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RT AGM Information 2019

Sep 3, 2019

52043_rns_2019-09-03_8b043c76-7d52-4ecf-8453-e050e2189b31.pdf

AGM Information

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Stock Code: 2379

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Realtek Semiconductor Corp.

2019 Annual Shareholders’ Meeting

Meeting Handbook

(Translation)

Date: June 12, 2019

Table of Contents

Meeting Procedure ................................................................................................................................ 1

Meeting Agenda .................................................................................................................................... 2 1. Report Items ........................................................................................................................... 3 2. Ratification Items .................................................................................................................. 8 3. Discussion Items .................................................................................................................. 10 4. Extraordinary Motions ........................................................................................................ 13 Attachment .......................................................................................................................................... 14 1. Independent Auditors’ Report and 2018 Consolidated Financial Statements ................. 14 2. Independent Auditors’ Report and 2018 Parent Company Only Financial Statements .. 27 3. Comparison table illustrating the original and amended texts of the Articles of Incorporation ........................................................................................................................ 39 4. Comparison table illustrating the original and amended texts of the " Procedures for Financial Derivatives Transactions" ................................................................................... 41 5. Comparison table illustrating the original and amended texts of the " Procedures for Acquisition or Disposal of Assets " .................................................................................... 42 Appendix.............................................................................................................................................. 58 1. Articles of Incorporation ..................................................................................................... 58 2. Rules of Procedures for Shareholders Meeting ................................................................. 63 3. Shareholding of Directors ................................................................................................... 67

Realtek Semiconductor Corp.

2019 Annual Shareholders’ Meeting Procedure

  1. Meeting Commencement Announced

  2. Chairman’s Address

  3. Report Items

  4. Ratification Items

  5. Discussion Items

  6. Extraordinary Motions

  7. Adjournment

1

Realtek Semiconductor Corp. 2019 Annual Shareholders’ Meeting Agenda

  1. Time: 9:00 a.m., June 12, 2019 (Wednesday)

  2. Place: No.1, Industry East 2[nd] Road, Science-Based Industrial Park, HsinChu Science Park Life Hub, Bach Conference Room

  3. Chairman: Yeh, Nan-Horng, Chairman

  4. Chairman’s Address

  5. Report Items

  6. (1) Business report of 2018

  7. (2) Audit Committee’s review report

  8. (3) To report 2018 employees’ compensation and directors’ remuneration

  9. Ratification Items

  10. (1) 2018 business report and financial statements

  11. (2) Distribution of 2018 retained earnings

  12. Discussion Items

  13. (1) Cash distribution from capital surplus

  14. (2) To revise the Articles of Incorporation

  15. (3) To revise the "Procedures for Financial Derivatives Transactions"

  16. (4) To revise the "Procedures for Acquisition or Disposal of Assets"

  17. (5) Release the Directors from non-competition restrictions

  18. Extraordinary Motions

  19. Adjourment

  20. Remark : Except for the proposals without objection from any shareholder after solicitation by the chairman are deemed approval, the chairman shall decide a vote to be held on individual proposal, or on whole or part of the proposals at the same time before extraordinary motions with the ballots to be counted separately for each proposal of the above ratification items and discussion items.

2

Report Items

Report 1: Business report of 2018

Explanation: Please refer to page 3-5 of this handbook for the business report.

Business Report

Dear Shareholders, Ladies and Gentlemen:

1. 2018 Operating Results

Realtek reported another record year in 2018. The full-year consolidated revenues were NTD45.8 billion, a 9.9% growth from the previous year. Gross profit was NTD20.5 billion, up 14.3% from the year before. Net profit after tax was NTD4.35 billion, a 28.3% year-over-year increase. Earnings per share (EPS) was NTD8.57. According to IC Insights, 2018 global semiconductor market revenue exceeded US$500 (US$514 billion), a 16% growth over 2017. In that, memory was the largest segment by product type and grew the strongest. Excluding memory, the 2018 semiconductor market grew a modest 8%. In spite of the uncertainty in the semiconductor industry due to ever-changing international relations and trade disputes, Realtek, with all hands working closely together, delivered a 10.9% year-over-year revenue growth in US dollars in 2018, which was above the 8% growth average of non-memory companies, and above the 7.4% growth average of global fabless IC design companies. Realtek ranks 12th in 2018 among global fabless IC design companies, moving up one place compared with 2017.

Realtek always strives for innovation momentum and technology leadership. Among the top 100 domestic corporate patent applications released by the Taiwan Intellectual Property Office in 2018, Realtek ranks 8th with 195 invention patent applications. In terms of product roadmap, Realtek proffers continual updates to current product specifications, and develops products with differentiating features that add value for our customers. The ubiquitous needs of connectivity in a wide spectrum of applications match perfectly the vision of Realtek to enable a connected world. Such synergy feeds the growth momentum of Realtek IC solutions. Throughout 2018 we introduced several highly competitive products that received accolades from the market and press. For example, the Realtek multi-mic far-field speech recognition enhanced single-chip solution (ALC5520) first received the Best Choice Golden Award at Computex Taipei 2018, and then won the Innovative Product Award from the Taiwan Hsinchu Science Park Administration. Additionally, the Bluetooth 5.0 Low Energy System-on-a-Chip (RTL8762C) and the Highly Integrated, Ultra-Low-Power Wi-Fi IP Camera SOC (RTL8715A) received respectively, the IC & Component Category Award and the IoT Applications Category Award at Computex Taipei 2018.

3

Besides providing the most competitive products to the market, Realtek cares about social issues, contributes corporate technological expertise, and undertakes corporate social responsibility missions. Building on the collaborative work on the AirBox Project with Taipei City Government involving the industry, government, academia, and city's residents in 2016, Realtek continued to focus on air quality issues and actively pushed forward the Taipei Lungshan Temple Incense Reduction Program. The Program was a success after Realtek joined forces with the Lungshan Temple, Taiwan Lung Foundation, and Institute of Occupational Medicine and Industrial Hygiene at the National Taiwan University College of Public Health. The result was a very impressive contribution to the protection of the environment that was recognized by the Asia Responsible Enterprise Award (AREA) organization, and given the 2018 Health Promotion Award.

2. 2019 Business Plan

After two years of impressive growth, many analysts expect 2019 to be flat for the global semiconductor industry, excluding memory. The forecast appears to be predicated on both the trade dispute between China and US as well as the slowdown of hitherto high growth segments such as smartphones and crypto mining. Nonetheless, the ramping up of 5G deployment and the proliferation of artificial intelligence applications seem to be breathing new life into the semiconductor industry and demanding even more and faster connectivity. To this end, Realtek plans to introduce a series of highly competitive connectivity solutions for connecting machines, as well as connecting machines and humans. In the automotive market, an increasing number of automotive OEMs in Europe, America, Japan, Korea, and China are choosing automotive Ethernet to be the in-vehicle network backbone for their new models of cars. Shipments by Realtek are expected to pick up gradually in 2019 with the expansion of our customer base. At the same time, we are developing a new generation of 100/1000BASE-T1 dual-mode PHY and multiport automotive Ethernet switches. To meet the demands for increasing LAN (Local Area Network) speed for commercial and gaming PC needs, Realtek introduced the world's first 2.5GBASE-T Ethernet single-chip controller in 2018. In wireless LAN (WLAN), while enjoying revenue growth from the ongoing migration of 802.11n to 802.11ac, Realtek is developing a new generation of 802.11ax products to provide customers with a complete portfolio of WLAN solutions. In IoT, Realtek leads the market with the announcement of a highly-Integrated, ultralow-power Wi-Fi IP camera SoC ideal for various portable camera market opportunities.

In Bluetooth, Realtek strives to satisfy various Bluetooth applications with different solutions, including Bluetooth transceivers, low-power Bluetooth single chip, and Bluetooth codec single chip. The latter is becoming the solution of choice for True Wireless Stereo earphones, which have been picking up market momentum since the second half of 2018. Optical networks are enjoying growth in many emerging markets, led by China. Realtek is expanding her optical network solutions in all markets with good results. In response to the market need for greater bandwidth, Realtek is developing a new generation of single-chip 10G PON gateway controllers,

4

which may start contributing to business in 2019. In computer peripherals, Realtek, in addition to deepening its roots in the PC markets, is entering the earphone market and winning projects at several commercial and gaming earphone brands. To address the needs of mobile phone users to have USB Type-C audio earphones and converters, Realtek is rolling out a series of highperformance, low-power USB2.0 audio codec products. With respect to IP camera SoCs, Realtek is bringing into the market a new generation of highly-integrated IP camera SoCs in 2019 to meet the needs of the surveillance and security industry. In multimedia, the overall market for TVs and monitors remains flat, however new opportunities will come with the demand for higher resolution, higher refresh rate, better picture quality, and richer display connectivity. Realtek will introduce a new generation of high-end 4K smart networked LCD TV SoCs, as well as a new generation of integrated high resolution 4K2K/QHD monitor controllers with USB Type-C interface, thereby fueling business growth.

  1. Strategy for Future Development and Impact by Competitive, Regulatory, and Macro Conditions

Looking to the future, Realtek will continue to cultivate our core competency, strengthen our competitiveness, and energize our product strategy. Through our strength in high-integration and low-power design, we position ourselves to be the best partner to our customers, provide the best solutions to the market, and deliver the most user-friendly, best price-performance connectivity products to end users in tomorrow’s world of Internet of Things, Internet of Vehicles, and Artificial Intelligence. Despite the general conservative view of the semiconductor market in 2019, coupled with uncertainty in the macro economy, Realtek remains cautiously optimistic that it can capture growth opportunities in this highly challenging and competitive environment to continue reaching new heights and creating greater value for our shareholders.

Thank you for your ongoing care and support. We hope that you will continue to stay with us on this exciting journey to a better future.

Chairman: Yeh, Nan-Horng President: Chiu, Sun-Chien Controller: Chang, Jr-Neng

5

Report 2: Audit Committee’s review report

Explanation: Please refer to page 6 of this handbook for the Audit Committee’s review report.

Audit Committee’s review report

The Company's 2018 business report, financial statements and distribution of retained earnings have been prepared by the Board of Directors. The financial statements also have been audited by Pricewaterhouse Coopers' with the opinion that they present fairly the Company’s financial position, operating performance, and cash flows. The Audit Committee has reviewed the business report, financial statements, and distribution of retained earnings, and found no irregularities. We hereby according to Securities and Exchange Act and Company Act submit this report.

To 2019 Annual Shareholders’ Meeting.

Realtek Semiconductor Corp.

Chairman of the Audit Committee: Ou Yang, Wen-Han

March 21, 2019

6

Report 3 : To report 2018 employees’ compensation and directors’ remuneration Explanation:

  1. According to Article 18 of the Articles of Incorporation of the Company, if gained profits within a fiscal year, the Company shall allocate at a maximum of 3% of the profits as directors’ remuneration, and allocate no less than 1% of the profits as employees’ compensation.

  2. 2018 employees’ compensation and directors’ remuneration ：

Unit: NT dollars
Item Amount ProfitRatio
Employees’compensation 1,151,674,037 19.63 %
Directors’ remuneration 76,778,269 1.31 %

Note: Employees' compensation and directors' remuneration amount are consistent with the 2018 annual estimated expenses.

  1. The aforementioned compensation and remuneration are distributed in cash.

7

Ratification Items

Proposal 1

Proposed by the Board of Directors

Subject: 2018 business report and financial statements. Approval is respectfully requested. Explanation: The 2018 annual financial statements have been audited by Pricewaterhouse Coopers' and the business report was approved by the Board of Directors. For the business report, independent auditors’ report and financial statement, please refer to pages 3-5, page 14-26, Attachment 1, and page 27-38, Attachment 2, of this handbook.

Resolution :

8

Proposal 2

Proposed by the Board of Directors Subject: Distribution of 2018 retained earnings. Approval is respectfully requested. Explanation: The distribution of 2018 retained earnings was approved by the Board of Directors.

Realtek Semiconductor Corporation Distribution of retained earnings

2018

2018
Unit: NTdollars
Item Amount
Unappropriated retained earnings ofpreviousyears 6,472,071,452
Add: adjustment of IFRS adoption 103,141,426
Unappropriated retained earnings of previous years
after IFRS adjustment		 6,575,212,878
Less: loss on re-measurement of defined benefit plans
recorded asretained earnings		 (75,809,330)
Add:2018netincome aftertax 4,350,768,584
Less:Legal reserve (435,076,858)
Add:ReversalofSpecial reserve 600,442,994
Unappropriated retained earnings available for
distribution		 11,015,538,268
Distribution items:
Dividend to common shareholders
(Cash dividend is NT$6per share)		 (3,048,572,784)
Unappropriated retained earnings after distribution 7,966,965,484

  1. The cash dividend to common shareholders for proposal of distribution of retained earnings is NT$3,048,572,784. According to the shares held by each shareholder in the shareholders’ register on cash dividend record date, the cash dividend to common shareholders is NT$6 per share. The cash dividend to each shareholder is rounded down to one dollar (under one dollar is rounded down). The rounded down amounts are recognized as the Company’s other income.

  2. The Chairman is authorized to determine the cash dividend record date and payment date upon the distribution of 2018 retained earnings approved by shareholders’ meeting.

  3. Due to the changes of outstanding shares caused by the Company’s subsequent events such as shares’ buyback, transfer or cancellation of treasury stocks or others, the cash dividend per share might be affected. The Chairman is authorized to adjust the distribution amount.

  4. According to No. 871941343 official letter issued by Ministry of Finance on April 30, 1998, distribution of retained earnings shall be used in specific identification method. The first priority of distribution of retained earnings is 2018 profit, then the following sequence adopted in last-in first-out method are the previous year’s part before 2018 if insufficiency based on the principles of the Company’s profit distribution.

Chairman: Yeh, Nan-Horng President: Chiu, Sun-Chien Controller: Chang, Jr-Neng

Resolution:

9

Discussion Items

Proposal 1

Proposed by the Board of Directors Subject : Cash distribution from capital surplus. Approval is respectfully requested. Explanation:

  1. Pursuant to the Article 241 of the Company Act, the cash distribution from the capital surplus in excess of par value is NT$ 508,095,464. According to the shares held by each shareholder in the shareholders’ register on cash distribution record date, the cash distribution to common shareholders is NT$1 per share.

