its subsidiaries
that are notpublicly-listed
companiesin Taiwan. The
information
shall
be
transmitted
to
the
information
reporting
website specified by the
Securities
and
Futures
Bureau before the 10th of
each
month
using
the
required format.
(III)When the Companyat the






























II. Deadlines for announcement and
regulatory filing
Where the Company's acquisition
or disposal of assets is applicable to
the reporting standards specified in
the Subparagraphs of this Article, it
shall publicly announce and report
the relevant information within two
days from the date of occurrence of
the event.
III. Public announcement and reporting
procedures
(I) The Company shall publicly
announce
and
report
the
relevant information on the
website designated by the
Securities and Futures Bureau.
(II) The Company shall compile
monthly reports on the status
of
derivative
transactions
conducted up to the end of the
preceding
month
by
the
Company and any of its
subsidiaries
that
are
not
companies in Taiwan. The
information
shall
be
transmitted to the information
reporting website specified by
the Securities and Futures
Bureau before the 10th of each
month
using
the
required
format.
(III)When the Companyat the


























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Name of Rules: Procedures for the Acquisition or Disposal of Assets

Clause after Revision Existing Clauses Description time of public announcement time of public announcement makes an error or omission in makes an error or omission in an item required by an item required by regulations regulations to be publicly to be publicly announced and announced and so is required so is required to correct it, all to correct it, all the items the items shall be again shall be again publicly publicly announced and announced and reported in reported in their entirety within their entirety within two days two days counting inclusively counting inclusively from the from the date of knowing of date of knowing of such error such error or omission. or omission.

91

Agenda item #4 Proposed by the Board of Directors

Agenda: Approval of the amendments to the Company's “Rules Governing the Election of Directors”.

Explanation:

  • I. The Company simplified the shareholders' Director candidate nomination operating procedures in accordance with Article 192-1 of the Company Act. Article 3, Paragraph 1 of the Rules is thus amended.

  • II. The comparison table for revised clauses is provided in the Attachment.

Resolution:

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Comparison Table of Revision of Rules

Name of Rules: Rules Governing the Election of Directors

Clause after Revision Existing Clauses Explanation Article 3 The Company adopts the Article 3 The election of the The Company candidate nomination system for Directors of the Company is simplified the the election of Directors. It shall based on a candidate nomination shareholders' Director carefully review the system in accordance with candidate nomination qualifications of the nominees Article 192-1 of the Company operating procedures in and whether any of them exhibit Act. The Company reviews the accordance with Article circumstances as prescribed in qualifications, academic and 192-1 of the Company Article 30 of the Company Act. experience information of the Act. Paragraph 1 of this The process shall be completed candidates for Directors and Article is thus in accordance with Article 192-1 whether any of them exhibit amended. of the Company Act. circumstances as prescribed in Independent Directors and Article 30 of the Company Act. non-independent Directors shall The Company may not be nominated separately and arbitrarily add requirements for shareholders shall choose from documentation of other the two candidate lists. qualifications. The results of the review shall be submitted to shareholders for their reference in selecting the suitable Directors. Independent Directors and non-independent Directors shall be nominated separately and shareholders shall choose from the two candidate lists. The Company’s Independent The Company’s Independent Directors and non-independent Directors and non-independent Directors shall be elected Directors shall be elected concurrently and the seats shall concurrently and the seats shall be calculated separately. be calculated separately. Where special provisions in Where special provisions in Articles 5 of the Regulations Articles 5 of the Regulations Governing Appointment of Governing Appointment of Independent Directors and Independent Directors and Compliance Matters for Public Compliance Matters for Public Companies apply to the Companies apply to the nomination of the Company’s nomination of the Company’s Independent Directors, such Independent Directors, such provisions shall apply. With provisions shall apply. With

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Name of Rules: Rules Governing the Election of Directors

Clause after Revision

regard to Independent Director candidates nominated pursuant to the preceding paragraph that have served as Independent Director for more than three consecutive terms, the Company shall announce the reason of continuous nomination at the time review results are published and state the aforementioned reason(s) to shareholders when elections are held at shareholders' meetings.

Existing Clauses regard to Independent Director candidates nominated pursuant to the preceding paragraph that have served as Independent Director for more than three consecutive terms, the Company shall announce the reason of continuous nomination at the time review results are published and state the aforementioned reason(s) to shareholders when elections are held at shareholders' meetings.

Explanation

The qualifications for the The qualifications for the Independent Directors of the Independent Directors of the Company shall be pursuant to Company shall be pursuant to Articles 2, 3, and 4 of the Articles 2, 3, and 4 of the "Regulations Governing "Regulations Governing Appointment of Independent Appointment of Independent Directors and Compliance Directors and Compliance Matters for Public Companies.” Matters for Public Companies.” When the number of Directors When the number of Directors falls below the number of falls below the number of Directors elected in accordance Directors elected in accordance with the Articles of Incorporation with the Articles of Incorporation due to the dismissal of a Director due to the dismissal of a Director for any reason, the Company for any reason, the Company shall hold a by-election to fill the shall hold a by-election to fill the vacancy at its next shareholders vacancy at its next shareholders meeting. However, once the meeting. However, once the vacancies on the board reach vacancies on the board reach one-third of the number of seats one-third of the number of seats as established in the Company’s as established in the Company’s regulations, the Company shall regulations, the Company shall convene an extraordinary convene an extraordinary shareholders’ meeting to elect shareholders’ meeting to elect replacements within sixty days of replacements within sixty days of the occurrence of the vacancies. the occurrence of the vacancies. When the number of Independent When the number of Independent Directors of the Company falls Directors of the Company falls

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Comparison Table of Revision of Rules

Name of Rules: Rules Governing the Election of Directors

Clause after Revision Existing Clauses Explanation below that required under the below that required under the proviso of Article 14-2, proviso of Article 14-2, Paragraph 1 of the Securities and Paragraph 1 of the Securities and Exchange Act, the Company Exchange Act, the Company shall hold a by-election to fill the shall hold a by-election to fill the vacancy at its next shareholders vacancy at its next shareholders meeting. When the Independent meeting. When the Independent Directors are dismissed en masse, Directors are dismissed en a special shareholders meeting masse, a special shareholders shall be called within 60 days meeting shall be called within 60 from the date of occurrence to days from the date of occurrence hold a by-election to fill the to hold a by-election to fill the vacancies. vacancies.

95

Agenda item #5 Proposed by the Board of Directors

Agenda: The amendment of the Company's "Procedures for Extending Loans to Others" is filed for approval.

Explanation:

  • I. The Procedures are amended in accordance with the amendment of the "Regulations Governing Loaning of Funds and Making of Endorsements/Guarantees by Public Companies" promulgated by the Financial Supervisory Commission on March 7, 2019.

  • II. Article 1.3, Article 1.4.3, Article 2.4.1, and Article 2.4.2 are amended in this amendment.

  • III. The comparison table for revised clauses is provided in the Attachment.

Resolution:

96

Attachment

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Extending Loans to Others

Clause after Revision Existing Clauses Explanation 1.3 The establishment, revision, 1.3 The establishment, revision, This Article is amended in and abolishment of the and abolishment of the accordance with the amendment Procedures must be approved by Procedures must be approved by to Article 8 of the "Regulations at least one half of all members at least one half of all members Governing Loaning of Funds of the Audit Committee and of the Audit Committee and and Making of submitted to the Board of submitted to the Board of Endorsements/Guarantees by Directors for resolution. If the Directors for resolution. If the Public Companies" (hereinafter approval of a majority of all approval of a majority of all referred to as the Regulations) members of the Audit members of the Audit promulgated by the Financial Committee is not obtained, the Committee is not obtained, the Supervisory Commission. Procedures may be Procedures may be According to Article 14-5 of the implemented if approved by implemented if approved by Securities and Exchange Act, more than two-thirds of all more than two-thirds of all the duties of the Audit Directors, and the resolution of Directors, and the resolution of Committee include the the Audit Committee shall be the Audit Committee shall be establishment or amendment of recorded in the minutes of the recorded in the minutes of the the procedures for processing Board of Directors meeting. Board of Directors meeting. loans to others and other The opinions of Independent material financial transactions. Directors shall be taken into full Paragraph 2 of this Article is consideration in discussions in thus deleted. the Board of Directors meeting on the Procedures in accordance with the preceding paragraph. Their approval or objection and reasons shall be listed in the meeting minutes of the Board of Directors. Once the Procedures are passed Once the Procedures are passed by the Board of Directors, they by the Board of Directors, they shall be reported to the shall be reported to the shareholders' meeting for shareholders' meeting for approval and implementation. If approval and implementation. If a Director expresses objection a Director expresses objection and records or written and records or written statements are available, statements are available, information regarding the information regarding the Director's objection shall be Director's objection shall be submitted to the Audit submitted to the Audit Committee and the Committee and the

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Extending Loans to Others

Clause after Revision Existing Clauses Explanation shareholders' meeting for shareholders' meeting for discussion. The same shall discussion. The same shall apply to any revision. apply to any revision. 1.4.3 Date of occurrence: The date 1.4.3 Date of occurrence: The date This Article is revised to of occurrence refers to, the of occurrence refers to, the include loan procedures that are earliest of, the signing date, earliest of, the transaction not considered as transactions payment date, the Board of contract signing date, payment in accordance with Article 7, Directors' resolution date or date, the Board of Directors' Paragraph 2 of the Regulations. any other dates when the resolution date or any other transaction counterparty and dates when the transaction the amount of the loan can be counterparty and the verified with certainty. transaction amount can be verified with certainty. 2.4.1 The Company's Finance 2.4.1 The Company's Finance As described in 1.4.3. Department shall carefully Department shall carefully assess whether the borrower assess whether the borrower meets the requirements meets the requirements specified in the Regulations specified in the Regulations Governing Loaning of Funds Governing Loaning of Funds and Making of and Making of Endorsements/Guarantees by Endorsements/Guarantees by Public Companies and the Public Companies and the following items in the following items in the Procedures. The result shall Procedures. The result shall be filed to the Board of be filed to the Board of Directors for approval and Directors for approval and implementation. implementation. According to regulations, the According to regulations, the approval of the Audit approval of the Audit Committee must be obtained Committee must be obtained before a proposal for before a transaction for extending a loan to others is extending a loan to others is filed to the Board of Directors filed to the Board of for discussion. The loan shall Directors for discussion. The be approved by the Board of loan shall be approved by the Directors in a resolution Board of Directors in a before implementation. If the resolution before approval of a majority of all implementation. If the members of the Audit approval of a majority of all Committee is not obtained, members of the Audit the Procedures may be Committee is not obtained, implemented if approved by the Procedures may be

98

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Extending Loans to Others

Clause after Revision ExistingClauses Explanation
more than two-thirds of all
Directors, and the resolution
of the Audit Committee shall
be recorded in the minutes of
the
Board
of
Directors
meeting.
When the Company extends
loans to others, it shall take
into full consideration each
Independent
Director's
opinions and their approval or
objection and reasons shall be
listed in the meeting minutes
of the Board of Directors.











implemented if approved by
more than two-thirds of all
Directors, and the resolution
of the Audit Committee shall
be recorded in the minutes of
the
Board
of
Directors
meeting.
When the Company extends
loans to others, it shall take
into full consideration each
Independent
Director's
opinions and their approval
or objection and reasons shall
be listed in the meeting
minutes of the Board of
Directors.












2.4.2 Loans between the Company
and its parent or subsidiaries,
or between subsidiaries of the
Company shall be submitted
to the Board of Directors for
approval in accordance with
Article 2.4.1. The Company
may authorize the Chairman
to determine the allocation of
loans in separate installments
or
cycles
for
the
same
borrower within an amount
determined by the Board of
Directors for a period of less
than one year.
"Within an amount" specified
in the preceding paragraph
refers to loans other than
those
between
foreign
companies
in
which
the
Company holds, directly or
indirectly, 100% of the voting
sharesor loans provided by
foreign companies in which

























2.4.2 Loans between the Company
and its parent or subsidiaries,
or between subsidiaries of the
Company shall be submitted
to the Board of Directors for
approval in accordance with
Article 2.4.1. The Company
may authorize the Chairman
to determine the allocation of
loans in separate installments
or
cycles
for
the
same
borrower within an amount
determined by the Board of
Directors for a period of less
than one year.
"Within an amount" specified
in the preceding paragraph
refers to loans other than
those
between
foreign
companies
in
which
the
Company holds, directly or
indirectly, 100% of the voting
shares
for
which
the
authorized amount shall not
be restricted. The credit limit
for the Company or its
subsidiaries'
loans
to

























The Article is amended in
accordance
with
Article 3,
Paragraph 4 of the Regulations
to increase the flexibility of
internal fund allocation for the
Group
and
remove
the
restrictions on the 40% of the
net worth of the lender and
one-year loan period for loans
extended by foreign companies
in which the company holds,
directly or indirectly, 100% of
the voting shares.

the Company holds, directly

or indirectly, 100% of the

voting shares to the Company

99

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Extending Loans to Others

Name of Rules:Proceduresfor ExtendingLoans to Others
Clause after Revision ExistingClauses Explanation
for which the authorized
amount shall not be restricted.
The credit limit for the
Company or its subsidiaries'
loans to individual companies
shall not exceed 10% of the
lender's net worth in its latest
financial statements.






individual companies shall
not exceed 10% of the
lender's net worth in its latest
financial statements.

100

Agenda item #6 Proposed by the Board of Directors

Agenda: The amendment of the Company's "Procedures for Making Endorsements and Guarantees" is filed for approval.

Explanation:

  • I. The Procedures are amended in accordance with the amendment of the "Regulations Governing Loaning of Funds and Making of Endorsements/Guarantees by Public Companies" promulgated by the Financial Supervisory Commission on March 7, 2019.

  • II. Article 7, Paragraph 1, Subparagraph 6, Article 9, Paragraph 1, Subparagraph 2, Subparagraph 5, and Article 11 are amended.

  • III. The comparison table for revised clauses is provided in the Attachment.

Resolution:

101

Attachment

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision ExistingClauses Description
Article
7:
The
Company's
procedures
for
making
endorsements and guarantees are
as follows:
I.
The
Company
and
subsidiaries specified under
Article 4, Paragraph 2 shall
carefully
evaluate
the
following
items
when
making endorsements and
guarantees:
(I) The
necessity
and
reasonableness
of
endorsements/guarante
es;
(II) The recipient's credit
status
and
risk
assessment.
(III) Impact
on
the
Company's
business
operations,
financial
condition,
and
shareholders' interest.
(IV) Whether
collateral
must be obtained and
appraisal of the value
thereof.
II. Before
the
Company
provides an endorsement or
guarantee for others, the
Finance Department shall
submit an evaluation report
specified in the preceding
subparagraph including the
draft of the contract, results
of risk assessments, and
related
information
and
submit them to the Audit
Committee for approval































Article
7:
The
Company's
procedures
for
making
endorsements and guarantees are
as follows:
I.
The
Company
and
subsidiaries specified under
Article 4, Paragraph 2 shall
carefully
evaluate
the
following
items
when
making endorsements and
guarantees:
(I) The
necessity
and
reasonableness
of
endorsements/guarante
es;
(II) The recipient's credit
status
and
risk
assessment.
(III) Impact
on
the
Company's
business
operations,
financial
condition,
and
shareholders' interest.
(IV) Whether
collateral
must be obtained and
appraisal of the value
thereof.
II. Before
the
Company
provides an endorsement or
guarantee for others, the
Finance Department shall
submit an evaluation report
specified in the preceding
subparagraph including the
draft of the contract, results
of risk assessments, and
related
information
and
submit them to the Audit
Committee for approval































Revised wording.

102

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Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision Existing Clauses Description before reporting to the before reporting to the Board of Directors for Board of Directors for resolution and resolution and implementation. If the implementation. If the approval of a majority of approval of a majority of all members of the Audit all members of the Audit Committee is not obtained, Committee is not obtained, the Procedures may be the Procedures may be implemented if approved implemented if approved by more than two-thirds of by more than two-thirds of all Directors, and the all Directors, and the resolution of the Audit resolution of the Audit Committee shall be Committee shall be recorded in the minutes of recorded in the minutes of the Board of Directors the Board of Directors meeting. meeting. The terms "all members of The terms "all members of the Audit Committee" and the Audit Committee" and "all Directors" in the "all Directors" in the preceding paragraph shall preceding paragraph shall be counted as the actual be counted as the actual number of persons number of persons currently holding those currently holding those positions. positions. III. The Finance Department III. The Finance Department shall establish shall establish memorandum book for its memorandum book for its endorsement/guarantee endorsement/guarantee activities and record in activities and record in detail the following detail the following information for the record: information for the record: the entity for which the the entity for which the endorsement/guarantee is endorsement/guarantee is made, the amount, the date made, the amount, the date of passage by the Board of of passage by the Board of Directors, or the date of Directors, or the date of authorization by the authorization by the Chairman of the Board, the Chairman of the Board, the date the date the endorsement/guarantee is endorsement/guarantee is

103

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision ExistingClauses Description
made, and the matters to be
carefully evaluated under
the
preceding
subparagraph.
Internal
audit
personnel
shall audit the Procedures
and the implementation at
least once every quarter
and prepare written records
accordingly.
They
shall
promptly notify the Audit
Committee in writing of
any
material
violation
found.
IV. The Finance Department
compiles a statement of the
guarantees
or
canceled
guarantees each month to
facilitate
control,
follow-up, and regulatory
filing. It shall evaluate the
conditions
of
the
endorsements
and
guarantees each quarter,
disclose related information
on
losses
due
to
endorsements
and
guarantees in the Financial
Report, and provide related
information to the CPA for
implementation
of
necessary
auditing
procedures.
V. Where a change in the
Company
causes
a
recipient of endorsement or
guarantee to be ineligible in
accordance
with
the
regulations
in
the
Procedures or causes the




































made, and the matters to be
carefully evaluated under
the
preceding
subparagraph.
Internal
audit
personnel
shall audit the Procedures
and the implementation at
least once every quarter
and prepare written records
accordingly.
They
shall
promptly notify the Audit
Committee in writing of
any
material
violation
found.
IV. The Finance Department
compiles a statement of the
guarantees
or
canceled
guarantees each month to
facilitate
control,
follow-up, and regulatory
filing. It shall evaluate the
conditions
of
the
endorsements
and
guarantees each quarter,
disclose related information
on
losses
due
to
endorsements
and
guarantees in the Financial
Report, and provide related
information to the CPA for
implementation
of
necessary
auditing
procedures.
V. Where a change in the
Company
causes
a
recipient of endorsement or
guarantee to be ineligible in
accordance
with
the
regulations
in
the
Procedures or causes the



