  2. The cash distribution to each shareholder is rounded down to one dollar (under one dollar is rounded down). The rounded down amounts are recognized as the Company’s other income.

  3. The Chairman is authorized to determine the cash distribution record date and payment date upon the proposal of cash distribution from capital surplus approved by shareholders’ meeting.

  4. Due to the changes of outstanding shares caused by the Company’s subsequent events such as shares’ buyback, transfer or cancellation of treasury stocks or others, the cash distribution per share might be affected. The Chairman is authorized to adjust the distribution amount from capital surplus.

Resolution:

Proposal 2

Proposed by the Board of Directors Subject: To revise the Articles of Incorporation. Approval is respectfully requested. Explanation:

  1. According to Article 240 Paragraph 5 and Article 241 Paragraph 2 of the Company Act, and the practice demand, the Company hereby proposes to amend part of the "Articles of Incorporation".

  2. The comparison table illustrating the original and amended texts of the "Articles of Incorporation" is available on page 39-40, Attachment 3 of this handbook.

Resolution:

10

Proposal 3

Proposed by the Board of Directors Subject: To revise the "Procedures for Financial Derivatives Transactions". Approval is respectfully requested.

Explanation:

  1. In order to conform to the letter (No. 1070341072) dated November 26, 2018 issued by Financial Supervisory Commission, the Company hereby proposes to amend the "Procedures for Financial Derivatives Transactions".

  2. The comparison table illustrating the original and amended texts of the "Procedures for Financial Derivatives Transactions" is available on page 41, Attachemnt 4 of this handbook.

Resolution:

Proposal 4

Proposed by the Board of Directors Subject: To revise the "Procedures for Acquisition or Disposal of Assets". Approval is respectfully requested.

Explanation:

  1. In order to conform to the letter (No. 1070341072) dated November 26, 2018 issued by Financial Supervisory Commission, the Company hereby proposes to amend the "Procedures for Acquisition or Disposal of Assets".

  2. The comparison table illustrating the original and amended texts of the "Procedures for Acquisition or Disposal of Assets" is available on page 42-57, Attachemnt 5 of this handbook.

Resolution:

11

Proposal 5

Proposed by the Board of Directors

  • Subject: Release the Directors from non-competition restrictions. Approval is respectfully requested.

Explanation:

  1. Pursuant to Article 209 of the Company Act, a director who does anything for himself or on behalf of another person that is within the scope of the company's business, shall explain to the meeting of shareholders the essential contents of such an act and secure its approval.

  2. Since directors of the Company engages in the investment in or operation of another company whose scope of business is the same or similar to that of the Company and serves as a director of that company, the Company hereby in accordance with the Company Act requests the shareholders’ meeting to approve the release from following non-competition restriction.

Title Name Concurrent Position of another Company
Director Cotek Pharmaceutical Industry
Co., Ltd.
Representative: Yeh,Nan-Horng		 Director of Enable Educational
Technology Co., Ltd.
Independent
Director		 Chen, Fu-Yen Chairman of Eland Technologies Co.,
Ltd.

Resolution :

Remark: Except for the proposals without objection from any shareholder after solicitation by the chairman are deemed approval, the chairman shall decide a vote to be held on individual proposal, or on whole or part of the proposals at the same time before extraordinary motions with the ballots to be counted separately for each proposal of the above ratification items and discussion items.

12

Extraordinary Motions

Adjourment

13

Attachment

Attachment 1: Independent Auditors’ Report and 2018 Consolidated Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

PWCR18000297

To the Board of Directors and Shareholders of Realtek Semiconductor Corporation

Opinion

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

In our opinion, based on our audits and the reports of other independent accountants (please refer to the Other matters section of our report), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 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 the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further described in the Independent Accountant’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the report of the other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

14

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Evaluation of inventories

Description

Refer to Note 4(14) of the consolidated financial statements for inventory evaluation policies, Note 5(2) for uncertainty of accounting estimates and assumptions of inventory evaluation and Note 6(6) for the details of inventories.

The Group is primarily engaged in researching, developing, manufacturing, selling of various integrated circuits and related application software. Inventories are stated at the lower of cost and net realizable value. Due to the balances of inventories are significant to the financial statements and the rapid technological changes in the industry, there is a higher risk of decline in market value and obsolescence of inventories. Thus, we considered the evaluation of inventories as one of the key audit matters.

How our audit addressed the matter

We performed the following key audit procedures in respect of the above key audit matter:

  1. Obtained an understanding of accounting policies on the provision of allowance for inventory valuation losses and assessed the reasonableness and the consistency with comparative period(s).

  2. Validated the accuracy of inventory aging report, as well as sampled and confirmed the consistency of quantities and amounts with detailed inventory listing, verified dates of movements with supporting documents and ensured the proper categorization of inventory aging report.

  3. Evaluated and confirmed the reasonableness of net realizable value for inventories through validating respective supporting documents.

Audit of cash in banks

Description

Refer to Note 4(6) of the consolidated financial statements for accounting policies and Note 6(1) for the details of cash and cash equivalents.

15

The amount of the Group’s cash and cash equivalents is significant to the consolidated financial statements, and the nature and usage of those cash and cash equivalents varies. The cash in banks are deposited with various domestic and foreign financial institutions and have high inherent risk. It is also subject to judgement as to whether certain deposits fulfill the criteria of short-term, highly liquid investments which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Thus, audit of cash in bank was considered as one of the key audit matters.

How our audit addressed the matter

We performed the following key audit procedures in respect of the above key audit matter:

  1. Obtained detailed listings of cash in banks. Sent confirmation letters to all financial institutions and reviewed special terms and agreements in order to ensure the existence and rights and obligations of cash in banks.

  2. Obtained an understanding of procedures for preparation and review of bank reconciliations, including validating unusual reconciling items.

  3. Performed physical count of petty cash and time deposits, including validating whether time deposits fulfill the criteria of short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

  4. Sampled and validated significant cash transactions from bank accounts frequently used, including obtaining an understanding of the purposes of those bank accounts and vouching related supporting documents.

Other matter – Reference to audits of other independent accountants

We did not audit the financial statements of certain consolidated subsidiaries and investments accounted for using the equity method. Those financial statements were audited by other independent accountants, whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included in the financial statements and the information on the consolidated subsidiaries and investments accounted for using the equity method were based solely on the reports of other independent accountants. Total assets of those consolidated subsidiaries amounted to NT$6,207,867 thousand and NT$6,689,960 thousand, constituting 10.66% and 12.79% of the consolidated total assets as of December 31, 2018 and 2017, respectively, and total operating revenues of NT$0 thousand and NT$0 thousand, both constituting 0% of the consolidated total operating revenues for the years then ended.

16

Furthermore, according to the reports of other independent accountants, comprehensive losses of those investments accounted for under the equity method amounted to NT$41,330 thousand and NT$41,729 thousand, respectively, and balances of these investments as of December 31, 2018 and 2017 amounted to NT$261,628 thousand and NT$281,002 thousand, respectively.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of Realtek Semiconductor Corporation as at and for the years ended December 31, 2018 and 2017.

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 the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, 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 to cease operations, 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.

Independent accountant’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial

17

statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a 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 ROC GAAS 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 consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement 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. 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 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 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 appropriate audit evidence regarding the financial information of the entities

18

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 of the current period and are therefore the key audit matters. We describe these matters in our 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.

Hsueh, Seou-Hung Li, Tien-Yi For and on behalf PricewaterhouseCoopers, Taiwan March 21, 2019

19

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets Notes
6(1)
6(2)
6(4) and 8
12(4)
6(5)
6(5) and 7
6(6)
6(3)
12(4)
12(4)
6(7)
6(8)
6(9)
6(10)
6(26)
6(11)		 December 31, 2018
AMOUNT
%
$
4,309,651
7
1,321,103
2
31,286,209
54
-
-
5,647,722
10
1,772,071
3
657,190
1
5,862,005
10
297,327
1
-
-
51,153,278
88
1,651,072
3
-
-
-
-
261,628
-
3,316,578
6
54,868
-
1,686,249
3
78,472
-
50,169
-
7,099,036
12
$
58,252,314
100		 December 31, 2017 December 31, 2017
AMOUNT
$
4,309,651
1,321,103
31,286,209
-
5,647,722
1,772,071
657,190
5,862,005
297,327
-
51,153,278
1,651,072
-
-
261,628
3,316,578
54,868
1,686,249
78,472
50,169
7,099,036
$
58,252,314		 AMOUNT
$
9,594,356
675,891
-
24,370,143
3,087,958
1,094,853
435,109
5,468,167
269,909
96,154
45,092,540
-
717,745
811,496
281,002
3,162,949
60,254
2,078,355
65,551
41,021
7,218,373
$
52,310,913		 %
Current assets
1100
Cash and cash equivalents
1110
Financial assets at fair value
through profit or loss - current
1136
Financial assets at amortised cost
- current
1147
Investment in debt instruments
without active market - current
1170
Accounts receivable, net
1180
Accounts receivable, net - related
parties
1200
Other receivables
130X
Inventories, net
1410
Prepayments
1470
Other current assets
11XX
Total current assets
Non-current assets
1517
Financial assets at fair value
through other comprehensive
income - non-current
1523
Available-for-sale financial assets
- non-current
1543
Financial assets carried at cost
- non-current
1550
Investments accounted for under
the equity method
1600
Property, plant and equipment,
net
1760
Real estate investment, net
1780
Intangible assets
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Total non-current assets
1XXX
Total assets		 18
1
-
47
6
2
1
10
1
-
86
-
1
2
1
6
-
4
-
-
14
100

(Continued)

20

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity Notes
6(12)
6(20)
7
6(13)
7
6(20)
6(15)
6(14)
6(16)
6(17)
6(18)
6(19)		 December31,2018
December31,2017
AMOUNT
%
AMOUNT
%
$
14,526,311
25
$
18,052,624
34
148,696
-
-
-
8,657
-
8,631
-
5,635,986
10
4,577,341
9
249,869
1
291,755
-
7,542,208
13
6,094,786
12
69,047
-
39,924
-
601,614
1
342,557
1
3,719,866
6
113,043
-
32,502,254
56
29,520,661
56
999,868
2
901,430
2
22,310
-
21,749
-
80,983
-
7,961
-
1,103,161
2
931,140
2
33,605,415
58
30,451,801
58
5,080,955
9
5,065,062
10
3,236,659
5
3,558,856
7
4,467,099
8
4,127,884
8
600,443
1
-
-
10,850,172
19
9,698,159
19
401,964
- (
600,443) (
2)
24,637,292
42
21,849,518
42
9,607
-
9,594
-
24,646,899
42
21,859,112
42
$
58,252,314
100
$
52,310,913
100
AMOUNT
$
14,526,311
148,696
8,657
5,635,986
249,869
7,542,208
69,047
601,614
3,719,866
32,502,254
999,868
22,310
80,983
1,103,161
33,605,415
5,080,955
3,236,659
4,467,099
600,443
10,850,172
401,964
24,637,292
9,607
24,646,899
$
58,252,314
Current liabilities
2100
Short-term borrowings
2130
Contract liabilities - current
2150
Notes payable
2170
Accounts payable
2180
Accounts payable - related parties
2200
Other payables
2220
Other payables - related parties
2230
Current income tax liabilities
2300
Other current liabilities
21XX
Total current liabilities
Non-current liabilities
2550
Provisions - non-current
2570
Deferred income tax liabilities
2600
Other non-current liabilities
25XX
Total non-current liabilities
2XXX
Total liabilities
Equity
Share capital
3110
Common shares
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Undistributed earnings
Other equity
3400
Other equity interest
31XX
Equity attributable to owners
of the parent company
36XX
Non-controlling interest
3XXX
Total equity
3X2X
Total liabilities and equity

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

21

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except earnings per share amounts)

Items 2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(20) and 7
$
45,805,746
100
$
41,688,021
100
6(6) and 7
(
25,344,876 ) (
55) (
23,784,599) (
57 )
20,460,870
45
17,903,422
43
6(24)(25) and 7
(
2,464,470 ) (
6) (
2,142,029) (
5 )
(
1,263,689 ) (
3) (
1,118,403) (
3 )
(
12,969,972 ) (
28) (
11,444,977) (
27 )
12(2)
1,721
-
-
-
(
16,696,410 ) (
37) (
14,705,409) (
35 )
6(9)
6,298
-
6,224
-
3,770,758
8
3,204,237
8
6(21)
1,128,673
2
869,141
2
6(22)
(
58,536 )
-
(
251,337) (
1 )
6(23)
(
140,387 )
-
(
154,769)
-
6(7)
(
43,307 )
-
(
40,919)
-
886,443
2
422,116
1
4,657,201
10
3,626,353
9
6(26)
(
306,420 ) (
1) (
234,193) (
1 )
$
4,350,781
9
$
3,392,160
8
4000
Operating revenue
5000
Operating costs
5950
Gross profit
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6450
Expected credit gains
6000
Total operating expenses
6500
Other income and expenses - net
6900
Operating income
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7060
Share of profit of associates and joint
ventures accounted for under equity
method
7000
Total non-operating income and
expenses
7900
Profit before income tax, net
7950
Income tax expense
8200
Net income for the year

(Continued)

22

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except earnings per share amounts)