104

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision Existing Clauses Description amount to exceed the limit, amount to exceed the limit, an improvement plan shall an improvement plan shall be formulated and be formulated and delivered to the Audit delivered to the Audit Committee to complete Committee to complete improvements based on the improvements based on the schedule of the plan. schedule of the plan. VI. Upon the expiry of an VI. Upon the expiry of the endorsement or guarantee, period of an endorsement the Finance Department or guarantee, the Finance shall actively notify the Department shall actively recipient of the notify the recipient of the endorsement or guarantee endorsement or guarantee to recover the guarantee to recover the guarantee bills stored in the bank or bills stored in the bank or the creditor institution and the creditor institution and cancel related contracts and cancel related contracts and bills associated with the bills associated with the endorsement or guarantee. endorsement or guarantee.

Article 9: The Company's Article 9: The Company's 1. Paragraph 1, Subparagraph announcement and reporting announcement and reporting 2, Item (3) of this Article is procedures for making procedures for making amended in accordance with endorsements and guarantees are endorsements and guarantees are Article 25, Paragraph 1, as follows: as follows: Subparagraph 3 of the I. The Finance Department I. The Finance Department "Regulations Governing announce the previous announce the previous Loaning of Funds and month's balance of month's balance of Making of Endorsements/Guarantees endorsements and endorsements and by Public Companies" guarantees of the Company guarantees of the Company (hereinafter referred to as the and its subsidiaries before and its subsidiaries before Regulations) promulgated by the 10th day of each month the 10th day of each month the Financial Supervisory and enter information on and enter information on Commission to clarify the the information reporting the information reporting definitions of long-term website designated by the website designated by the investments based on Article FSC each month before the FSC each month before the 9, Paragraph 4, specified time. specified time. Subparagraph 1 of the II. In addition to the monthly II. In addition to the monthly "Regulations Governing the announcement of the announcement of the Preparation of Financial balance of endorsement or balance of endorsement or Reports by Securities

105

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision ExistingClauses Description
guarantee,
the
Finance
Department
shall
report
related information when
the
balance
of
endorsements
and
guarantees of the Company
reaches
one
of
the
following thresholds within
two days of the occurrence
of such events and enter the
information on the website
designated by the FSC:
(I) The balance of the
Company
and
its
subsidiaries'
endorsements
and
guarantees
reaches
50% or more of the
Company's net worth
as specified in the
latest
financial
statements.
(II) The balance of the
Company
and
subsidiaries’
endorsements/guarante
es to a single company
reaches 20% or more
of the Company’s net
worth as specified in
its
latest
financial
statements.
(III) The balance of the
Company
and
its
subsidiaries'
endorsements
and
guarantees for a single





























guarantee,
the
Finance
Department
shall
report
related information when
the
balance
of
endorsements
and
guarantees of the Company
reaches
one
of
the
following thresholds within
two days of the occurrence
of such events and enter the
information on the website
designated by the FSC:
(I) The balance of the
Company
and
its
subsidiaries'
endorsements
and
guarantees
reaches
50% or more of the
Company's net worth
as specified in the
latest
financial
statements.
(II) The balance of the
Company
and
subsidiaries’
endorsements/guarante
es to a single company
reaches 20% or more
of the Company’s net
worth as specified in
its
latest
financial
statements.
(III) The balance of the
Company
and
its
subsidiaries'
endorsements
and
guarantees for a single





























Issuers.
2. Wording in Paragraph 1,
Subparagraph
5
of
this
Article
is
revised
as
endorsements
and
guarantees are not the nature
of transactions in accordance
with Article 7, Paragraph 2
of the Regulations.

106

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision ExistingClauses Description
company
reaches
NT$10 million and the
endorsements
and
guarantees
for
the
Company,
carrying
amount of investments
recognized under the
equity method,and the
total balance of loans
reach 30% or more of
the
Company's
net
worth as specified in
the
latest
financial
statements.
(IV) The
new
endorsements
and
guarantees
of
the
Company
and
its
subsidiaries
reach
NT$30 million or 5%
or
more
of
the
Company's net worth
as specified in the
latest
financial
statements.
III. Where a subsidiary is not a
publicly listed company,
the Company shall carry
out relevant information
announcement
and
reporting specified in the
FSC's regulations on behalf
of the subsidiary.
IV. "Subsidiary" and "parent
company" as referred to in
these Procedures shall be as
determined
under
the

































company
reaches
NT$10 million and the
endorsements
and
guarantees
for
the
Company,
long-term
investments, and the
total balance of loans
reach 30% or more of
the
Company's
net
worth as specified in
the
latest
financial
statements.
(IV) The
new
endorsements
and
guarantees
of
the
Company
and
its
subsidiaries
reach
NT$30 million or 5%
or
more
of
the
Company's net worth
as specified in the
latest
financial
statements.
III. Where a subsidiary is not a
publicly listed company,
the Company shall carry
out relevant information
announcement
and
reporting specified in the
FSC's regulations on behalf
of the subsidiary.
IV. "Subsidiary" and "parent
company" as referred to in
these Procedures shall be as
determined
under
the





























107

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision Clause after Revision ExistingClauses Description
V. Regulations Governing the
Preparation of Financial
Reports
by
Securities
Issuers.
The net value specified in
the Procedures refer to
equities attributable to the
owners
of
the
parent
company in the balance
sheet in accordance with
the Regulations Governing
the
Preparation
of
Financial
Reports
by
Securities Issuers.
The date of occurrence
referred
to
in
the
Procedures
means
the
contract
signature
date,
payment date, date of the
Board
of
Directors’
resolution, or other dates
on which the recipient of
the
endorsement
or
guarantee and transaction
amount
are
verified,
whichever comes first.













V.		 Regulations Governing the
Preparation of Financial
Reports
by
Securities
Issuers.
The net value specified in
the Procedures refer to
equities attributable to the
owners
of
the
parent
company in the balance
sheet in accordance with
the Regulations Governing
the
Preparation
of
Financial
Reports
by
Securities Issuers.
The date of occurrence
referred
to
in
the
Procedures
mean
the
transaction
contract
signature
date,
payment
date, date of the Board of
Directors’
resolution,
or
other dates on which the
transaction
counterparty
andtransaction amount are
verified, whichever comes
first.












Article 11: The establishment or
revision of the Procedures must
be approved by a majority of all
members
of
the
Audit
Committee and submitted to the
Board
of
Directors
for
resolution. If the approval of a
majority of all members of the
Audit
Committee
is
not
obtained, the Procedures may be
implemented if approved by
more than two-thirds of all
Directors,and the resolution of












Article 11: The establishment or
revision of the Procedures must
be approved by a majority of all
members
of
the
Audit
Committee and submitted to the
Board
of
Directors
for
resolution. If the approval of a
majority of all members of the
Audit
Committee
is
not
obtained, the Procedures may be
implemented if approved by
more than two-thirds of all
Directors,and the resolution of












This Article is amended in
accordance with Article 11 of
the Regulations. According to
Article 14-5 of the Securities
and Exchange Act, the duties of
the Audit Committee include
the
establishment
or
amendment of the procedures
for providing endorsements or
guarantees to others and other
material
business
actions.
Paragraph 2 of this Article is
thus deleted.

Article 11: The establishment or Article 11: The establishment or This Article is amended in revision of the Procedures must revision of the Procedures must accordance with Article 11 of be approved by a majority of all be approved by a majority of all the Regulations. According to members of the Audit members of the Audit Article 14-5 of the Securities Committee and submitted to the Committee and submitted to the and Exchange Act, the duties of Board of Directors for Board of Directors for the Audit Committee include resolution. If the approval of a resolution. If the approval of a the establishment or majority of all members of the majority of all members of the amendment of the procedures Audit Committee is not Audit Committee is not for providing endorsements or obtained, the Procedures may be obtained, the Procedures may be guarantees to others and other implemented if approved by implemented if approved by material business actions. more than two-thirds of all more than two-thirds of all Paragraph 2 of this Article is Directors, and the resolution of Directors, and the resolution of thus deleted.

108

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Comparison Table of Revision of Rules

Name of Rules: Procedures for Making Endorsements and Guarantees

Clause after Revision Existing Clauses Description the Audit Committee shall be the Audit Committee shall be recorded in the minutes of the recorded in the minutes of the Board of Directors meeting. Board of Directors meeting. The opinions of Independent Directors shall be taken into full consideration in discussions in the Board of Directors meeting on the Procedures in accordance with the preceding paragraph. Their approval or objection and reasons shall be listed in the meeting minutes of the Board of Directors.

Once the Procedures are passed by the Board of Directors, they shall be reported to the shareholders' meeting for approval and implementation. If a Director expresses objection and records or written statements are available, information regarding the Director's objection shall be submitted to the Audit Committee and the shareholders' meeting for discussion. The same shall apply to any revision.

Once the Procedures are passed by the Board of Directors, they shall be reported to the shareholders' meeting for approval and implementation. If a Director expresses objection and records or written statements are available, information regarding the Director's objection shall be submitted to the Audit Committee and the shareholders' meeting for discussion. The same shall apply to any revision.

109

Agenda item #7 Proposed by the Board of Directors

Agenda: The amendment of the Company's "Rules of Procedure for Shareholders' Meetings" is filed for approval.

Explanation:

  • I. The amendment is implemented in accordance with amendments of the Company Act.

  • II. Article 2, Paragraph 4, Paragraph 6, Paragraph 7; Article 3, Paragraph 2 to Paragraph 4; Article 8, Paragraph 1; and Article 16, Paragraph 1 are amended.

  • III. The comparison table for revised clauses and the full clause before the revision are provided in the Attachment.

Resolution:

110

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Comparison Table of Revision of Rules

Name of Rules: Rules of Procedure for the Shareholders' Meeting

Clause after Revision Existing Clauses Description Article 2 Unless otherwise Article 2 Unless otherwise Paragraph 4, Paragraph 6, and specified by law, shareholders' specified by law, shareholders' Paragraph 7 of this Article are meetings are convened by the meetings are convened by the amended in accordance with board of directors. board of directors. amendments to Article 172 and Article 172-1 of the Company Notices for general shareholders Notices for general shareholders Act. meetings or extraordinary meetings or extraordinary shareholders meetings shall shareholders meetings shall include the purpose of the include the purpose of the meeting and they shall be meeting and they shall be delivered to shareholders 30 delivered to shareholders 30 days or 15 days in advance. If days or 15 days in advance. If the receiving party agrees, the receiving party agrees, meeting notices may also be meeting notices may also be delivered electronically. For delivered electronically. For shareholders holding less than shareholders holding less than one thousand shares, the meeting one thousand shares, the meeting notices can be communicated by notices can be communicated by way of public announcement way of public announcement instead. instead. The Company shall prepare an The Company shall prepare an electronic file that contains the electronic file that contains the meeting notice, a proxy form, a meeting notice, a proxy form, a detailed description of various detailed description of various agenda items to be agenda items to be acknowledged or discussed acknowledged or discussed during the meeting, and notes on during the meeting, and notes on re-election or dismissal of re-election or dismissal of Directors and post it onto the Directors and post it onto the Market Observation Post System Market Observation Post System (MOPS) at least 30 days before a (MOPS) at least 30 days before a general shareholders’ meeting, general shareholders’ meeting, or 15 days before an or 15 days before an extraordinary shareholders' extraordinary shareholders' meeting. meeting. Matters pertaining to election or The election or dismissal of discharge of Directors, alteration Directors or amendments to the

111

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Comparison Table of Revision of Rules

Name of Rules: Rules of Procedure for the Shareholders' Meeting

Clause after Revision Existing Clauses of the Articles of Incorporation, Articles of Incorporation, the reduction of capital, application dissolution, merger, or demerger for the approval of ceasing its of the Company, any matter status as a public company, under Article 185, Paragraph 1 approval of competing with the of the Company Act, and company by directors, surplus Articles 26-1 and 43-6 of the profit distributed in the form of Securities and Exchange Act or new shares, reserve distributed Article 56-1 and Article 60-2 of in the form of new shares, the Regulations Governing the dissolution, merger, spin-off, or Offering and Issuance of any matters as set forth in Article Securities by Securities Issuers 185, Paragraph 1 of the shall be itemized in the causes or Company Act, Article 43-6 of subjects to be described and the the Securities and Exchange Act, essential contents shall be and Article 56-1 and Article 60-2 explained in the notice to of the Regulations Governing convene a meeting of the Offering and Issuance of shareholders, and shall not be Securities by Securities Issuers brought up as special motions. shall be itemized in the causes or subjects to be described and the essential contents shall be explained in the notice to convene a meeting of shareholders, and shall not be brought up as special motions; the essential contents may be posted on the website designated by the competent authority in charge of securities affairs or the company, and such website shall be indicated in the above notice.

Description

Shareholders who own more than 1% of the company's outstanding shares are entitled to propose, in writing, agenda items for discussion in general shareholders’ meetings. However, they may only propose one agenda item and additional

Shareholders who own more than 1% of the company's outstanding shares are entitled to propose, in writing, agenda items for discussion in general shareholders’ meetings. However, they may only propose one agenda item and additional

112

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Comparison Table of Revision of Rules

Name of Rules: Rules of Procedure for the Shareholders' Meeting

Clause after Revision proposals shall not be included in the agenda. The Board of Directors may disregard shareholders' proposals if the proposed agenda item involve any of the circumstances listed in Article 172-1, Paragraph 4 of the Company Act.

Existing Clauses proposals shall not be included in the agenda. The Board of Directors may disregard shareholders' proposals if the proposed agenda item involve any of the circumstances listed in Article 172-1, Paragraph 4 of the Company Act.

Description

The Company shall announce, The Company shall announce, before the book closure date, the before the book closure date, the conditions, the written or digital conditions, places and time in format accepted, and places and which shareholders' proposals time in which shareholders' are accepted. The period of proposals are accepted. The acceptance shall be no shorter period of acceptance shall be no than ten days. shorter than ten days.

Shareholders shall limit their proposed agenda items to 300 words. Shareholders who have successfully proposed agenda items shall attend the shareholders’ meeting in person or through proxy attendance and participate in the discussion.

The Company shall notify the proposing shareholders of the outcome of their proposed agenda items before the date the meeting notice is sent. Meanwhile, agenda items that satisfy the conditions listed in this Article shall be included as part of the meeting notice. During the shareholders' meeting, the Board of Directors shall explain the reasons why

Shareholders shall limit their proposed agenda items to 300 words; proposals that exceed 300 words shall be excluded from the agenda. Shareholders who have successfully proposed agenda items shall attend the shareholders’ meeting in person or through proxy attendance and participate in the discussion.

The Company shall notify the proposing shareholders of the outcome of their proposed agenda items before the date the meeting notice is sent. Meanwhile, agenda items that satisfy the conditions listed in this Article shall be included as part of the meeting notice. During the shareholders' meeting, the Board of Directors shall explain the reasons why

113

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Comparison Table of Revision of Rules

Name of Rules: Rules of Procedure for the Shareholders' Meeting

Clause after Revision

Existing Clauses Description certain proposed agenda items are excluded from discussion. Article 3 The Company shall According to TWSE formulate meeting manuals for regulations, the Company is the shareholders' meeting in required to publish English accordance with the regulations versions of the Procedures of the competent authority of Manual and supplemental securities. Physical copies of the information of the meetings, shareholders' meeting manual annual reports, and annual and supplementary information financial reports based on shall also be prepared at least 15 varying reporting schedules. days before the meeting and Therefore, Paragraph 2 of this made accessible to shareholders Article is amended to Paragraph at any time. These documents 2 and Paragraph 3 and must be placed within the Paragraph 4 is added. company's premises and at the share administration agency appointed by the Company, and distributed on-site at the shareholders' meeting.

certain proposed agenda items are excluded from discussion. Article 3 The Company shall formulate meeting manuals for the shareholders' meeting in accordance with the regulations of the competent authority of securities. Physical copies of the shareholders' meeting manual and supplementary information shall also be prepared at least 15 days before the meeting and made accessible to shareholders at any time. These documents must be placed within the company's premises and at the share administration agency appointed by the Company, and distributed on-site at the shareholders' meeting.

At least 21 days before an At least 21 days before an annual general meeting, or 15 annual general meeting, or 15 days before an extraordinary days before an extraordinary shareholders' meeting, the shareholders' meeting, the Company shall upload an Company shall upload an electronic copy of the electronic copy of the shareholders' meeting manual shareholders' meeting manual and supplementary information and supplementary information to MOPS. to MOPS.

The Company shall prepare electronic versions of the Annual Report and Annual Financial Report and upload them to the MOPS at least 7 days before the date of the general shareholders' meeting or At least 21 days before the date of the general shareholders meeting if the Annual Report is used as

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Comparison Table of Revision of Rules

Name of Rules: Rules of Procedure for the Shareholders' Meeting

Clause after Revision ExistingClauses Description
supplementary information for



the Procedures Manual of the
shareholders'meeting.
The contents of the English

versions of the electronic files
shall be consistent with those of
the Chinese version uploaded to

the MOPS.
Article 8 Shareholders
meetings
Convened by the board of
Directors should be chaired by
the Chairman in person, attended
by more than half of the Director
and the convener of the Audit
Committee
in
person,
and
attended
by
at
least
one
representative member of each
functional
committee.
In
addition, a record of attendance
shall
be
made
in
the
shareholders’ meeting minutes.
The Company may summon its
lawyers,
certified
public
accountants, and any relevant
personnel to be present at the
shareholders' meeting.