Items 2018
Notes
AMOUNT
6(19)
($
75,809 )
(
165,659 )
1,977
(
239,491 )
942,974
-
-
942,974
$
703,483
$
5,054,264
$
4,350,768
13
$
4,350,781
$
5,054,251
13
$
5,054,264
6(27)
$
6(27)
$		 2018 2017
%
AMOUNT
%
-
$
-
-
-
-
-
-
-
-
-
-
-
2
(
2,111,302) (
5 )
-
110,120
-
-
(
810)
-
2
(
2,001,992) (
5 )
2
($
2,001,992) (
5 )
11
$
1,390,168
3
9
$
3,392,153
8
-
7
-
9
$
3,392,160
8
11
$
1,390,161
3
-
7
-
11
$
1,390,168
3
8.57
$
6.71
8.40
$
6.57
Other comprehensive income, net
Components of other comprehensive
income that will not be reclassified to
profit or loss
8311
Losses on remeasurements of
defined benefit plans
8316
Unrealised losses from investments
in equity instruments measured at
fair value through other
comprehensive income
8320
Share of other comprehensive
income of associates and joint
ventures accounted for using equity
method, components of other
comprehensive income that will not
be reclassified to profit or loss
8310
Components of other
comprehensive income that will
not be reclassified to profit or
loss
Components of other comprehensive
income that will be reclassified to
profit or loss
8361
Cumulative translation differences of
foreign operation
8362
Unrealised gain on valuation of
available-for-sale financial assets
8370
Share of other comprehensive
income of associates and joint
ventures accounted for using equity
method, components of other
comprehensive income that will be
reclassified to profit or loss
8360
Total components of other
comprehensive income that will
be reclassified to profit or loss
8300
Other comprehensive income (loss),
net
8500
Total comprehensive income for the
year
Profit attributable to:
8610
Equity holders of the parent
company
8620
Non-controlling interest
Profit for the year
Total comprehensive income:
8710
Equity holders of the parent
company
8720
Non-controlling interest
Total comprehensive income for
the year
Earnings per share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share
$

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

23

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

2017
Balance at January 1, 2017
Net income for the year
Other comprehensive income (loss)
Total comprehensive income
Distribution of 2016 earnings
Legal reserve
Cash dividends
Employees' compensation transferred to
common stock
Cash dividends from capital surplus
Changes in equity of associates accounted for
using equity method
Balance at December 31, 2017
2018
Balance at January 1, 2018
Modified retrospective approach adjustment
Balance at January 1, after adjustments
Net income for the year
Other comprehensive income (loss)
Total comprehensive income
Distribution of 2017 earnings
Legal reserve
Special reserve
Cash dividends
Employees' compensation transferred to
common stock
Cash dividends from capital surplus
Changes in equity of associates accounted for
using equity method
Cash dividends returned
Balance at December 31, 2018		 Notes Equityattributable t o owners of theparent Non-controlling
interest		 Total equity
Share capital -
common stock
$
5,049,513
-
-
-
-
-
15,549
-
-
$
5,065,062
$
5,065,062
-
5,065,062
-
-
-
-
-
-
15,893
-
-
-
$
5,080,955		 Capital surplus Retained earnings Other equityinterest Total
Legal reserve Special reserve Undistributed
earnings
d		 Financial statements
translation
ifferences of foreign
operations		 Unrealised gains
(losses) from
financial assets
measured at fair
value through other
comprehensive
income		 l
 Unrealised gain or
oss on available-for-
sale financial assets
6(19)
6(18)
6(17)
6(17)
6(17)
6(19)
6(19)
6(18)
6(17)
6(17)
6(17)
6(17)
$
3,910,428
-
-
-
-
-
145,386
(
504,951 )
7,993
$
3,558,856
$
3,558,856
-
3,558,856
-
-
-
-
-
-
163,692
(
508,095 )
22,005
201
$
3,236,659
$
3,823,896
-
-
-
303,988
-
-
-
-
$
4,127,884
$
4,127,884
-
4,127,884
-
-
-
339,215
-
-
-
-
-
-
$
4,467,099
$
-
-
-
-
-
-
-
-
-
$
-
$
-
-
-
-
-
-
-
600,443
-
-
-
-
-
$
600,443		 $
-
-

-

-
-
-
-
-
-
$
-
$
-
435,835

435,835
-
(
163,682 )
(
163,682 )
-
-
-
-
-
-
-
$
272,153		 $
103,410
-
109,310
109,310
-
-
-
-
-
$
212,720
$
212,720
(
212,720 )
-
-
-
-
-
-
-
-
-
-
-
$
-		 $
22,815,185
3,392,153
(
2,001,992 )
1,390,161
-
(
2,019,805 )
160,935
(
504,951 )
7,993
$
21,849,518
$
21,849,518
326,257
22,175,775
4,350,768
703,483
5,054,251
-
-
(
2,286,430 )
179,585
(
508,095 )
22,005
201
$
24,637,292		 $
9,587
7
-
7
-
-
-
-
-
$
9,594
$
9,594
-
9,594
13
-
13
-
-
-
-
-
-
-
$
9,607
$
22,824,772
3,392,160
(
2,001,992 )
1,390,168
-
(
2,019,805 )
160,935
(
504,951 )
7,993
$
21,859,112
$
21,859,112
326,257
22,185,369
4,350,781
703,483
5,054,264
-
-
(
2,286,430 )
179,585
(
508,095 )
22,005
201
$
24,646,899

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

24

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation

Amortization

Expected credit gains

Provision for doubtful accounts
Interest expense

Interest income

Dividend income

Loss (gain) on financial assets at fair value through
profit or loss

Share of loss of associates and joint ventures accounted
for using equity method

Gain on disposal of property, plant and equipment

Gain on disposal of available-for-sale financial assets

Other intangible assets transferred expenses
Changes in operating assets and liabilities
Changes in operating assets
Financial assets at fair value through profit or loss -
current
Accounts receivable, net
Accounts receivable, net - related parties
Other receivables, net
Inventories
Prepayments
Changes in operating liabilities
Notes payable
Accounts payable
Accounts payable - related parties
Other payables
Other payables - related parties
Contract liabilities - current
Provisions - non-current

Advance receipts
Other current liabilities
Accrued pension obligations		 Notes
2018
2017
$
4,657,201 $
3,626,353
6(24)
544,084
493,822
6(24)
994,852
1,060,853
12(2)
(
1,721 )
-
-
19,424
6(23)
140,387
154,769
6(21)
(
989,290 ) (
722,436 )
6(21)
(
32,942 ) (
20,571 )
6(22)
19,240 (
18,142 )
6(7)
43,307
40,919
6(22)
(
133 ) (
12,633 )
6(22)
- (
15,879 )
7,698
18,203
(
583,466 ) (
141,600 )
23,602 (
41,266 )
(
495,111 ) (
466,189 )
(
25,846 ) (
28,412 )
(
349,516 ) (
1,015,543 )
(
27,418 ) (
171,634 )
26
3,862
1,058,645
1,397
(
41,886 )
22,381
1,514,253
511,416
29,123 (
7,622 )
45,527
-
6(15)
98,438
56,025
6,203
29,833
939,774 (
653 )
(
2,507 ) (
3,427 )

(Continued)

25

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Cash inflow generated from operations
Receipt of interest
Interest paid
Income taxes paid
Receipt of dividend
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of available-for-sale financial
assets
Acquisition of investments in debt instrument without
active market
Acquisition of amortised cost of a financial asset
Proceeds from disposal of amortised cost of a financial
asset
Proceeds from disposal of held-to-maturity financial
assets
Acquisition of financial assets at fair value through
comprehensive income
Acquisition of investments accounted for using equity
method
Proceeds from capital reduction of financial assets at cost
Proceeds from capital reduction of investee accounted
for using the equity method

Acquisition of property, plant and equipment

Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets

Increase in refundable deposits
Decrease in other current assets
Decrease in other non-current assets
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term borrowings

Guarantee deposits received

Cash dividends paid
Cash dividends returned
Net cash flows used in financing activities
Effect of exchange rate
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Notes
2018
2017
$
7,572,524 $
3,373,250
793,055
725,848
(
138,521 ) (
152,595 )
(
66,250 ) (
208,619 )
32,942
20,571
8,193,750
3,758,455
-
27,188
- (
24,348,243 )
(
6,946,509 )
-
30,254
-
-
261,301
(
28,000 ) (
221,000 )
- (
6,699 )

-
6,622
6(7)
-
14,923
6(28)
(
629,854 ) (
476,144 )

276
14,440
6(28)
(
592,220 ) (
937,494 )
(
11,072 ) (
281 )
-
687,435
1,924
-
(
8,175,201 ) (
24,977,952 )
6(29)
(
3,526,313 ) (
2,398,609 )
6(29)
(
278 ) (
851 )
(
2,794,525 ) (
2,524,756 )
201
-
(
6,320,915 ) (
4,924,216 )
1,017,661 (
2,136,176 )
(
5,284,705 ) (
28,279,889 )
9,594,356
37,874,245
$
4,309,651 $
9,594,356

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

26

Attachment 2: Independent Auditors’ Report and 2018 Parent Company Only Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of Realtek Semiconductor Corporation

Opinion

We have audited the accompanying parent company only balance sheets of Realtek Semiconductor Corporation (the “Company”) as at December 31, 2018 and 2017, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other independent accountants (please refer to the Other matters section of our report), the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as at December 31, 2018 and 2017, and its parent company only financial performance and its parent company only 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 generally accepted auditing standards in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further described in the Independent Accountant’s Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the report of the other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

27

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Evaluation of inventories

Description

Refer to Note 4(13) of the parent company only financial statements for inventory evaluation policies, Note 5(2) for uncertainty of accounting estimates and assumptions of inventory evaluation and Note 6(3) for the details of inventories.

The Company is primarily engaged in researching, developing, manufacturing, selling of various integrated circuits and related application software. Inventories are stated at the lower of cost and net realizable value. Due to the balances of inventories are significant to the financial statements and the rapid technological changes in the industry, there is a higher risk of decline in market value and obsolescence of inventories. Thus, we considered the evaluation of inventories as one of the key audit matters.

How our audit addressed the matter

We performed the following key audit procedures in respect of the above key audit matter:

  1. Obtained an understanding of accounting policies on the provision of allowance for inventory valuation losses and assessed the reasonableness and the consistency with comparative period(s).

  2. Validated the accuracy of inventory aging report, as well as sampled and confirmed the consistency of quantities and amounts with detailed inventory listing, verified dates of movements with supporting documents and ensured the proper categorization of inventory aging report.

  3. Evaluated and confirmed the reasonableness of net realizable value for inventories through validating respective supporting documents.

Audit of cash in banks

Description

Refer to Note 4(5) of the parent company only financial statements for accounting policies and Note 6(1) for the details of cash and cash equivalents.

28

The amount of the Company ’ s cash and cash equivalents is significant to the parent company only financial statements, and the nature and usage of those cash and cash equivalents varies. The cash in banks are deposited with various domestic and financial institutions and have high inherent risk. It is also subject to judgement as to whether certain deposits fulfill the criteria of short-term, highly liquid investments which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Thus, audit of cash in bank was considered as one of the key audit matters.

How our audit addressed the matter

We performed the following key audit procedures in respect of the above key audit matter:

  1. Obtained detailed listings of cash in banks. Sent confirmation letters to all financial institutions and reviewed special terms and agreements in order to ensure the existence and rights and obligations of cash in banks.

  2. Obtained an understanding of procedures for preparation and review of bank reconciliations, including validating unusual reconciling items.

  3. Performed physical count of petty cash and time deposits, including validating whether time deposits fulfill the criteria of short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

  4. Sampled and validated significant cash transactions from bank accounts frequently used, including obtaining an understanding of the purposes of those bank accounts and vouching related supporting documents.

Other matter – Reference to audits of other independent accountants

We did not audit the financial statements of certain investments accounted for using the equity method. Those financial statements were audited by other independent accountants whose report thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other independent accountants. Investments accounted for using equity method amounted to NT$6,900,458 thousand and NT$6,619,491 thousand as of December 31, 2018 and 2017, constituting 12.78% and 13.10% of total assets, respectively. Comprehensive income amounted to NT$108,408 thousand and NT$79,436 thousand, for the years ended December 31, 2018 and 2017, respectively.

29

Responsibilities of management and those charged with governance for the parent company only financial statements

Management is responsible for the preparation and fair presentation of the parent company only 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 parent company only financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the parent company only financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the Audit Committee, are responsible for overseeing the Company’s financial reporting process.

Independent accountant’s responsibilities for the audit of the parent company only financial statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a 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 ROC GAAS 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 parent company only financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

  1. Identify and assess the risks of material misstatement of the parent company only 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

30

than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  1. 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 Company’s internal control.

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

  3. 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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the parent company only 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 report. However, future events or conditions may cause the Company to cease to continue as a going concern.

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

  5. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the company 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.

31

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 parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our 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.