Article 8 Shareholders
meetings
Convened by the board of
Directors should be chaired by
the Chairman in person, attended
by more than half of the Director
in person, and attended by at
least one representative member
of each functional committee. In
addition, a record of attendance
shall
be
made
in
the
shareholders’ meeting minutes.
The Company may summon its
lawyers,
certified
public
accountants, and any relevant
personnel to be present at the
shareholders' meeting.













Paragraph 1 of this Article is
revised in accordance with
Article 1.3 of the Corporate
Governance
Evaluation
Indicators.
Committee
in
person,
and
attended
by
at
least
one
representative member of each
functional
committee.
In
addition, a record of attendance
shall
be
made
in
the
shareholders’ meeting minutes.
The Company may summon its
lawyers,
certified
public
accountants, and any relevant
personnel to be present at the
shareholders' meeting.
Article 16 The
Company’s
shareholders shall be entitled to
one vote for each share held,
except for the circumstances
described in Subparagraph 3 of
Paragraph
1,
Article
157,
Paragraph 2 of Article 179, or
Article 197-1 of the Company
Act where shareholders have
restricted or no voting rights.
Shares that do not carry voting
rights are excluded from the
calculation of outstanding shares
when
voting
for
the
final
resolution.



Article 16 The
Company’s
shareholders shall be entitled to
one vote for each share held,
except for the circumstances
described in Subparagraph 3 of
Article 157, Paragraph 2 of
Article 179, or Article 197-1 of
the
Company
Act
where
shareholders have restricted or
no voting rights.
Shares that do not carry voting
rights are excluded from the
calculation of outstanding shares
when
voting
for
the
final
resolution.












Paragraph 1 of this Article is
amended in accordance with
amendments Article 157 of the
Company Act.

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Comparison Table of Revision of Rules

Name of Rules: Rules of Procedure for the Shareholders' Meeting

Clause after Revision Existing Clauses Description Except in the exercise of voting Except in the exercise of voting rights for electing Directors, rights for electing Directors, shareholders cannot vote, or shareholders cannot vote, or appoint proxies to vote, on any appoint proxies to vote, on any agenda items in which they have agenda items in which they have a conflict of interest that would a conflict of interest that would be detrimental to the best be detrimental to the best interests of the Company. The interests of the Company. The number of shares held by number of shares held by shareholders who are not shareholders who are not permitted to vote shall be permitted to vote shall be excluded from the total voting excluded from the total voting rights represented in the rights represented in the meeting. meeting. With the exception of trust With the exception of trust enterprises and certain share enterprises and certain share administration agencies administration agencies approved by the competent approved by the competent authority, a proxy may not authority, a proxy may not represent more than 3% of total represent more than 3% of total voting rights in aggregate when voting rights in aggregate when representing two or more representing two or more shareholders during the meeting. shareholders during the meeting. Voting rights that exceed this Voting rights that exceed this threshold shall be excluded from threshold shall be excluded from calculation. However, they shall calculation. However, they shall still be included into the number still be included into the number of voting rights of the of voting rights of the shareholder in attendance. shareholder in attendance.

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Chung Hung Steel Corporation Rules of Procedure for Shareholders Meetings

Amended by the Board of Directors on March 22, 2016 Approved by the shareholders’ meeting on June 24, 2016

  • Article 1 Unless otherwise stated by law or the Articles of Incorporation, the shareholders' meeting of the Company shall be organized according to these Rules.

  • Article 2 Unless otherwise specified by law, shareholders' meetings are convened by the board of directors.

Notices for general shareholders meetings or extraordinary shareholders meetings shall include the purpose of the meeting and they shall be delivered to shareholders 30 days or 15 days in advance. If the receiving party agrees, meeting notices may also be delivered electronically. For shareholders holding less than one thousand shares, the meeting notices can be communicated by way of public announcement instead.

The Company shall prepare an electronic file that contains the meeting notice, a proxy form, a detailed description of various agenda items to be acknowledged or discussed during the meeting, and notes on re-election or dismissal of Directors and post it onto the Market Observation Post System (MOPS) at least 30 days before a general shareholders’ meeting, or 15 days before an extraordinary shareholders' meeting.

The election or dismissal of Directors or amendments to the Articles of Incorporation, the dissolution, merger, or demerger of the Company, any matter under Article 185, Paragraph 1 of the Company Act, and Articles 26-1 and 43-6 of the Securities and Exchange Act or Article 56-1 and Article 60-2 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers shall be set out in the notice of the reasons for convening the shareholders meeting. None of the above matters may be raised through an extempore motion.

Shareholders who own more than 1% of the company's outstanding shares are entitled to propose, in writing, agenda items for discussion in general shareholders’ meetings. However, they may only propose one agenda item and additional proposals shall not be included in the agenda. The Board of Directors may disregard shareholders' proposals if the proposed agenda item involve any of the circumstances listed in Article 172-1, Paragraph 4 of the Company Act.

The Company shall announce, before the book closure date, the conditions, places and time in which shareholders' proposals are accepted. The period of acceptance shall be no shorter than ten days.

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Shareholders shall limit their proposed agenda items to 300 words; proposals that exceed 300 words shall be excluded from the agenda. Shareholders who have successfully proposed agenda items shall attend the shareholders’ meeting in person or through proxy attendance and participate in the discussion.

The Company shall notify the proposing shareholders of the outcome of their proposed agenda items before the date the meeting notice is sent. Meanwhile, agenda items that satisfy the conditions listed in this Article shall be included as part of the meeting notice. During the shareholders' meeting, the Board of Directors shall explain the reasons why certain proposed agenda items are excluded from discussion.

  • Article 3 The Company shall formulate meeting manuals for the shareholders' meeting in accordance with the regulations of the competent authority of securities. Physical copies of the shareholders' meeting manual and supplementary information shall also be prepared at least 15 days before the meeting and made accessible to shareholders at any time. These documents must be placed within the company's premises and at the share administration agency appointed by the Company, and distributed on-site at the shareholders' meeting.

At least 21 days before an annual general meeting, or 15 days before an extraordinary shareholders' meeting, the Company shall upload an electronic copy of the shareholders' meeting manual and supplementary information to MOPS.

  • Article 4 Shareholders may appoint proxies to attend shareholders' meetings by completing the Company's proxy form and specifying the scope of delegated authority.

Each shareholder may issue one proxy form and delegate one proxy only. All proxy forms must arrive at the company at least five days before the shareholders' meeting. In the event that multiple proxy forms are issued, the proxy form that arrives first shall prevail. However, exception shall be granted if the shareholder issues a proper declaration to withdraw the previous proxy arrangement.

After a proxy form has been delivered to the Company, if the shareholder intends to attend the meeting in person or to exercise voting rights by correspondence or electronically, a written notice of proxy cancellation shall be submitted to the Company at least 2 business days before the meeting date. If the withdrawal is made after the prescribed period, then the voting decision exercised by the proxy shall prevail.

  • Article 5 Shareholders' meetings shall be held at locations that are suitable and convenient for shareholders to attend. Meetings shall not begin earlier than 9 AM or later than 3 PM.

  • Article 6 The Company shall specify in its shareholders meeting notices the time during which shareholder attendance registrations will be accepted, the place to register for attendance, and other matters for attention.

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The time during which shareholder attendance registrations will be accepted, as stated in the preceding paragraph, shall be at least 30 minutes prior to the time the meeting commences. The place at which attendance registrations are accepted shall be clearly marked and a sufficient number of suitable personnel assigned to handle the registrations.

Shareholders and their proxies (collectively, "shareholders") shall attend shareholders meetings based on attendance cards, sign-in cards, or other certificates of attendance. With regard to the certification documents for shareholders’ attendance, the Company may not arbitrarily request shareholders to present other additional certification documents. Shareholders who wish to acquire a proxy form must present proof of identity on-site for verification.

Shareholders who attend the meeting shall be given a copy of the meeting manual, annual report, attendance pass, attendance sign-in card, opinion slip, ballots and any information relevant to the meeting. Shareholders shall also be given election ballots where election of Directors is to take place.

Where the shareholder is a government agency or corporate entity, more than one representative may attend the shareholders' meetings on their behalf. Corporate entities that have been designated as proxy attendants shall only appoint one representative to attend the shareholders' meeting.

  • Article 7 Shareholders' meetings that are convened by the Board of Directors shall be chaired by the Chairman. If the Chairman is unable to perform such duties due to leave of absence or any reason, the Chairman may appoint one of the Directors to act on the Chairman's behalf. If the Chairman does not appoint a delegate, one shall be elected among the Directors to act on the Chairman's behalf.

When a Director serves as chair in accordance with the preceding paragraph, the Director shall be one who has held that position for six months or more and who understands the financial and business conditions of the Company. The same shall apply for a representative of a corporate director that serves as chair.

For shareholders' meetings convened by any authorized party other than the Board of Directors, the convener will act as the meeting chair. If there are two or more conveners at the same time, one shall be appointed from among them to chair the meeting.

  • Article 8 Shareholders meetings Convened by the board of Directors should be chaired by the Chairman in person, attended by more than half of the Director in person, and attended by at least one representative member of each functional committee. In addition, a record of attendance shall be made in the shareholders’ meeting minutes.

  • The Company may summon its lawyers, certified public accountants, and any relevant personnel to be present at the shareholders' meeting.

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  • Article 9 The Company shall make an uninterrupted audio and video recording of the registration procedure, the proceedings of the shareholders meeting, and the voting and vote counting procedures starting from the time it accepts shareholder attendance registrations.

  • The recorded materials of the preceding paragraph shall be retained for at least 1 year. However, if a shareholder makes a litigious claim against the Company according to Article 189 of the Company Act, the abovementioned documents must be retained until the end of the litigation.

  • Article 10 The attendance in shareholders' meetings shall be calculated based on numbers of shares. The shares in attendance shall be calculated in accordance with the number of attendance cards submitted by shareholders in attendance. Where the voting right is exercised in writing or by way of electronic transmission in accordance with Article 16-1, Paragraph 1, the number of shares that have been used to exercise voting rights in writing or in electronic format shall be used for the calculation.

  • Article 11 The chair shall announce the commencement of the meeting as soon as the appointed time arrives. However, if those in attendance represent less than half of the company's outstanding shares, the chair may announce to postpone the meeting up to two times, for a period totaling no more than one hour. Except for cases processed in accordance with Paragraph 2, the chair shall dismiss the meeting if shareholders in attendance represent less than half of outstanding shares after two postponements.

  • If the shareholders in attendance represent more than one-third but less than half of outstanding shares after two postponements, the shareholders in attendance may reach a tentative resolution according to Article 175, Paragraph 1 of the Company Act. This tentative resolution shall be communicated to every shareholder and another shareholders' meeting shall be held within one month. The establishment of resolutions that involve special resolutions in accordance with the Company Act, the regulations in the Company Act shall apply.

  • If during the process of the meeting the number of issued shares represented by the shareholders present are sufficient to constitute the quorum, the chairman may submit the tentative resolutions to the meeting for approval in accordance with Article 174 of the Company Act.

  • Article 12 If the shareholders' meeting is convened by the Board of Directors, the Board of Directors shall determine the meeting proceedings. The proceedings shall not be changed unless resolved during the shareholders' meeting.

  • The above rule also applies if the shareholders' meeting is convened by any authorized party other than the Board of Directors.

In either of the two arrangements described above, the chair cannot dismiss the meeting while an agenda item (including extempore motions) is still in progress. If the chair

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violates the meeting policy by adjourning the meeting when he/she is not permitted to do so, other members of the board shall immediately assist the attending shareholders to elect another chair with the support of more than half of voting rights represented and continue the meeting.

The shareholders cannot designate any other person as chair and continue the meeting in the same or another place after the discussions are over and the chair adjourns the meeting in accordance with the Rules of Procedure.

  • Article 13 The chair shall be objective and independent and he/she shall strictly abide by the Rules of Procedure to ensure the smooth progression of the meeting.

Shareholders in attendance are obligated to follow the Rules of Procedure, speak politely, and maintain the order of the meeting.

  • Article 14 Shareholders who wish to speak during the meeting must produce an opinion slip, detailing the topics and the shareholder's account number and name. The order of shareholders' comments shall be determined by the chair.

  • Shareholders who submit an opinion slip without actually speaking are considered to have remained silent. If the shareholder's actual comments differ from those stated on the opinion slip, only the actual comments expressed shall be recorded.

  • Each shareholder shall not speak more than twice, for five minutes each, on the same agenda item unless otherwise agreed by the chair. The chair may stop shareholders from speaking they violate the rules or speak outside the agenda item under discussion.

  • While a shareholder is speaking, other shareholders shall not speak simultaneously or interfere in any way unless agreed by the chair and the person speaking. Any violators shall be restrained by the chair.

  • Where a corporate shareholder has appointed two or more representatives to attend the shareholders' meeting, only one representative may speak per agenda item. After the shareholder has finished speaking, the chair may answer to the shareholder's queries personally or appoint any relevant personnel to do so.

  • Article 15 With regard to the agenda items, amendments or special motions proposed during the meeting, the chair may announce to discontinue further discussion if the issue in question is considered to have been sufficiently discussed to proceed with the voting.

  • Article 16 The Company’s shareholders shall be entitled to one vote for each share held, except for the circumstances described in Subparagraph 3 of Article 157, Paragraph 2 of Article 179, or Article 197-1 of the Company Act where shareholders have restricted or no voting rights.

Shares that do not carry voting rights are excluded from the calculation of outstanding shares when voting for the final resolution.

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Except in the exercise of voting rights for electing Directors, shareholders cannot vote, or appoint proxies to vote, on any agenda items in which they have a conflict of interest that would be detrimental to the best interests of the Company. The number of shares held by shareholders who are not permitted to vote shall be excluded from the total voting rights represented in the meeting.

With the exception of trust enterprises and certain share administration agencies approved by the competent authority, a proxy may not represent more than 3% of total voting rights in aggregate when representing two or more shareholders during the meeting. Voting rights that exceed this threshold shall be excluded from calculation. However, they shall still be included into the number of voting rights of the shareholder in attendance.

  • Article16-1 The Company shall specify in the meeting notice for the shareholders' meeting that shareholders who do not attend the meeting in person and did not issue a proxy letter to assign a proxy to attend the shareholders' meeting may exercise their voting rights in writing or electronically based on the Company’s regulations. Shareholders who have voted in writing or using the electronic method are considered to have attended shareholders' meeting in person. However, they are considered to have waived their rights to participate in any special motions or amendments to the original proposals, alternative proposals, and other motions that may arise during the shareholders' meeting. Instructions to exercise written and electronic votes must be delivered to the company at least two days before the shareholders' meeting. In the event where there are duplicate submissions, the earliest submission shall be taken into record. However, exception shall be granted if the shareholder issues a proper declaration to withdraw the previous vote.

  • If the shareholder decides to attend the shareholders' meeting in person after submitting a written or electronic vote, a proper declaration of withdrawal must be issued in the same method as did the original vote no later than two days before the shareholders' meeting. If the withdrawal is not received in time, then the written or electronic vote shall be taken into record. If the shareholder has exercised written or electronic votes, and at the same time delegated a proxy to attend the shareholders meeting, then the voting decision exercised by the proxy shall prevail.

  • Article 17 Unless otherwise specified in the Company Act or the Articles Incorporation of the Company, a resolution shall be adopted by a majority of the votes represented by the shareholders present at the meeting. At the time of a vote, the chair or a person designated by the chair shall first announce the total number of voting rights represented by the attending shareholders for each proposal. The shareholder shall vote on each proposal and the results of shareholders' agreement, objection, and abstention shall be input on the Market Observation Post System.

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  • Article 18 In cases where there are several amendments or alternative resolutions to a certain agenda item, the chair shall determine the order in which the new and original proposals are voted on. If any resolution is passed, all other proposals shall be deemed rejected and no further voting is necessary.

  • Article 19 Before the voting begins, the chair shall appoint a number of persons who are shareholders to perform the respective duties of ballot examiners and ballot counters, provided that the ballot examiners shall be shareholders of the Company.

  • Vote counting for shareholders meeting proposals or elections shall be conducted in public at the place of the shareholders meeting. Immediately after vote counting has been completed, the results of the voting, including the statistical tallies of the numbers of votes, shall be announced on-site at the meeting, and a record made of the vote.

  • Article 20 Where the shareholders' meeting involves re-election of Directors, the election must proceed according to the Rules Governing the Election of Directors of the Company and results shall be announced on-site immediately including the names of those elected as Directors and the numbers of votes with which they were elected.

  • Article 21 Shareholders' meeting resolutions shall be compiled into detailed minutes, and signed or sealed by the chair then disseminated to each shareholder no later than 20 days after the meeting.

  • The preparation and distribution of meeting minutes can be done in electronic form. Distribution of the meeting minutes as described in the preceding may be conducted by uploading them to the Market Observation Post System.

The minutes must detail the date and venue of the meeting, the chair's name, the method of resolution, and the proceeding and results of various meeting agenda items. These minutes must be retained for as long as the company is in existence. They shall also be fully disclosed on the Company's website.

  • Where an election of the Directors took place, the weighted number of shares of elected Directors shall be specified.

  • Article 22 During the shareholders' meeting, the Company shall publish information regarding the number of shares acquired by solicitors and the number of shares represented by proxies using the prescribed format.

  • Article 23 The company must disclose on MOPS any shareholders' meeting resolutions that constitute material information as defined by law or the rules of the Taiwan Stock Exchange Corporation.

Article 24 Organizers of the shareholders' meeting must wear proper identification or arm badges.

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The chair may direct the proctors or security personnel to help maintain order at the meeting place. While maintaining order in the meeting, all proctors or security staff must wear arm bands which identify their roles as "Proctors.”

The chair may stop anyone who attempts to speak using speaker equipment not provided by the Company and use the speaker equipment he/she prepared.

The chair may instruct proctors or security staff to remove shareholders who continue to violate the meeting rules or other conduct other actions that disrupts order in the meeting despite being warned by the chair.