Hsueh, Seou-Hung[Li, Tien-Yi ] For and on behalf of PricewaterhouseCoopers, Taiwan March 21, 2019

32

REALTEK SEMICONDUCTOR CORPORATION

PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets Notes
6(1)
8
6(2)
6(2) and 7(3)
7
6(3)
8
6(4)
6(5)
6(6)
6(21)		 December31,2018
AMOUNT
%
$
1,553,365
3
29,061
-
61,401
-
4,307,547
8
1,033,782
2
42,641
-
2,688,329
5
4,096,647
8
149,935
-
-
-
13,962,708
26
936
-
-
-
-
-
35,911,991
67
2,863,756
5
1,160,549
2
78,472
-
14,444
-
40,030,148
74
$
53,992,856
100		 December31,2017 December31,2017
AMOUNT
$
1,553,365
29,061
61,401
4,307,547
1,033,782
42,641
2,688,329
4,096,647
149,935
-
13,962,708
936
-
-
35,911,991
2,863,756
1,160,549
78,472
14,444
40,030,148
$
53,992,856		 AMOUNT
$
735,254
-
-
2,789,923
941,236
18,735
3,439,082
4,324,420
247,142
91,655
12,587,447
-
40,344
6,575
33,631,364
2,679,455
1,495,547
65,551
6,456
37,925,292
$
50,512,739		 %
Current assets
1100
Cash and cash equivalents
1110
Financial assets at fair value
through profit or loss - current
1136
Financial assets at amortised cost
- current
1170
Accounts receivable, net
1180
Accounts receivable - related
parties
1200
Other receivables
1210
Other receivables - related parties
130X
Inventories, net
1410
Prepayments
1470
Other current assets
11XX
Current Assets
Non-current assets
1517
Financial assets at fair value
through other comprehensive
income – non-current
1523
Available-for-sale financial assets
- non-current
1543
Financial assets carried at cost
- non-current
1550
Investments accounted for under
equity method
1600
Property, plant and equipment
1780
Intangible assets
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Non-current assets
1XXX
Total assets		 1
-
-
6
2
-
7
9
-
-
25
-
-
-
67
5
3
-
-
75
100

(Continued)

33

REALTEK SEMICONDUCTOR CORPORATION PARENT COMPANY ONLY BALANCE SHEETS

DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity Notes
6(7)
6(15)
7
6(8)
7
6(15)
6(10)
6(21)
6(9)
6(11)
6(12)
6(13)
6(14)		 December31,2018
December31,2017
AMOUNT
%
AMOUNT
%
$
14,526,311
27
$
18,052,624
36
110,764
-
-
-
8,657
-
8,631
-
3,793,276
7
3,783,139
7
228,279
-
282,667
1
6,867,842
13
5,624,505
11
38,283
-
32,156
-
578,088
1
326,648
1
2,581,910
5
88,847
-
28,733,410
53
28,199,217
56
519,016
1
434,425
1
22,310
-
21,749
-
80,828
-
7,830
-
622,154
1
464,004
1
29,355,564
54
28,663,221
57
5,080,955
10
5,065,062
10
3,236,659
6
3,558,856
7
4,467,099
8
4,127,884
8
600,443
1
-
-
10,850,172
20
9,698,159
19
401,964
1 (
600,443) (
1)
24,637,292
46
21,849,518
43
$
53,992,856
100
$
50,512,739
100
AMOUNT
$
14,526,311
110,764
8,657
3,793,276
228,279
6,867,842
38,283
578,088
2,581,910
28,733,410
519,016
22,310
80,828
622,154
29,355,564
5,080,955
3,236,659
4,467,099
600,443
10,850,172
401,964
24,637,292
$
53,992,856
Current liabilities
2100
Short-term borrowings
2130
Contract liabilities - current
2150
Notes payable
2170
Accounts payable
2180
Accounts payable - related parties
2200
Other payables
2220
Other payables - related parties
2230
Current income tax liabilities
2300
Other current liabilities
21XX
Current Liabilities
Non-current liabilities
2550
Provisions for liabilities
- non-current
2570
Deferred income tax liabilities
2600
Other non-current liabilities
25XX
Non-current liabilities
2XXX
Total Liabilities
Equity
Share capital
3110
Share capital - common stock
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Undistributed earnings
Other equity
3400
Other equity interest
3XXX
Total equity
3X2X
Total liabilities and equity

The accompanying notes are an integral part of these parent company only financial statements.

34

REALTEK SEMICONDUCTOR CORPORATION

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except earnings per share amounts)

Items 2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(15) and 7
$
32,194,291
100
$
30,043,540
100
6(3)
(
18,906,196) (
59) (
17,875,296) (
59)
13,288,095
41
12,168,244
41
6(19)(20) and 7
(
1,646,985 ) (
5) (
1,514,098) (
5)
(
991,577 ) (
3) (
866,053) (
3)
(
9,955,350 ) (
31) (
8,889,291) (
30)
12(2)
5,803
-
-
-
(
12,588,109 )(
39) (
11,269,442) (
38)
699,986
2
898,802
3
6(16) and 7
112,353
1
107,449
-
6(17)
(
1,992 )
-
(
431,101) (
1)
6(18)
(
140,170 )
-
(
147,941) (
1)
6(4)
3,968,591
12
3,174,944
11
3,938,782
13
2,703,351
9
4,638,768
15
3,602,153
12
6(21)
(
288,000) (
1) (
210,000) (
1)
$
4,350,768
14
$
3,392,153
11
6(14)
($
75,809 )
-
$
-
-
(
138 )
-
-
-
(
163,544 )(
1)
-
-
(
239,491 )(
1)
-
-
-
-
(
3,247)
-
942,974
3
(
1,998,745) (
6)
942,974
3
(
2,001,992) (
6)
$
703,483
2
($
2,001,992) (
6)
$
5,054,251
16
$
1,390,161
5
6(22)
$
8.57
$
6.71
$
8.40
$
6.57
4000
Operating revenue
5000
Operating costs
5900
Gross profit
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6450
Expected credit gains
6000
Total operating expenses
6900
Operating income
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7070
Share of profit of associates and joint
ventures accounted for using equity
method, net
7000
Total non-operating income and
expenses
7900
Profit before income tax, net
7950
Income tax expense
8200
Net income for the year
Other comprehensive income
Components of other comprehensive
income that will not be reclassified to
profit or loss
8311
Losses on remeasurements of
defined benefit plans
8316
Unrealised losses from investments
in equity instruments measured at
fair value through other
comprehensive income
8330
Share of other comprehensive
income of associates and joint
ventures accounted for using equity
method, components of other
comprehensive income that will not
be reclassified to profit or loss
Components of other comprehensive
income that will be reclassified to
profit or loss
8362
Other comprehensive income, before
tax, available-for-sale financial
assets
8380
Share of other comprehensive
income of associates and joint
ventures accounted for using equity
method, components of other
comprehensive income that will be
reclassified to profit or loss
8360
Components of other
comprehensive income that will
be reclassified to profit or loss
8300
Other comprehensive income (loss)
for the year
8500
Total comprehensive income for the
year
Earnings Per Share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share

The accompanying notes are an integral part of these parent company only financial statements.

35

Realtek Semiconductor Corporation PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

2017
Balance at January 1, 2017
Net income for the year
Other comprehensive income (loss)
Total comprehensive income
Distribution of 2016 earnings
Legal reserve
Cash dividends
Employees' compensation transferred to common stock
Cash dividends from capital surplus
Changes in equity of associates accounted for using equity method
Balance at December 31, 2017
2018
Balance at January 1, 2018
Modified retrospective approach adjustment
Balance at January 1, after adjustments
Net income for the year
Other comprehensive income (loss)
Total comprehensive income
Distribution of 2017 earnings
Legal reserve
Special reserve
Cash dividends
Employees' compensation transferred to common stock
Cash dividends from capital surplus
Changes in equity of associates accounted for using equity method
Cash dividends returned
Balance at December 31, 2018		 Notes Share capital -
common stock		 Capital surplus Retained earnings O ther equityinterest Total equity
Legal reserve Special reserve
$
-
-
-
-
-
-
-
-
-
$
-
$
-
-
-
-
-
-
-
600,443
-
-
-
-
-
$
600,443		 Undistributed
earnings		 Financial
statements
translation
differences of
foreign operations
 Unrealised gains
(losses) from
financial assets
measured at fair
value through
other
comprehensive
income
Unrealised gain or
loss on available-
for-sale financial
assets
6(14)
6(13)
6(12)
6(12)
6(14)
6(14)
6(13)
6(12)
6(12)		 $ 5,049,513
-
-
-
-
-
15,549
-
-
$ 5,065,062
$ 5,065,062
-
5,065,062
-
-
-
-
-
-
15,893
-
-
-
$ 5,080,955		 $ 3,910,428
-
-
-
-
-
145,386
(
504,951 )
7,993
$ 3,558,856
$ 3,558,856
-
3,558,856
-
-
-
-
-
-
163,692
(
508,095 )
22,005
201
$ 3,236,659		 $ 3,823,896
-
-
-
303,988
-
-
-
-
$ 4,127,884
$ 4,127,884
-
4,127,884
-
-
-
339,215
-
-
-
-
-
-
$ 4,467,099		 $ 8,629,799
3,392,153
-
3,392,153
(
303,988 )
(
2,019,805 )
-
-
-
$ 9,698,159
$ 9,698,159
103,142
9,801,301
4,350,768
(
75,809 )
4,274,959
(
339,215 )
(
600,443 )
(
2,286,430 )
-
-
-
-
$ 10,850,172		 $ 1,298,139
-
(
2,111,302 )
(
2,111,302 )
-
-
-
-
-
($
813,163 )
($
813,163 )
-
(
813,163 )
-
942,974
942,974
-
-
-
-
-
-
-
$
129,811		 $
-
-
-
-
-
-
-
-
-
$
-
$
-
435,835
435,835
-
(
163,682 )
(
163,682 )
-
-
-
-
-
-
-
$
272,153		 $
103,410
-
109,310
109,310
-
-
-
-
-
$
212,720
$
212,720
(
212,720 )
-
-

-

-
-
-
-
-
-
-
-
$
-		 $ 22,815,185
3,392,153
(
2,001,992 )
1,390,161
-
(
2,019,805 )
160,935
(
504,951 )
7,993
$ 21,849,518
$ 21,849,518
326,257
22,175,775
4,350,768
703,483
5,054,251
-
-
(
2,286,430 )
179,585
(
508,095 )
22,005
201
$ 24,637,292

The accompanying notes are an integral part of these parent company only financial statements.

36

REALTEK SEMICONDUCTOR CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation

Amortization

Expected credit gains

Provision for doubtful accounts
Interest expense

Interest income

Dividend income

Loss on financial assets at fair value through profit
or loss

Share of loss of associates and joint ventures
accounted for using equity method

Gain on disposal of property, plant and equipment

Other intangible assets transferred to expenses
Changes in operating assets and liabilities
Changes in operating assets
Accounts receivable, net
Accounts receivable, net - related parties
Other receivables, net
Other receivables, net - related parties
Inventories
Prepayments
Changes in operating liabilities
Contract liabilities-current
Notes payable
Accounts payable
Accounts payable - related parties
Other payables
Other payables - related parties
Provisions - non-current

Other current liabilities
Accrued pension obligations		 Notes
2018
2017
$
4,638,768 $
3,602,153
6(19)
470,049
422,595
6(19)
943,734
1,007,187
12(2)
(
5,803 )
-
-
19,424
6(18)
140,170
147,941
6(16)
(
66,668 ) (
44,065 )
6(16)
(
812 ) (
406 )
6(17)
11,283
-
6(4)
(
3,968,591 ) (
3,174,944 )
6(17)
- (
14,269 )
7,698
18,203
527,028 (
906,911 )
53,312 (
673,854 )
(
23,639 ) (
12,170 )
(
67,713 )
1,957,128
227,773 (
1,120,140 )
97,207 (
40,855 )
21,541
-
26
3,862
10,137
504,642
(
54,388 )
109,405
1,310,009
324,700
6,126
11,724
6(10)
84,591
94,060
397,579
30,688
(
2,507 ) (
3,427 )

(Continued)

37

REALTEK SEMICONDUCTOR CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Cash inflow generated from operations
Receipt of interest
Interest paid
Income taxes paid
Receipt of dividend
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of amortised cost of a
financial asset
Acquisition of investments accounted for using
equity method
Proceeds from capital reduction of financial assets
at cost
Proceeds from capital reduction of investee
accounted for using the equity method

Acquisition of cash dividends from investments
accounted for using equity method

Acquisition of property, plant and equipment

Proceeds from disposal of property, plant and
equipment
Acquisition of intangible assets

(Increase) decrease in other receivables, net -
related parties
Increase in refundable deposits
Increase in other current assets
Net cash flows from (used in) investing
activities
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings

Guarantee deposits received

Cash dividends paid

Cash dividends returned
Net cash flows (used in) from financing
activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Notes
2018
2017
$
4,756,910 $
2,262,671
66,401
47,477
(
138,304 ) (
145,767 )
(
48,920 ) (
193,046 )
812
406
4,636,899
1,971,741
30,254
-
- (
8,427,063 )
-
6,622
6(4)
-
14,923
7
5,436,741
15,165
6(23)
(
578,076 ) (
406,706 )
-
14,269
6(23)
(
581,659 ) (
879,239 )
(
1,797,119 )
3,265,621
(
7,988 ) (
100 )
- (
36,240 )
2,502,153 (
6,432,748 )
6(24)
(
3,526,313 )
2,857,624
6(24)
(
304 ) (
862 )
6(13)
(
2,794,525 ) (
2,524,756 )
201
-
(
6,320,941 )
332,006
818,111 (
4,129,001 )
735,254
4,864,255
$
1,553,365 $
735,254

The accompanying notes are an integral part of these parent company only financial statements.

38

Attachment 3: Comparison table illustrating the original and amended texts of the Articles of

Incorporation

Incorporation
Amended Version Original Version Reason
Article 18
If gained profits within a fiscal year, the
Company shall allocate at a maximum
of 3% of the profits as directors’
remuneration, and allocate no less than
1% of the profits as employees’
compensation. However, in case of the
accumulated losses, certain profits shall
first be reserved to cover the
accumulated losses, and then allocate
employees’ compensation and directors’
remuneration according to the
proportion in the preceding paragraph.
The distribution of employees'
compensation in the preceding
paragraph shall be in cash or in stock,
and shall be resolved with a consent of a
majority of the directors present at a
meeting attended by over two-thirds of
the total directors. The distribution of
director's remuneration and employee’
compensation shall be reported to the
shareholders meeting.
The employees entitled to receive
employees’ compensation may include
the employees of subsidiaries of the
Company meeting certain specific
requirements. The requirements are
determined by the board of directors or
its authorized person.
The Company belongs to the integrated
circuit design industry and is in the
growth phase of the enterprise life
cycle. After considering the long-term
business development of the Company,
matching future investment fund
requirements, and the long-term
financial planning of the Company, if
there are profits at the end of fiscal year,
the Company shall first offset the
accumulated losses with profits after
tax, and then shall contribute 10% of
profit as legal reserve, unless the
accumulated legal reserve has reached
the amount of the Company’s total
capital, and contribute or reverse special
reserve in accordance with relevant laws



Article 18
If gained profits within a fiscal year, the
Company shall allocate at a maximum
of 3% of the profits as directors’
remuneration, and allocate no less than
1% of the profits as employees’
compensation. However, in case of the
accumulated losses, certain profits shall
first be reserved to cover the
accumulated losses, and then allocate
employees’ compensation and directors’
remuneration according to the
proportion in the preceding paragraph.
The distribution of employees'
compensation in the preceding
paragraph shall be in cash or in stock,
and shall be resolved with a consent of a
majority of the directors present at a
meeting attended by over two-thirds of
the total directors. The distribution of
director's remuneration and employee’
compensation shall be reported to the
shareholders meeting.
The employees entitled to receive
employees’ compensation may include
the employees of subsidiaries of the
Company meeting certain specific
requirements. The requirements are
determined by the board of directors or
its authorized person.
The Company belongs to the integrated
circuit design industry and is in the
growth phase of the enterprise life
cycle. After considering the long-term
business development of the Company,
matching future investment fund
requirements, and the long-term
financial planning of the Company, if
there are profits at the end of fiscal year,
the Company shall first offset the
accumulated losses with profits after
tax, and then shall contribute 10% of
profit as legal reserve, unless the
accumulated legal reserve has reached
the amount of the Company’s total
capital, and contribute or reverse special
reserve in accordance with relevant laws




According to
Article 240
and 241 of the
Company Act,
the Company
authorizes the
distributable
dividends,
legal reserve,
and capital
reserve may
be paid in
cash after a
resolution
by the board
of directors.