Article 25 The chair may put the meeting in recess at appropriate times. In the occurrence of force majeure events, the chair may suspend the meeting temporarily and resume at another time.

If the shareholders' meeting is unable to conclude all scheduled agenda items (including special motions) before the venue is due to be returned, participants may resolve to continue the meeting at an alternative location.

A resolution may be adopted at a shareholders' meeting to defer or resume the meeting within 5 days in accordance with Article 182 of the Company Act.

Article 26 These Rules shall be implemented following approval from the shareholders' meeting. The same procedure shall apply for amendments to these Rules.

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Chapter 4 Extempore motions

125

Chapter 5 Rules of Procedure

Chung Hung Steel Corporation Articles of Incorporation

Revised by the Board of Directors on December 22, 2015 Passed by the shareholders' meeting on June 24, 2016

Chapter 1.General provisions

  • Article 1: The Company shall be incorporated as a company limited by shares in accordance with the Company Act, and it shall be named Chung Hung Steel Corporation.

  • Article 2: The business scope of the Company is as follows:

  • I. Operations of animal husbandry business.

  • II. Manufacturing, processing, and import/export of timber, agricultural products (excluding mushrooms and asparagus) and iron wire (under 12mm).

  • III. Manufacturing, processing, wholesale, retail, and domestic sales/export of slotted angle iron, iron pipes, fish net, Tetoron fiber, plastic fiber, and iron plate.

  • IV. Processing, manufacturing, domestic sales/export of steel coils, steel, steel mold, steel wire, stainless steel plate, stainless steel pipe, iron wire, galvanized iron plate and painted iron plate.

  • V. Appointment of construction contractors to build public housing and commercial buildings for lease and sale and appointment of construction contractors to build general plants on industrial land for lease and sale.

  • VI. Processing, manufacturing, and domestic sale/export of aluminum products and materials.

  • VII. Processing, manufacturing, and domestic sale/export of steel and non-iron metal furniture.

  • VIII. Processing, manufacturing, and domestic sale/export of wood and plastic furniture.

  • IX. Processing, manufacturing, and domestic sale/export of silicon steel sheets.

  • X. Processing, manufacturing, and domestic sale/export of sports equipment (exercise bikes, rowing machines, golf clubs, strollers, trolleys, jogging strollers, jumpers, kick scooters, surfboards, tennis rackets, and ball equipment).

  • XI. Processing, manufacturing, and domestic sale/export of transportation equipment (automobile, motorcycle, and bicycle parts) and jacks.

  • XII. Design, manufacturing, processing, and domestic sale/export of mechanical bodies and machinery parts.

  • XIII. Processing, manufacturing, and domestic sale/export of oxidized soft and hard iron powder, magnets, magnetic materials, metallurgy powder, and ceramic materials.

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XIV. (1) F107100 Wholesale of basic chemical materials. 

  - (2) F207100 Retail sale of basic chemical materials.

  - (3) C801010 Basic chemical manufacturing industry.

  • XV. All business items that are not prohibited or restricted by law, except those that are subject to special approval.

  • Article 2-1: When the Company becomes the shareholder of limited liability in other companies, its total amount of investment in such companies shall not be subject to restrictions regarding certain proportions of the total paid-up capital specified in the Company Act.

  • Article 2-2: The Company may provide guarantees in accordance with the Procedures for Making Endorsements and Guarantees based on business requirements.

  • Article 3: The Company is headquartered in Kaohsiung City. Where necessary, the Company may set up branch companies or other branch institutions at other suitable locations. Such set up or revocation shall be determined by the Board of Directors.

  • Article 4: Unless otherwise stated in regulations of the competent authority of securities, the Company's announcements shall be made on prominent pages of a newspaper that is circulated in the area of the Company's location.

Chapter 2.Shares

  • Article 5: The Company has an authorized capital of NT$30 billion, totaling to 3 billion shares, which can be raised in multiple issues at NT$10 per share. The Company may issue special shares.

  • Article 6: The Company's stocks shall not be printed and shall be registered, numbered, and signed or sealed by at least three Directors. The stocks shall be issued after the proper certification procedures in accordance with the law.

  • Stocks issued by the Company are not required to be printed. The Company, however, shall contact the centralized securities depository enterprise institution for registration of the share certificates.

  • Article 7: The Company shall administer all the stock-related operations in accordance with related laws and regulations of the competent authority.

  • Article 8: Transfer of title for the stocks is not permitted within sixty days prior to the annual meeting of shareholders; within thirty days prior to the special meeting of shareholders; or within five days prior to the cut-off date determined for the distribution of dividends, bonus or other benefits.

Chapter 3.Shareholder's meeting

  • Article 9: The Company holds general and special shareholders' meetings, the general meeting shall be convened once a year within six months of the end of each fiscal year. The Board of Directors shall notify shareholders to convene the meeting thirty days in advance. Special meetings may be convened according to the law when necessary.

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Article 10: A shareholder who cannot attend shareholders' meeting may appoint a proxy to
attend on his/her behalf by executing a power of attorney printed and issued by the
Company, stating clearly the scope of the authorization.
Article 11: The Chairman of the Board shall chair shareholders' meetings. Where the Chairman
is absent, the Chairman shall appoint one of the Directors to act on behalf of the
Chairman. For shareholders' meetings convened by any authorized party other than
the Board of Directors, the convener will act as the meeting chair. If there are two or
more conveners at the same time, one shall be appointed from among them to chair
the meeting.
Article 12: The Company's shareholders shall be entitled to one vote for each share held, except
where shareholders are restricted or prohibited from exercising voting rights by law.
Except for trust enterprises or stock agencies approved by the competent authority in
charge of the securities business, when a person concurrently acts as the proxy for
two or more shareholders in a shareholders' meeting, the number of voting right
represented by him/her shall not exceed 3% of the total number of issued voting
shares. Else, the portion of excessive voting right shall not be counted.
Article 13: Unless otherwise regulated by the Company Act, a shareholders' meeting resolution
is passed when more than 50% of all outstanding shares are represented in the
meeting, and voted in favor by more than 50% of all voting rights represented at the
meeting.
Article 14: Shareholders' meeting resolutions shall be compiled into detailed minutes, and signed
or sealed by the chair then disseminated to each shareholder no later than 20 days
after the meeting.

The preparation and distribution of meeting minutes can be done in electronic form. The meeting minutes may be delivered by way of public announcement.

The sign-in cards and proxy authorization forms of shareholders in attendance shall be kept for at least one year. However, if a shareholder makes a litigious claim according to Article 189 of the Company Act, the abovementioned documents shall be retained until the end of the litigation.

Chapter 4.Directors Article 15: The Company shall have seven to nine Directors. The election of Directors is held by nomination and the shareholders shall vote on the list of candidates. They shall serve three-year terms and they may be reelected.

Among the Directors to be elected in accordance with the preceding paragraph, the number of Independent Directors shall be no less than three and they shall not represent less than one-fifth of the Directors to be elected. With respect to other requirements on Independent Directors including professional qualifications, restrictions on shareholdings and concurrent positions held, assessment of independence, method of nomination, and other compliance matters, the Company shall observe the regulations announced by the competent authority of the securities industry. The Independent Directors and non-independent Directors shall be

128

nominated separately and elected concurrently. The seats shall be calculated separately.

  • Article 15-1 The Company shall establish an Audit Committee in accordance with Article 14-4 of the Securities and Exchange Act. The Committee shall be composed of the entire number of Independent Directors. It shall not be fewer than three persons in number, one of whom shall be the convener, and at least one of whom shall have accounting or financial expertise.

  • Resolutions at meetings of the Audit Committee shall be adopted with the approval of one half or more of the entire membership.

The exercise of the powers of the Audit Committee, its organization charter, and other matters for compliance shall be processed in accordance with the Securities and Exchange Act and other relevant laws or the Company's regulations.

  • Article 16: If the re-election cannot be completed before the expiration of the term of office, the term of office for the Directors shall be extended until the re-elected Directors assume office. However, where the competent authority requires the Company to organize a re-election, the Company shall organize the re-election immediately. Where a re-election is not organized at the time of the expiry, the Directors shall be dismissed immediately.

  • Article 17: The Board of Directors consists of Directors. The Board of Directors shall appoint one Chairman of the Board during a board meeting with more than two-thirds of Directors present, and with the approval of more than half of all attending Directors. The Chairman shall represent the Company externally. The Board of Directors may assign one consultant to attend meetings of the Board of Directors in a non-voting capacity. The appointment and dismissal shall be approved by the Chairman.

  • Article 18: Except for the first meeting of each newly elected Board of Directors which shall be called and chaired by the Director that received votes representing the largest portion of voting rights at the shareholders meeting in which the directors were elected, the Chairman shall convene meetings of the Board of Directors and serve as the chair.

  • The meetings of the Board of Directors shall be convened once each quarter. A meeting notice shall be delivered to each Director at least seven days in advance to provide information on the agenda, the date and venue at which the meeting is held, the proceedings and any information deemed relevant. A meeting of the Board of Directors may be called at any time in the event of an emergency.

The notice in the preceding paragraph shall be provided in print or in electronic format. Other appropriate methods may be used in the event of an emergency.

Any Director may express a waiver of the regulations in the two preceding paragraphs in writing before or after the meeting.

If the Chairman is on leave or unable to perform his duties, the Chairman shall appoint a Director to act on his behalf. If the Chairman does not appoint a Director to act on his behalf, a representative shall be elected from among the Directors.

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Directors' attendance in board meetings via video conference shall be considered as attendance in person.

  • Article 19: Except where otherwise specified in the Company Act, the passage of a proposal at a board meeting shall require the approval of a majority of the Directors in attendance at a board meeting attended by a majority of all Directors. If a Director is unable to attend a meeting, he/she may appoint a proxy to attend the meeting by completing the Company's proxy form, specifying the scope of delegation. However, a Director may only be made proxy for a maximum of one other Director.

  • Article 20: Discussions in board meetings shall be compiled into detailed minutes, and signed or sealed by the chair then disseminated to each Director no later than 20 days after the meeting. The meeting minutes, Directors' attendance sheets, and proxy forms shall be kept by the Company.

  • Article 21: (deleted)

  • Article 22: The transportation allowance of Directors, remuneration of Independent Directors, and salary of the Chairman shall be determined by the Board of Directors based on prevailing rates of the industry and listed companies. The Chairman shall be applicable to related regulations regarding employee salary payment and provided with other allowances.

  • Article 22-1: The Company may purchase liability insurance for its Directors to cover their terms of service based on the compensation liabilities associated with their business liabilities to reduce and diversify the risk of any material damages to the Company and its shareholders caused by any error or negligence of its Directors.

  • Article 23: The Board of Directors shall be comprised of Directors whose functional duties are as follows:

  • I. Filing proposals for capital increase or decrease;

  • II. Review annual budgets and formulate financial statements at the end of each fiscal year in accordance with regulations;

  • III. Clarification and amendment of material business policies;

  • IV. Proposals for distribution of earnings or loss reimbursement plans;

  • V. Review of important contracts;

  • VI. Approval of domestic medium and long-term borrowings and foreign loans;

  • VII. Approval of important charters;

  • VIII. Establishment and withdrawal of branch companies or other branch institutions;

  • IX. Appointment and dismissal of the President and Vice Presidents and the approval for their remuneration;

  • X. Approval of employees' salary standards;

  • XI. Approval of investments in other businesses;

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XII. Other exclusive powers expressly provided in the Company Act, Securities and Exchange Act, related regulations, or the Articles of Incorporation.

Chapter 5.Managerial officers and other employees

  • Article 24: The Company shall appoint one President and several Vice Presidents. The appointment, dismissal and remuneration of the said parties shall be decided by a majority vote at a meeting of the Board of Directors attended by more than one half of the Directors.

  • Article 25: The appointment and dismissal shall be processed in accordance with the Company's "Duties Division Table of the Board of Directors, Chairman, and President".

  • Article 26: The President shall be in charge of the Company's business operations. The President's scope of duties shall include all powers except for the exclusive powers of the shareholders' meeting and the Board of Directors that are specified in the Company Act, Securities and Exchange Act, related regulations, and the Articles of Incorporation.

Chapter 6.Financial Report

  • Article 27: The Company's fiscal year begins on January 1 and ends on December 31. At the end of each fiscal year, the Board of Directors shall formulate the following documents and submit them to the general shareholders' meeting for ratification.

  • I. Business Report;

  • II. Financial statements;

III. Proposal of earnings distribution or loss reimbursement plans.

  • Article 28: If the Company has profit for the year, the Board of Directors shall resolve to allocate no less than one thousandth of the profit as remuneration for employees and no more than 1% as remuneration for Directors. The recipients of employee remuneration shall include employees of subordinate companies meeting certain criteria. A sum shall be set aside in advance to pay down any outstanding cumulative losses of the Company before employee bonus and director remuneration can be allocated according to the above percentage.

Employee bonus and director remuneration proposals shall be submitted to the Board of Directors for resolution and presented to the shareholders’ meeting.

  • Article 28-1: In the event of surplus earnings after closing of annual accounts, due taxes shall be paid in accordance with the law, and losses incurred in previous years shall be compensated. Upon completion of the preceding actions, 10% of the remainder surplus shall be allocated as statutory reserve. However, in the event that the accumulated statutory reserve is equivalent to or exceeds the Company's total paid-in capital, such allocation may be exempted. The remainder may be set aside or reversed as special surplus reserve in accordance with laws and regulations. The Board of Directors shall draft the proposal for shareholder dividend allocation based on the remaining profit, if any, along with the accumulated undistributed earnings for

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the previous year, and submit the draft to the shareholder's meeting which shall determine whether to distribute dividends or retain the earnings.

The development of the Company's industry has matured. Therefore, the distribution of the shareholder dividends specified above shall be distributed with appropriate ratios of cash dividends and stock dividends. Cash dividends shall be no lower than 50%.

Chapter 7.Supplementary provisions

  • Article 29: Where an individual or his/her ancestor who has or has not established a will currently serves or had previously served as the Company's Director or employee or performs duties for Directors or employees of any other company based on the Company's invitation and becomes a party to any litigation or legal proceedings, the Company may provide compensation for all actual and necessary fees, including attorneys' expenses, for the litigation or legal procedures that involve such individuals or for any appeals made. However, such Directors or employees shall be held liable for negligence or violation of duties. The compensation and rights awarded to Directors and employees shall not preclude any other due rights and interests.

  • Article 30: Matters not addressed in this Article shall be processed in accordance with the Company Act and other relevant regulations.

  • Article 31: The Articles of Incorporation were established on January 24, 1983. The 1st amendment was on April 21, 1983. The 2nd amendment was on June 25, 1983. The 3rd amendment was on January 18, 1984. The 4th amendment was on May 23, 1984. The 5th amendment was on July 20, 1985. The 6th amendment was on September 20, 1985. The 7th amendment was on December 10, 1985. The 8th amendment was on February 28, 1986. The 9th amendment was on May 15, 1986. The 10th amendment was on November 3, 1987. The 11th amendment was on March 13, 1988. The 12th amendment was on March 25, 1988. The 13th amendment was on March 4, 1989. The 14th amendment was on May 20, 1989. The 15th amendment was on October 3, 1989. The 16th amendment was on November 6, 1989. The 17th amendment was on February 24, 1990. The 18th amendment was on March 23, 1990. The 19th amendment was on May 10, 1991. The 20th amendment was on May 27, 1991. The 21st amendment was on January 27, 1992. The 22nd amendment was on June 18, 1993. The 23rd amendment was on June 2, 1994. The 24th amendment was on June 4, 1995. The 25th amendment was on May 17, 1996. The 26th amendment was on June 29, 1999. The 27th amendment was on February 2, 2000. The 28th amendment was on June 20, 2000. The 29th amendment was on June 28, 2002. The 30th amendment was on May 27, 2003. The 31st amendment was on June 24, 2004. The 32nd amendment was on June 28, 2005. The 33rd amendment was on June 29, 2006. The 34th amendment was on June 26, 2007. The 35th amendment was on June 26, 2008. The 36th amendment was on June 30, 2009. The 37th amendment was on June 24, 2010. The 38th amendment was on June 10, 2011. The 39th amendment was on June 14, 2012. The 40th amendment was on June 19, 2013. The 41st amendment was on

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June 23, 2014. The 42nd amendment was on June 26, 2015. The 43rd amendment was on June 24, 2016.

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Chapter 6 Additional Descriptions

I. Directors' shareholdings

  • (I) According to Article 26 of the Securities and Exchange Act and the Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies:

The minimum combined shareholding of all Directors by law is 34,453,066 shares. (It may not be lower than 2.4% of the total number of shares)

Note: The Company has issued 1,435,544,446 common shares.

  • (II) The shareholdings of all Directors as recorded in the shareholder register up until the book closure date of the current shareholders' meeting:
April 27, 2019
Title Name or Institution Name Number of Shares Held
Director China Steel Corporation 582,673,153 shares
Shareholdings of all directors 582,673,153 shares

The number of shares held by all Directors of the Company meet the legally required percentage.

II. The effects of the stock dividends on the Company's business performances,

earnings per share and shareholder ROI

According to the requirements specified in the Ministry of Finance's official letter No. 00371 dated February 1, 2000, disclosure of such information is not required because the Company did not distribute shares or announce its 2019 financial forecast.

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Head Office/Cold Rolling Department: No. 317, Yuliao Road, Ciaotou Dist., Kaohsiung City

Hot Rolling Department: No. 576, Xinglong St., Jiaxing, Gangshan Dist., Kaohsiung City

Pickling and Galvanizing Department: No. 24, Yanhai 3rd Rd., Xiaogang Dist., Kaohsiung City

Steel Pipe Plant (Dafa Plant): No. 18, Huazhong Rd., Dafa Industrial Park, Daliao Dist., Kaohsiung City

Steel Pipe Plant (Lukang Plant): No. 42, Lugong Rd., Neighborhood 18, Haipu Village, Lukang Township Changhua County

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