39

Amended Version Original Version Reason
or regulation by the competent
authority. If there are net profits
remained, the remaining net profits and
the retained earnings from previous
years shall be distributed as
shareholders’ dividendafter the
distribution proposal is prepared by the
board of directors. In case the
distribution is in the form of issuing
new shares, the distribution proposal
shall be approved at a shareholders
meeting. In case the distribution is in
the form of cash, the distribution
proposal is authorized to be approved
by the board of directors.After
considering financial, business and
operational factors, the Company may
distribute the whole of distributable
earnings of the current year, and may
also distribute whole or part of the
reserves in accordance with the law or
the regulation by the competent
authority.
When distributing dividends, the main
consideration is the Company's future
expansion of operating scale and
requirement of cash flow. The cash
dividends shall not be less than 10% of
the total dividends distributed to
shareholders in the current year.
According to Article 240, Paragraph 5,
and Article 241, Paragraph 2 of the
Company Act, the Company authorizes
the distributable dividends, legal
reserve, and capital reserve in whole or
in part may be paid in cash after a
resolution has been adopted by a
majority vote at a meeting of the board
of directors attended by two-thirds of
the total number of directors, and in
addition thereto a report of such
distribution shall be submitted to the
shareholders meeting.		 or regulation by the competent
authority. If there are net profits
remained, the remaining net profits and
the retained earnings from previous
years shall be distributed as
shareholders’ dividend after the
distribution proposal prepared by the
board of directors is approved at a
shareholders meeting. After considering
financial, business and operational
factors, the Company may distribute the
whole of distributable earnings of the
current year, and may also distribute
whole or part of the reserves in
accordance with the law or the
regulation by the competent authority.
When distributing dividends, the main
consideration is the Company's future
expansion of operating scale and
requirement of cash flow. The cash
dividends shall not be less than 10% of
the total dividends distributed to
shareholders in the current year.
Article 20
The Articles of Incorporation hereof
were established on Oct. 16, 1987; 1st
amended on Sep. 25, 1989; (omitted)
31st amended on Jun. 5, 2018;32nd
amended on Jun. 12, 2019.		 Article 20
The Articles of Incorporation hereof
were established on Oct. 16, 1987; 1st
amended on Sep. 25, 1989; (omitted)
31st amended on Jun. 5, 2018.		 To add
amendment
date.

40

Attachment 4: Comparison table illustrating the original and amended texts of the "Procedures for Financial Derivatives Transactions"

Amended Version Amended Version Original Version Reason
Article 1. Trading principles and
strategies
(1) Trading types
1.“Derivative products” are
defined as follows: forward
contracts, options contracts,
swap contracts, futures
contracts, leverage contracts,
and compound contracts
combining the above products,
whose value is derived from a
specified interest rate, financial
instrument price, commodity
price, foreign exchange rate,
index of prices or rates, credit
rating or credit index, or other
variable; or hybrid contracts
combining the 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)
agreements.
Article 1. Trading principles and
strategies
(1) Trading types
1.“Derivative products” are
defined as follows: forward
contracts, options contracts,
swap contracts, futures
contracts, leverage contracts,
and compound contracts
combining the above products,
whose value is derived from
assets, interest rates, foreign
exchange rates, indexes or
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.		 To conform to
the letter (No.
1070341072)
dated
November 26,
2018 issued by
Financial
Supervisory
Commission

instrument price, commodity
price, foreign exchange rate,
index of prices or rates, credit
rating or credit index, or other
variable; or hybrid contracts
combining the 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)
agreements.

41

Attachment 5: Comparison table illustrating the original and amended texts of the "Procedures for Acquisition or Disposal of Assets"

Amended Version Original Version Reason
Article 2: The scope of the assets
1. 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.
2. Real property (including land, houses and
buildings, investment property, and
construction enterprise inventory)and
equipment.
3. Memberships.
4. Patents, copyrights, trademarks, franchise
rights, and other intangible assets.
5. Right-of-use assets.
6. Derivatives.
7. Assets acquired or disposed of in
connection with mergers, demergers,
acquisitions, or transfer of shares in
accordance with law.
8. Other major assets.		 Article 2: The scope of the assets
1. 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.
2. Real property (including land, houses and
buildings, investment property, right-of-
use land, and construction enterprise
inventory) and equipment.
3. Memberships.
4. Patents, copyrights, trademarks, franchise
rights, and other intangible assets.
5. Claims of financial institutions (including
receivables, bills purchased and
discounted, loans, and overdue
receivables).
6. Derivatives.
7. Assets acquired or disposed of in
connection with mergers, demergers,
acquisitions, or transfer of shares in
accordance with law.
8. Other majorassets.		 To conform to
the letter (No.
1070341072)
dated
November 26,
2018 issued
by Financial
Supervisory
Commission,
and delete the
claims of
financial
institutions

6.
7.
8.
Article 3: Appraisal procedures
The means of price determination and
supporting reference materials:
1. For acquisition or disposal of the
derivatives or the securities through the
Centralized Trading Market or GreTai
Securities Market ("GTSM") of the
Republic of China shall be priced based
on the trading price at that time.
2. For the securities not obtained or disposed
through the Centralized Trading Market or
GTSM, the prices shall be determined
after taking into account the net worth per
share, profitability, potential of future
development and with reference to the
trading prices at that time; or to be
determined after taking account the
interest rate prevalent in the market,
interest rate on face of the bonds as well
as the debtors’ creditability.
3. For acquisition or disposal of real estate
or right-of-use assets thereof, the
transactionprice shall reference the
Article 3: Appraisal procedures
The means of price determination and
supporting reference materials:
1. For acquisition or disposal of the
derivatives or the securities through the
Centralized Trading Market or GreTai
Securities Market ("GTSM") of the
Republic of China shall be priced based
on the trading price at that time.
2. For the securities not obtained or disposed
through the Centralized Trading Market
or GTSM, the prices shall be determined
after taking into account the net worth per
share, profitability, potential of future
development and with reference to the
trading prices at that time; or to be
determined after taking account the
interest rate prevalent in the market,
interest rate on face of the bonds as well
as the debtors’ creditability.
3. For acquisition or disposal of real estate,
the transaction price shall reference the
publiclyannounced value,appraised
To conform to
the letter (No.
1070341072)
dated
November 26,
2018 issued
by Financial
Supervisory
Commission
and add the
appraisal
procedures of
the quipment,
intangible
assets, use
rights assets,
memberships,
derivatives.

42

Amended Version Original Version Reason
4. publicly announced value, appraised
price, and actual transaction price in
neighboring areas to determine conditions
and price.
The prices of equipment or right-of-use
assets thereof, intangible assets or right-
of-use assets thereof and memberships
acquired or disposed shall be determined
through any manner among price
competition, price negotiation or market
price.		 price, and actual transaction price in
neighboring areas to determine conditions
and price.
Article 4: Operating procedures for handling
acquisition and disposal of assets
1. The executive unit shall evaluate the
reasons for acquisition and disposal of
assets, the subjects, the counterpart of the
transaction, the transfer pricing, the
conditions of payment and the reference
basis for the price, and submit it to the
related responsible department for the ruling.
The relevant matters are subject to the
internal control system of the company.
2. The Company’s investment in the long
and short-term securities shall be executed
by General Manager's Office and Finance
Department. Investment in real property,
equipment,memberships, intangible assets
and right-of-use assetsshall be executed by
the user department and related responsible
department. The acquisition or disposal of
derivatives is assessed and executed by the
Finance Department. The responsible person
of the assets acquired or disposed mentioned
in Article 2 is Task Force appointed by the
General Manager.
3. The Company and its subsidiaries may
further invest in acquirement of real property
or right-of-use assets thereofor securities
not for business operation needs within
The investment of the Company and the
subsidiaries for non-business real estate and
right-of-use assets or securities shall be no
more than 100% of the Company’s total
assets as audited and certified by certified
public accountant.
4. The Company shall acquire or dispose the
assets mentioned in Article 2, and shall
execute the verification according to the
approval form established bythe Company.


Article 4: Operating procedures for handling
acquisition and disposal of assets
1. The executive unit shall evaluate the
reasons for acquisition and disposal of
assets, the subjects, the counterpart of the
transaction, the transfer pricing, the
conditions of payment and the reference
basis for the price, and submit it to the
related responsible department for the
ruling. The relevant matters are subject to
the internal control system of the company.
2. The Company’s investment in the long
and short-term securities shall be executed
by General Manager's Office and Finance
Department. Investment in real property and
other fixed assets, memberships, intangible
assets shall be executed by the user
department and related responsible
department. The acquisition or disposal of
derivatives is assessed and executed by the
Finance Department. The responsible person
of the assets acquired or disposed mentioned
in Article 2 is Task Force appointed by the
General Manager.
3. The Company and its subsidiaries may
further invest in acquirement of real
property or securities not for business
operation needs within
The investment of the Company and the
subsidiaries for non-business real estate and
right-of-use assets or securities shall be no
more than 100% of the Company’s total
assets as audited and certified by certified
public accountant.
4. The Company shall acquire or dispose the
assets mentioned in Article 2, and shall
execute the verification according to the
approval form established bythe Company.




To conform
to the letter
(No.
1070341072)
dated
November
26, 2018
issued by
Financial
Supervisory
Commission
and delete the
claims of
financial
institutions

43

Amended Version Original Version Reason
The Procedures shall be approved by the
Audit Committee, the Board of Directors. If
it is necessary to report to the Board of
Directors, the Procedures shall be approved
by the Audit Committee and then report to
theBoard of Directors.		 The Procedures shall be approved by the
Audit Committee, the Board of Directors. If
it is necessary to report to the Board of
Directors, the Procedures shall be approved
by the Audit Committee and then report to
theBoard of Directors.
Article 5: Standards of public announcement
and declaration
Under any of the following circumstances,
the Company acquiring or disposing of
assets shall publicly announce and report the
relevant information on the FSC's designated
website in the appropriate format as
prescribed by regulations within 2 days
counting inclusively from the date of
occurrence of the event:
1. 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 propertyor right-of-
use assets thereoffrom or to a related
party where the transaction amount
reaches 20 percent or more of paid-in
capital, 10 percent or more of the
company's total assets, or NT$300 million
or more; provided, this shall not apply to
trading ofdomesticgovernment bonds or
bonds under repurchase and resale
agreements, or subscription or redemption
of money market funds issued by
domestic securities investment trust
enterprises.
2. Merger, demerger, acquisition, or transfer
of shares.
3. Losses from derivatives trading reaching
the limits on aggregate losses or losses on
individual contracts set out in the
procedures adopted by the company.
4. Where equipmentor right-of-use assets
thereof for business use are acquired or
disposed of, and furthermore the
transaction counterparty is not a related
party,and the transaction amount reaches
NT$500 million or more.
5. Where land is acquired under an
arrangement on engaging others to build
on the company's own land, engaging
others to build on rented land, joint
construction and allocation of housing
Article 5: Standards of public announcement
and declaration
Under any of the following circumstances,
the Company acquiring or disposing of
assets shall publicly announce and report the
relevant information on the FSC's
designated website in the appropriate format
as prescribed by regulations within 2 days
counting inclusively from the date of
occurrence of the event:
1. 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 percent or
more of paid-in capital, 10 percent 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.
2. Merger, demerger, acquisition, or transfer
of shares.
3. Losses from derivatives trading reaching
the limits on aggregate losses or losses on
individual contracts set out in the
procedures adopted by the company.
4. Where equipment for business use are
acquired or disposed of, and furthermore
the transaction counterparty is not a
related party, and the transaction amount
meets any of the following criteria:
A. For a public company whose paid-in
capital is less than NT$10 billion, the
transaction amount reaches NT$500
million or more.
B. For a public company whose paid-in
capital is NT$10 billion or more, the
transaction amount reaches NT$1
billion or more.



To conform
to the letter
(No.
1070341072)
dated
November
26, 2018
issued by
Financial
Supervisory
Commission

44

Amended Version Original Version Reason
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.
6. Where an asset transaction other than any
of those referred to in the preceding six
subparagraphs, a disposal of receivables
by a financial institution, or an investment
in the mainland China area reaches 20
percent or more of paid-in capital or
NT$300 million; provided, this shall not
apply to the following circumstances:
A. Trading ofdomesticgovernment
bonds.
B. Trading of bonds under repurchase and
resale agreements, or subscription or
redemption of money market funds
issued by domestic securities
investment trust enterprises.
The amount of transactions above shall be
calculated as follows:
1. The amount of any individual transaction.
2. The cumulative transaction amount of
acquisitions and disposals of the same
type of underlying asset with the same
transaction counterparty within the
preceding year.
3. The cumulative transaction amount of
acquisitions and disposals (cumulative
acquisitions and disposals, respectively)
of real propertyor right-of-use assets
thereofwithin the same development
project within the preceding year.
4. The cumulative transaction amount of
acquisitions and disposals (cumulative
acquisitions and disposals, respectively)
of the same security within the preceding
year.
"Within the preceding year" as used in the
preceding paragraph refers to the year
preceding the date of occurrence of the
current transaction. Items duly announced in
accordance with these Regulations need not
be counted toward the transaction amount.
A public company shall compile monthly
reports on the status of derivatives trading		 5. Where land is acquired under an
arrangement on engaging others to build
on the company's own land, engaging
others to build on rented land, joint
construction and allocation of housing
units, joint construction and 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.
6. Where an asset transaction other than any
of those referred to in the preceding six
subparagraphs, a disposal of receivables
by a financial institution, or an investment
in the mainland China area reaches 20
percent or more of paid-in capital or
NT$300 million; provided, this shall not
apply to the following circumstances:
A. Trading of government bonds.
B. Trading of bonds under repurchase and
resale agreements, or subscription or
redemption of money market funds
issued by domestic securities
investment trust enterprises.
The amount of transactions above shall be
calculated as follows:
1. The amount of any individual transaction.
2. The cumulative transaction amount of
acquisitions and disposals of the same
type of underlying asset with the same
transaction counterparty within the
preceding year.
3. The cumulative transaction amount of
acquisitions and disposals (cumulative
acquisitions and disposals, respectively)
of real property within the same
development project within the preceding
year.
4. The cumulative transaction amount of
acquisitions and disposals (cumulative
acquisitions and disposals, respectively)
of the same security within the preceding
year.
"Within the preceding year" as used in the
preceding paragraph refers to the year
preceding the date of occurrence of the
current transaction. Items duly announced in
accordance with these Regulations need not
be counted toward the transaction amount.

45

Amended Version Original Version Reason
engaged in up to the end of the preceding
month by the company and any subsidiaries
that are not domestic public companies and
enter the information in the prescribed
format into the information reporting
website designated by the FSC by the 10th
day of each month.
When a public company at the time of public
announcement makes an error or omission in
an item required by regulations to be
publicly announced and so is required to
correct it, all the items shall be again
publicly announced and reported in their
entirety within two days counting
inclusively from the date of knowing of such
error or omission.
A public company acquiring or disposing of
assets shall keep all relevant contracts,
meeting minutes, log books, appraisal
reports and CPA, attorney, and securities
underwriter opinions at the company, where
they shall be retained for 5 years except
where another act provides otherwise.

A public company shall compile monthly
reports on the status of derivatives trading
engaged in up to the end of the preceding
month by the company and any subsidiaries
that are not domestic public companies and
enter the information in the prescribed
format into the information reporting
website designated by the FSC by the 10th
day of each month.
When a public company at the time of
public announcement makes an error or
omission in an item required by regulations
to be publicly announced and so is required
to correct it, all the items shall be again
publicly announced and reported in their
entirety within two days counting
inclusively from the date of knowing of such
error or omission.
A public company acquiring or disposing of
assets shall keep all relevant contracts,
meeting minutes, log books, appraisal
reports and CPA, attorney, and securities
underwriter opinions at the company, where
they shall be retained for 5 years except
where another actprovides otherwise.
Article 7: In acquiring or disposing of real
property, equipment,or right-of-use assets
thereofwhere the transaction amount
reaches 20 percent of the Company's paid-in
capital or NT$300 million or more, the
company, unless transacting with adomestic
government agency, engaging others to build
on its own land, engaging others to build on
rented land, or acquiring or disposing of
equipmentor right-of-use assets thereofheld
for business use, shall obtain an appraisal
report prior to the date of occurrence of the
event from a professional appraiser and shall
further comply with the following
provisions:
1. Where due to special circumstances it is
necessary to give a limited price, specified
price, or special price as a reference basis
for the transaction price, the transaction
shall be submitted for approval in advance
by the board of directors; the same
procedure shall also be followed
whenever there is any subsequent change
to the terms and conditions of the


Article 7: In acquiring or disposing of real
property, equipment, where the transaction
amount reaches 20 percent of the Company's
paid-in capital or NT$300 million or more,
the company, unless transacting with a
government agency, engaging others to build
on its own land, engaging others to build on
rented land, or acquiring or disposing of
equipment held for business use, shall obtain
an appraisal report prior to the date of
occurrence of the event from a professional
appraiser and shall further comply with the
following provisions:
1. Where due to special circumstances it is
necessary to give a limited price,
specified price, or special price as a
reference basis for the transaction price,
the transaction shall be submitted for
approval in advance by the board of
directors; the same procedure shall also be
followed whenever there is any
subsequent change to the terms and
conditions of the transaction.
2. Where the transaction amount is NT$1



To conform
to the letter
(No.
1070341072)
dated
November
26, 2018
issued by
Financial
Supervisory
Commission

46

  • Amended Version

  • transaction.

    1. Where the transaction amount is NT$1 billion or more, appraisals from two or more professional appraisers shall be obtained.

  • Where any one of the following circumstances applies with respect to the professional appraiser's appraisal results, unless all the appraisal results for the assets to be acquired are higher than the transaction amount, or all the appraisal results for the assets to be disposed of are lower than the transaction amount, a certified public accountant shall be engaged to perform the appraisal in accordance with the provisions of Statement of Auditing Standards No. 20 published by the ROC Accounting Research and Development Foundation (ARDF) and render a specific opinion regarding the reason for the discrepancy and the appropriateness of the transaction price:

  • A. The discrepancy between the appraisal result and the transaction amount is 20 percent or more of the transaction amount.

  • B. The discrepancy between the appraisal results of two or more professional appraisers is 10 percent or more of the transaction amount.

  • No more than 3 months may elapse between the date of the appraisal report issued by a professional appraiser and the contract execution date; provided, where the publicly announced current value for the same period is used and not more than 6 months have elapsed, an opinion may still be issued by the original professional appraiser.

Article 8: The Company acquiring or disposing of securities shall, prior to the date of occurrence of the event, obtain financial statements of the issuing company for the most recent period, certified or reviewed by a certified public accountant, for reference in appraising the transaction price. Where the Company acquires or disposes of securities or memberships or intangible

Original Version Reason billion or more, appraisals from two or more professional appraisers shall be obtained.

  1. Where any one of the following circumstances applies with respect to the professional appraiser's appraisal results, unless all the appraisal results for the assets to be acquired are higher than the transaction amount, or all the appraisal results for the assets to be disposed of are lower than the transaction amount, a certified public accountant shall be engaged to perform the appraisal in accordance with the provisions of Statement of Auditing Standards No. 20 published by the ROC Accounting Research and Development Foundation (ARDF) and render a specific opinion regarding the reason for the discrepancy and the appropriateness of the transaction price:

  2. A. The discrepancy between the appraisal result and the transaction amount is 20 percent or more of the transaction amount.

  3. B. The discrepancy between the appraisal results of two or more professional appraisers is 10 percent or more of the transaction amount.

  4. No more than 3 months may elapse between the date of the appraisal report issued by a professional appraiser and the contract execution date; provided, where the publicly announced current value for the same period is used and not more than 6 months have elapsed, an opinion may still be issued by the original professional appraiser.

Article 8: The Company acquiring or To conform to disposing of securities shall, prior to the date the letter (No. of occurrence of the event, obtain financial 1070341072) statements of the issuing company for the dated most recent period, certified or reviewed by November 26, a certified public accountant, for reference 2018 issued in appraising the transaction price. by Financial Where the Company acquires or disposes of Supervisory securities or memberships or intangible Commission

47

Amended Version Original Version Reason


assetsor right-of-use assets thereof and the
transaction amount reaches 20 percent or
more of paid-in capital or NT$300 million or
more, except in transactions with adomestic
government agency, the company shall
additionally engage a certified public
accountant prior to the date of occurrence of
the event to provide an opinion regarding the
reasonableness of the transaction price. If the
CPA needs to use the report of an expert as
evidence, the CPA shall do so in accordance
with the provisions of Statement of Auditing
Standards No. 20 published by the ARDF.
This requirement does not apply, however, to
publicly quoted prices of securities that have
an active market, or where otherwise
provided by regulations of the Financial
Supervisory Commission(FSC).



assets and the transaction amount reaches 20
percent or more of paid-in capital or
NT$300 million or more, except in
transactions with a government agency, the
company shall additionally engage a
certified public accountant prior to the date
of occurrence of the event to provide an
opinion regarding the reasonableness of the
transaction price. If the CPA needs to use the
report of an expert as evidence, the CPA
shall do so in accordance with the provisions
of Statement of Auditing Standards No. 20
published by the ARDF. This requirement
does not apply, however, to publicly quoted
prices of securities that have an active
market, or where otherwise provided by
regulations of the Financial Supervisory
Commission(FSC).


and make
textual
amendment
Article 9:The calculation of the transaction
amounts referred to in the preceding two
articles shall be done in accordance with
Article 5, paragraph 2 herein, and "within
the preceding year" as used herein refers to
the year preceding the date of occurrence of
the current transaction. Items for which an
appraisal report from a professional
appraiser or a CPA's opinion has been
obtained need not be counted toward the
transactionamount.		 Article 8-1: The calculation of the
transaction amounts referred to in the
preceding two articles shall be done in
accordance with Article 5, paragraph 2
herein, and "within the preceding year" as
used herein refers to the year preceding the
date of occurrence of the current transaction.
Items for which an appraisal report from a
professional appraiser or a CPA's opinion
has been obtained need not be counted
toward the transactionamount.
To change
the serial
number of the
article
Article 10:Where the Company acquires or
disposes of assets through court auction
procedures, the evidentiary documentation
issued by the court may be substituted for
the appraisal report or CPA opinion.		 Article 9: Where the Company acquires or
disposes of assets through court auction
procedures, the evidentiary documentation
issued by the court may be substituted for
the appraisal report or CPA opinion.		 To change
the serial
number of the
article and
make textual
amendment
Article 11:Professional appraisers and their
officers, certified public accounts, attorneys,
and securities underwriters that provide the
Companies with appraisal reports, certified
public accountant's opinions, attorney's
opinions, or underwriter's opinionsshall
meet the following requirements:
1.May not have previously received a final
and unappealable sentence to
imprisonment for 1 year or longer for a
violation of the Act, the Company Act, the
Banking Act of The Republic of China,
the Insurance Act, the Financial Holding
Company Act, or the Business Entity		 Article 10: Professional appraisers and their
officers, certified public accounts, attorneys,
and securities underwriters that provide the
Companies with appraisal reports, certified
public accountant's opinions, attorney's
opinions, or underwriter's opinions shall not
be a related party of this Company or the
other party of the transaction.
To change
the serial
number of the
article, make
textual
amendment,
and conform
to the letter
(No.
1070341072)
dated
November
26, 2018
issued by

Banking Act of The Republic of China,
the Insurance Act, the Financial Holding
Company Act, or the Business Entity

48

Amended Version Original Version Reason
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.
2.May not be a related party or de facto
related party of any party to the
transaction.
3.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.
When issuing an appraisal report or opinion,		 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
Financial
Supervisory
Commission

the personnel referred to in the preceding
paragraph shall comply with the following:
1. Prior to accepting a case, they shall
prudently assess their own professional
capabilities, practical experience, and
independence.
2.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.
3.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.
4.They shall issue a statement 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 12:When the Companyengages in Article 11: When the Companyengages in To change

49

Amended Version Original Version Reason



any acquisition or disposal of assets from or
to a related party, in addition to ensuring that
the necessary resolutions are adopted and the
reasonableness of the transaction terms is
appraised, if the transaction amount reaches
10 percent or more of the company's total
assets, the company shall also obtain an
appraisal report from a professional
appraiser or a CPA's opinion in compliance
with the provisions of the preceding Section
and this Section.
The calculation of the transaction amount
referred to in the preceding paragraph shall
be made in accordance with Article9herein.
When judging whether a transaction
counterparty is a related party, in addition to
legal formalities, the substance of the
relationship shall also be considered.
any acquisition or disposal of assets from or
to a related party, in addition to ensuring that
the necessary resolutions are adopted and
the reasonableness of the transaction terms
is appraised, if the transaction amount
reaches 10 percent or more of the company's
total assets, the company shall also obtain an
appraisal report from a professional
appraiser or a CPA's opinion in compliance
with the provisions of the preceding Section
and this Section.
The calculation of the transaction amount
referred to in the preceding paragraph shall
be made in accordance with Article 8-1
herein.
When judging whether a transaction
counterparty is a related party, in addition to
legal formalities, the substance of the
relationshipshall also be considered.


the serial
number of the
article and
adjust the
citation of the
second
paragraph
Article 13:When the Company intends to
acquire or dispose of real propertyor right-
of-use assets thereoffrom or to a related
party, or when it intends to acquire or
dispose of assets other than real propertyor
right-of-use assets thereoffrom or to a
related party and the transaction amount
reaches 20 percent or more of paid-in
capital, 10 percent or more of the company's
total assets, or NT$300 million or more,
except in trading ofdomesticgovernment
bonds or bonds under repurchase and resale
agreements, or subscription or redemption of
money market funds issued by domestic
securities investment trust enterprises, the
company may not proceed to enter into a
transaction contract or make a payment until
the following matters have been approved
by the board of directors and recognized by
the supervisors:
1. The purpose, necessity and anticipated
benefit of the acquisition or disposal of
assets.
2. The reason for choosing the related party
as a transaction counterparty.
3. With respect to the acquisition of real
propertyor right-of-use assets thereof
from a related party, information
regarding appraisal of the reasonableness
of thepreliminarytransaction terms in
Article 12: When the Company intends to
acquire or dispose of real property from or
to a related party, or when it intends to
acquire or dispose of assets other than real
property from or to a related party and the
transaction amount reaches 20 percent or
more of paid-in capital, 10 percent or more
of the company's total assets, or NT$300
million or more, except in 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, the company
may not proceed to enter into a transaction
contract or make a payment until the
following matters have been approved by
the board of directors and recognized by the
supervisors:
1. The purpose, necessity and anticipated
benefit of the acquisition or disposal of
assets.
2. The reason for choosing the related party
as a transaction counterparty.
3. With respect to the acquisition of real
property from a related party, information
regarding appraisal of the reasonableness
of the preliminary transaction terms in
accordance with Article 16 and Article 17.
4. The date andprice at which the related

To change
the serial
number of the
article and
conform to
the letter (No.
1070341072)
dated
November
26, 2018
issued by
Financial
Supervisory
Commission

50

Amended Version Original Version Reason accordance with Article 16 and Article 17. party originally acquired the real property, 4. The date and price at which the related the original transaction counterparty, and party originally acquired the real property, that transaction counterparty's relationship the original transaction counterparty, and to the company and the related party. that transaction counterparty's relationship 5. Monthly cash flow forecasts for the year to the company and the related party. commencing from the anticipated month 5. Monthly cash flow forecasts for the year of signing of the contract, and evaluation commencing from the anticipated month of the necessity of the transaction, and of signing of the contract, and evaluation reasonableness of the funds utilization. of the necessity of the transaction, and 6. An appraisal report from a professional reasonableness of the funds utilization. appraiser or a CPA's opinion obtained in 6. An appraisal report from a professional compliance with the preceding article. appraiser or a CPA's opinion obtained in 7. Restrictive covenants and other important compliance with the preceding article. stipulations associated with the 7. Restrictive covenants and other important transaction. stipulations associated with the The calculation of the transaction amounts transaction. referred to in the preceding paragraph shall The calculation of the transaction amounts be made in accordance with Article 31, referred to in the preceding paragraph shall paragraph 2 herein, and "within the be made in accordance with Article 31, preceding year" as used herein refers to the paragraph 2 herein, and "within the year preceding the date of occurrence of the preceding year" as used herein refers to the current transaction. Items that have been year preceding the date of occurrence of the approved by the board of directors and current transaction. Items that have been recognized by the supervisors need not be approved by the board of directors and counted toward the transaction amount. recognized by the supervisors need not be With respect to the types of transactions counted toward the transaction amount. listed below, when to be conducted between With respect to the types of transactions the Company and the subsidiaries, the listed below, when to be conducted between Company's board of directors authorized the the Company and the subsidiaries, or chairman to have the decisions within between the subsidiaries in which it directly NT$500 million subsequently submitted to or indirectly holds 100 percent of the issued and ratified by the next board of directors shares or authorized capital, the Company's meeting. board of directors authorized the chairman to have the decisions within NT$500 million subsequently submitted to and ratified by the next board of directors meeting:

1.Acquisition or disposal of equipment or right-of-use assets thereof held for business use.

2.Acquisition or disposal of real property right-of-use assets held for business use. Article 14: The Company that acquires real property or right-of-use assets thereof from a related party shall evaluate the reasonableness of the transaction costs in accordance with the provisions of Article 16 of Regulations Governing the Acquisition and Disposal of Assets by Public

Article 13: The Company that acquires real To change
property from a related party shall evaluate the serial
the reasonableness of the transaction costs in
number of the
accordance with the provisions of Article 15 article and
of Regulations Governing the Acquisition conform to
and Disposal of Assets by Public the letter (No.
Companies. 1070341072)

51

Amended Version Amended Version Original Version Reason

Companies.
Where the Company acquires real property
or right-of-use assets thereoffrom a related
party and one of the following
circumstances exists, the acquisition shall
also engage a CPA to check the appraisal
and render a specific opinion:
1. The related party acquired the real
propertyor 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 thereofto 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 right-of-use assets for
business use are acquired by the Company
with the subsidiaries, or by the
subsidiaries in which it directly or
indirectly holds 100 percent of the issued
shares or authorized capital.

Where the Company acquires real property
from a related party and one of the
following circumstances exists, the
acquisition shall also engage a CPA to check
the appraisal and render a specific opinion:
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.
dated
November
26, 2018
issued by
Financial
Supervisory
Commission

with the subsidiaries, or by the
subsidiaries in which it directly or
indirectly holds 100 percent of the issued
shares or authorized capital.
Article 15:Where the Company acquires
real propertyor right-of-use assets thereof
from a related party and the results of
appraisals are uniformly lower than the
transaction price, the following steps shall
be taken:
1. A special reserve shall be set aside in
accordance with the Act against the
difference between the real property
transaction price and the appraised cost,
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, then the
special reserve called for under the Act
shall be set aside pro rata in a proportion
consistent with the share of public
company's equity stake in the other
company.
2. Independent directors of the audit
committee shall complywith Article 218		 Article 14: Where the Company acquires
real property from a related party and the
results of appraisals are uniformly lower
than the transaction price, the following
steps shall be taken:
1. A special reserve shall be set aside in
accordance with the Act against the
difference between the real property
transaction price and the appraised cost,
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, then the
special reserve called for under the Act
shall be set aside pro rata in a proportion
consistent with the share of public
company's equity stake in the other
company.
2. Independent directors of the audit
committee shall comply with Article 218
of the CompanyAct.		 To change
the serial
number of the
article and
conform to
the letter (No.
1070341072)
dated
November
26, 2018
issued by
Financial
Supervisory
Commission

52

Amended Version Original Version Reason of the Company Act. 3. Actions taken pursuant to the preceding 3. Actions taken pursuant to the preceding two subparagraphs shall be reported to a two subparagraphs shall be reported to a shareholders meeting, and the details of shareholders meeting, and the details of the transaction shall be disclosed in the the transaction shall be disclosed in the annual report and any investment annual report and any investment prospectus. prospectus. The Company that has set aside a special The Company that has set aside a special reserve under the preceding paragraph may reserve under the preceding paragraph may not utilize the special reserve until it has not utilize the special reserve until it has recognized a loss on decline in market value recognized a loss on decline in market value of the assets it purchased at a premium, or of the assets it purchased or leased at a they have been disposed of, or adequate premium, or they have been disposed of, or compensation has been made, or the status the leasing contract has been terminated, or quo ante has been restored, or there is other adequate compensation has been made, or evidence confirming that there was nothing the status quo ante has been restored, or unreasonable about the transaction, and the there is other evidence confirming that there FSC has given its consent. was nothing unreasonable about the When the Company obtains real property transaction, and the FSC has given its from a related party, it shall also comply consent. with the preceding two paragraphs if there is When the Company obtains real property or other evidence indicating that the acquisition right-of-use assets thereof from a related was not an arms length transaction. party, it shall also comply with the preceding two paragraphs if there is other evidence indicating that the acquisition was not an arms length transaction. Article 16: The Company’s financial Article 15: The Company’s financial To change derivatives transactions shall be in derivatives transactions shall be in the serial compliance with the Company’s “Policies compliance with the Company’s “Policies number of the and Procedures for Financial Derivatives and Procedures for Financial Derivatives article Transactions” and shall pay attention to the Transactions” and shall pay attention to the matters of risk management and auditing to matters of risk management and auditing to implement the internal control system. implement the internal control system. Article 17: The Company that conducts a Article 16: The Company that conducts a To change merger, demerger, acquisition, or transfer of merger, demerger, acquisition, or transfer of the serial shares, prior to convening the board of shares, prior to convening the board of number of the directors to resolve on the matter, shall directors to resolve on the matter, shall article engage a CPA, attorney, or securities engage a CPA, attorney, or securities underwriter to give an opinion on the underwriter to give an opinion on the reasonableness of the share exchange ratio, reasonableness of the share exchange ratio, acquisition price, or distribution of cash or acquisition price, or distribution of cash or other property to shareholders, and submit it other property to shareholders, and submit it to the board of directors for deliberation and to the board of directors for deliberation and passage. However, the requirement of passage. However, the requirement of obtaining an aforesaid opinion on obtaining an aforesaid opinion on reasonableness issued by an expert may be reasonableness issued by an expert may be exempted in the case of a merger by a public exempted in the case of a merger by a public company of a subsidiary in which it directly company of a subsidiary in which it directly or indirectly holds 100 percent of the issued or indirectly holds 100 percent of the issued

53

Amended Version Original Version Reason shares or authorized capital, and in the case shares or authorized capital, and in the case of a merger between subsidiaries in which of a merger between subsidiaries in which the public company directly or indirectly the public company directly or indirectly holds 100 percent of the respective holds 100 percent of the respective subsidiaries’ issued shares or authorized subsidiaries’ issued shares or authorized capital. capital. The Company participating in a merger, The Company participating in a merger, demerger, acquisition, or transfer of shares demerger, acquisition, or transfer of shares shall prepare a public report to shareholders shall prepare a public report to shareholders detailing important contractual content and detailing important contractual content and matters relevant to the merger, demerger, or matters relevant to the merger, demerger, or acquisition prior to the shareholders meeting acquisition prior to the shareholders meeting and include it along with the expert opinion and include it along with the expert opinion referred to in paragraph 1 of the preceding referred to in paragraph 1 of the preceding Article when sending shareholders Article when sending shareholders notification of the shareholders meeting for notification of the shareholders meeting for reference in deciding whether to approve the reference in deciding whether to approve the merger, demerger, or acquisition. Provided, merger, demerger, or acquisition. Provided, where a provision of another act exempts a where a provision of another act exempts a company from convening a shareholders company from convening a shareholders meeting to approve the merger, demerger, or meeting to approve the merger, demerger, or acquisition, this restriction shall not apply. acquisition, this restriction shall not apply. Where the shareholders meeting of any one Where the shareholders meeting of any one of the companies participating in a merger, of the companies participating in a merger, demerger, or acquisition fails to convene or demerger, or acquisition fails to convene or pass a resolution due to lack of a quorum, pass a resolution due to lack of a quorum, insufficient votes, or other legal restriction, insufficient votes, or other legal restriction, or the proposal is rejected by the or the proposal is rejected by the shareholders meeting, the companies shareholders meeting, the companies participating in the merger, demerger or participating in the merger, demerger or acquisition shall immediately publicly acquisition shall immediately publicly explain the reason, the follow-up measures, explain the reason, the follow-up measures, and the preliminary date of the next and the preliminary date of the next shareholders meeting. shareholders meeting. Article 18: The Company participating in a Article 17: The Company participating in a To change merger, demerger, or acquisition shall merger, demerger, or acquisition shall the serial convene a board of directors meeting and convene a board of directors meeting and number of the shareholders meeting on the day of the shareholders meeting on the day of the article and transaction to resolve matters relevant to the transaction to resolve matters relevant to the conform to merger, demerger, or acquisition, unless merger, demerger, or acquisition, unless the letter (No. another act provides otherwise or the FSC is another act provides otherwise or the FSC is 1070341072) notified in advance of extraordinary notified in advance of extraordinary dated circumstances and grants consent. circumstances and grants consent. November The Company participating in a transfer of The Company participating in a transfer of 26, 2018 shares shall call a board of directors meeting shares shall call a board of directors meeting issued by on the day of the transaction, unless another on the day of the transaction, unless another Financial act provides otherwise or the FSC is notified act provides otherwise or the FSC is notified Supervisory in advance of extraordinary circumstances in advance of extraordinary circumstances Commission and grants consent. and grants consent.

54

Amended Version Amended Version Original Version Reason
When participating in a merger, demerger,
acquisition, or transfer of another company's
shares, a company that is listed on an
exchange or has its shares traded on an OTC
market shall prepare a full written record of
the following information and retain it for 5
years for reference:
Basic identification data for personnel:
Including the occupational titles, names, and
national ID numbers (or passport numbers in
the case of foreign nationals) of all persons
involved in the planning or implementation
of any merger, demerger, acquisition, or
transfer of another company's shares prior to
disclosure of the information.
Dates of material events: Including the
signing of any letter of intent or
memorandum of understanding, the hiring of
a financial or legal advisor, the execution of
a contract, and the convening of a board of
directors meeting.
Important documents and minutes: Including
merger, demerger, acquisition, and share
transfer plans, any letter of intent or
memorandum of understanding, material
contracts, and minutes of board of directors
meetings.
When participating in a merger, demerger,
acquisition, or transfer of another company's
shares, a company that is listed on an
exchange or has its shares traded on an OTC
market shall, within 2 days counting
inclusively from the date of passage of a
resolution by the board of directors, report
(in the prescribed format and via the
Internet-based information system) the
information set out in subparagraphs 1 and 2
of the preceding paragraph to the FSC for
recordation.
Where any of the companies participating in
a merger, demerger, acquisition, or transfer
of another company's shares is neither listed
on an exchange nor has its shares traded on
an OTC market, the company(s) so listed or
traded shall sign an agreement with such
company whereby the latter is required to
abide by the provisions ofthe preceding two
paragraphs.

When participating in a merger, demerger,
acquisition, or transfer of another company's
shares, a company that is listed on an
exchange or has its shares traded on an OTC
market shall prepare a full written record of
the following information and retain it for 5
years for reference:
Basic identification data for personnel:
Including the occupational titles, names, and
national ID numbers (or passport numbers in
the case of foreign nationals) of all persons
involved in the planning or implementation
of any merger, demerger, acquisition, or
transfer of another company's shares prior to
disclosure of the information.
Dates of material events: Including the
signing of any letter of intent or
memorandum of understanding, the hiring of
a financial or legal advisor, the execution of
a contract, and the convening of a board of
directors meeting.
Important documents and minutes: Including
merger, demerger, acquisition, and share
transfer plans, any letter of intent or
memorandum of understanding, material
contracts, and minutes of board of directors
meetings.
When participating in a merger, demerger,
acquisition, or transfer of another company's
shares, a company that is listed on an
exchange or has its shares traded on an OTC
market shall, within 2 days counting
inclusively from the date of passage of a
resolution by the board of directors, report
(in the prescribed format and via the
Internet-based information system) the
information set out in subparagraphs 1 and 2
of the preceding paragraph to the FSC for
recordation.
Where any of the companies participating in
a merger, demerger, acquisition, or transfer
of another company's shares is neither listed
on an exchange nor has its shares traded on
an OTC market, the company(s) so listed or
traded shall sign an agreement with such
company whereby the latter is required to
abide by the provisions of per paragraph 3
and 4 hereof.






Article 19:The Companiesparticipatingin a Article 18: The Companiesparticipatingin a To change

55

Amended Version Original Version Reason
merger, demerger, acquisition, or transfer of
shares may not arbitrarily alter the share
exchange ratio or acquisition price unless
under the below-listed circumstances, and
shall stipulate the circumstances permitting
alteration in the contract for the merger,
demerger, acquisition, or transfer of shares:
1. Cash capital increase, issuance of
convertible corporate bonds, or the
issuance of bonus shares, issuance of
corporate bonds with warrants, preferred
shares with warrants, stock warrants, or
other equity based securities.
2. An action, such as a disposal of major
assets, that affects the company's financial
operations.
3. An event, such as a major disaster or
major change in technology, that affects
shareholder equity or share price.
4. An adjustment where any of the
companies participating in the merger,
demerger, acquisition, or transfer of shares
from another company, buys back treasury
stock.
5. An increase or decrease in the number of
entities or companies participating in the
merger, demerger, acquisition, or transfer
of shares.
6. Other terms/conditions that the contract
stipulates may be altered and that have
been publicly disclosed.
The contract for participation by The
Company in a merger, demerger, acquisition,
or of shares shall specify the relevant matters
in accordance with the provisions to
safeguard the rights and interests of the
participatingcompanies.



merger, demerger, acquisition, or transfer of
shares may not arbitrarily alter the share
exchange ratio or acquisition price unless
under the below-listed circumstances, and
shall stipulate the circumstances permitting
alteration in the contract for the merger,
demerger, acquisition, or transfer of shares:
1. Cash capital increase, issuance of
convertible corporate bonds, or the issuance
of bonus shares, issuance of corporate bonds
with warrants, preferred shares with
warrants, stock warrants, or other equity
based securities.
2. An action, such as a disposal of major
assets, that affects the company's financial
operations.
3. An event, such as a major disaster or
major change in technology, that affects
shareholder equity or share price.
4. An adjustment where any of the
companies participating in the merger,
demerger, acquisition, or transfer of shares
from another company, buys back treasury
stock.
5. An increase or decrease in the number of
entities or companies participating in the
merger, demerger, acquisition, or transfer of
shares.
6. Other terms/conditions that the contract
stipulates may be altered and that have been
publicly disclosed.
The contract for participation by The
Company in a merger, demerger, acquisition,
or of shares shall specify the relevant
matters in accordance with the provisions to
safeguard the rights and interests of the
participatingcompanies.
the serial
number of the
article
Article 20:The subsidiaries’ procedures for
handling acquisition or disposal of assets:
1. The Company’s subsidiaries shall
implement their acquisition and disposal
of assets in accordance withtheir
respective“Procedures for Acquisition or
Disposal of Assets”.
2. When a subsidiary of the Company
acquires or disposes of assets that require
public announcement as the standards of
this procedure and said subsidiary is not a
domesticpublic company,the Company		 Article 19: The subsidiaries’ procedures for
handling acquisition or disposal of assets:
1. The Company’s subsidiaries shall
implement their acquisition and disposal
of assets in accordance with “Regulations
Governing the Acquisition and Disposal
of Assets by Public Companies”.
2. When a subsidiary of the Company
acquires or disposes of assets that require
public announcement as the standards of
this procedure and said subsidiary is not a
domesticpublic company,the Company		 To change
the serial
number of the
article,
amend the
instructions
of
procedures,
and conform
to the letter
(No.
1070341072)

56

Amended Version Original Version Reason
3. shall proceed with the relevant public
announcement and report for the
subsidiary.
The criteria of the announcement and
report applied to a subsidiary of the
Company, such as“paid-in capital”or“the
total assets”,is based on the paid-in
capital or total assets of the Company.
If the subsidiary is not a domestic public
company, such procedures shall be
approved by the subsidiaries’ Boards of
Directors the same applies when the
procedures are amended.
shall proceed with the relevant public
announcement and report for the
subsidiary.
The criteria of the announcement and
report applied to a subsidiary of the
Company, such as “20% of paid-in
capital” or “10 % of the total assets”, is
based on the paid-in capital or total assets
of the Company.
3. If the subsidiary is not a domestic public
company, such procedures shall be
approved by the subsidiaries’ Boards of
Directors; the same applies when the
procedures are amended.		 dated
November
26, 2018
issued by
Financial
Supervisory
Commission
Article 21:The relevant personnel of the
Company shall follow the provisions of this
procedure in handling matters related to the
acquisition or disposal of assets. In case of a
breach of the fore-mentioned Guidelines or
Procedures, the Company’s personnel in
execution unit will be subject to penalty
dependingon the circumstances.		 Article 20: The relevant personnel of the
Company shall follow the provisions of this
procedure in handling matters related to the
acquisition or disposal of assets. In case of a
breach of the fore-mentioned Guidelines or
Procedures, the Company’s personnel in
execution unit will be subject to penalty
dependingon the circumstances.		 To change
the serial
number of the
article
Article 22:The Procedures shall be
approved by the Audit Committee, the Board
of Directors, and the Shareholders’ Meeting;
the same applies when the procedures are
amended.
When the procedures for the acquisition and
disposal of assets are adopted or amended
they shall be approved by more than half of
all audit committee members and submitted
to the board of directors for a resolution.
If approval of more than half of all audit
committee members as required in the
preceding paragraph 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.
The terms "all audit committee members"
and "all directors" in the preceding
paragraph shall be counted as the actual
number of persons currently holding those
positions.
Article 21: The Procedures shall be
approved by the Audit Committee, the
Board of Directors, and the Shareholders’
Meeting; the same applies when the
procedures are amended.
When the procedures for the acquisition and
disposal of assets are adopted or amended
they shall be approved by more than half of
all audit committee members and submitted
to the board of directors for a resolution.
If approval of more than half of all audit
committee members as required in the
preceding paragraph 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.
The terms "all audit committee members"
and "all directors" in the preceding
paragraph shall be counted as the actual
number of persons currently holding those
positions.		 To change
the serial
number of the
article

57

Appendix

Appendix 1

Realtek Semiconductor Corporation Articles of Incorporation

(Translation)

I. General Provisions

Article 1 The Company shall be incorporated under the Company Act as a company limited by shares named “Realtek Semiconductor Corp.”.

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

  • CC01080 Electronic Parts and Components Manufacturing

  • I501010 Product Designing

  • F401010 International Trade

  • I301010 Service of information software.

  • I301020 Data Processing Services

  • CC01101 Restrained Telecom Radio Frequency Equipments and Materials Manufacturing (Radio transmitters, radio transceivers, radio receivers, industrial, scientific, medical radiation machines, and other machines with radio radiant energy only)

  • F401021 Restrained Telecom Radio Frequency Equipments and Materials Import (Radio transmitters, radio transceivers, radio receivers, industrial, scientific, medical radiation machines, and other machines with radio radiant energy only)

  • (1) Researching, developing, producing, manufacturing, and selling various integrated circuits.

  • (2) Providing application design, testing, maintenance and technical consulting services of the software and hardware for various integrated circuit products.

  • (3) Researching, developing and selling various intellectual property

  • (4) Also engaged in trading business in relation to the business of the Company.

  • Article 3 The Company is headquartered in Hsinchu Science-Based Industrial Park, Taiwan, Republic of China, and when necessary, upon approval of the Board of Directors and the competent authorities, may establish branch offices within or outside the territory of the Republic of China.

  • Article 4 Public announcements of the Company shall be made in accordance with Article 28 of the Company Act.

  • (1) The Company's domestic and foreign investment transactions shall be resolved by the board of directors, and are not subject to the restriction of Article 13 of the Company Act.

  • (2) The Company upon approval of the Board of Directors may provide endorsement and guarantee to others.

  • II. Shares

Article 5 The authorized capital of the Company is NT$8,900,000,000, divided into 890,000,000 common shares, and may be paid-up in installments. Among the above capital, a total of NT$800,000,000, divided into 80,000,000 shares at par

58

value NT$10 each share, is reserved for issuing employee stock warrants, and may be issued in installments in accordance with the resolution of the Board of Directors.

  • Article 5-1 To issue employee stock warrants with the exercise price lower than the closing price of the Company stocks as of the issuing date, the Company is required to obtain the consent of a majority of the shareholders present who represent twothirds or more of the total number of outstanding shares. The Company is allowed to register multiple issues over a period of 1 year from the date of the shareholders meeting resolution.

  • Article 5-2 To transfer treasury shares to employees at less than the average actual share repurchase price, the Company is required to obtain the consent of a majority of the shareholders present who represent two-thirds or more of the total number of outstanding shares at the most recent shareholders meeting.

  • Article 6 The share certificates of the Company shall be all name-bearing share certificates, which shall be signed or sealed by three or more directors of the Company, and issued after duly authentication pursuant to the law. The Company’s shareholder services follow the Regulations Governing the Administration of Shareholder Services of Public Companies issued by the competent authority.

The Company may be exempted from printing share certificates if the shares are registered with the centralized securities depository enterprise.

III. Shareholders Meetings

  • Article 7 Registration of stock transfer shall be suspended within sixty days prior to any general shareholders meeting, thirty days prior to any special shareholders meeting, or within five days prior to the record date for distributing dividends, bonuses, or other benefits.

  • Article 8 Shareholders meetings of the Company are of two types, general meeting and special meeting. General meeting shall be convened once a year within six months of the end of a fiscal year, and shareholders shall be notified thirty days prior to the scheduled meeting date. Special meeting shall be convened whenever necessary, and shareholders shall be notified fifteen days prior to the scheduled meeting date.

  • Article 9 In case the shareholder is unable to attend the Shareholders meeting, the shareholder may appoint a proxy to attend the meeting by presenting a proxy document with signature or seal and stating therein the scope of power authorized to the proxy. Unless otherwise provided in the relevant regulation, the shareholders’ appointment of proxies to attend the meeting shall follow the Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies issued by the Competent Authority. The voting rights at a shareholders meeting may be exercised by way of electronic means. A shareholder exercising voting rights at a shareholders meeting by way of electronic means shall be deemed to have attended the said shareholders meeting in person. The related matters are handled in accordance with the relevant regulation.

  • Article 10 Each share is entitled to one voting right, unless otherwise provided in the Company Act.

  • Article 11 Unless otherwise provided in the Company Act, the resolutions at a shareholders

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meeting shall be adopted by a majority of the shareholders present who represent half or more of the total number of outstanding shares.

The resolution of the proposal at a shareholders meeting shall be decided by the chairman by way of voting or solicitation. Except for the proposals without objection from any shareholder after solicitation by the chairman are deemed approval, the chairman shall decide that a vote to be held on whole or part of the proposals at the same time before extraordinary motions with the ballots to be counted separately for each proposal.

IV. Directors

Article 12 The number of directors of the Company shall be between seven (7) to thirteen
(9), and the board of directors is authorized to determine the number of directors.
In the board, the number of independent directors shall be no less than three (3).
Directors shall be elected by adopting a candidate nomination system. The
election of independent directors and non-independent directors shall be held
together, provided the elected number of independent directors and non-
independent directors shall be calculated separately. The professional
qualifications, restrictions on shareholdings and concurrent office held, method
of nomination and election, and other matters for compliance with respect to
independent directors shall be in accordance with relevant regulation by the
Competent Authority. Directors are elected from among the nominees listed in
the roster of director candidates at a shareholders meeting. The term of office for
directors is three (3) years and the directors are eligible for re-election.
Article 12-1 The Company is allowed to purchase liability insurance for directors and
managers. The board of directors is authorized to decide the insurance coverage.
Article 13 The board of directors shall be formed by directors. The directors shall elect from
among themselves a chairman by a majority approval in a meeting attended by
over two-thirds of the directors. A vice chairman may be elected depending on
the demand of business.
The chairman internally presides over the shareholders meeting and the board of
directors, and externally represents the Company.
Meetings of the Board of Directors shall be convened by the Chairman.
However, the first meeting after the re-election of directors shall be convened in
accordance with the article 203 of the Company Act. Notice of the meeting shall
be delivered in writing, by email, or by fax with the proposed agenda specified.
The chairman presides over the board of directors. In case the chairman is on
leave or cannot exercise his duty, the vice chairman shall act on his behalf. In
case of no vice chairman elected or the vice chairman is on leave or cannot
exercise his duty as well, the chairman shall designate one of the directors to act
on his behalf. In case of no designation, the board shall elect from among
directors as the acting chairman. In case a meeting of the board of directors is
proceeded via visual communication network, then the directors taking part in
such a visual communication meeting shall be deemed to have attended the
meeting in person.
Article 13-1 The Company forms an Audit Committee, consisting of all independent directors.
The number, term of office, powers, rules of procedure for meetings of the audit
committee, and resources to be provided by the Company when the audit
committee exercises its powers, shall be in accordance with the Company’s audit
committee charter.

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Article 14 The duties and responsibilities of the Board of Directors shall be as follows:

  1. Review the following matters raised by the general manager:

  2. 1-1. The Company's operating principles, and medium and long-term development plans.

  3. 1-2. Annual budget and implementation supervision.

  4. 1-3. Annual report and final statements.

  5. 1-4. Capital increase and decrease plan.

  6. 1-5. Important contracts with others.

  7. 1-6. Company charters and important business rules.

  8. 1-7. Branch establishment, reorganization or withdrawal.

  9. 1-8. Major capital expenditure plan.

  10. 1-9. Other matters issued for review.

  11. Review of distribution of earnings or offset of losses.

  12. Review of the Company's articles of incorporation or amendments.

  13. Appointment and dismissal of general manager, financial supervisor, and audit supervisor.

  14. Implementation of the resolution of the shareholders meeting.

  15. Convening of the shareholders meeting and business report at the shareholders meeting.

  16. Other businesses that should be handled in accordance with the laws.

  17. Article 15 Directors shall attend the meeting of the Board in person. In case that a director is unable to attend a board meeting, he/she may appoint one of the other directors as his/her proxy to attend the meeting. A director may accept the appointment to act as the proxy referred to in the preceding paragraph of one other director only.

  18. Article 15-1 The directors’ remuneration is authorized to be decided by the board of directors based on the directors’ degree of involvement and contribution to the Company’s business operation, as well as on usual level of the industry.

V. Managers

  • Article 16 The Company shall appoint general manager, whose appointment, discharge, and remuneration shall be in accordance with the provisions in Article 29 of the Company Act.

VI. Accounting

  • Article 17 The Company’s fiscal year shall be from January 1 to December 31 of each calendar year. At the end of each fiscal year, the board of directors shall have the following documents prepared and submitted to the shareholders meeting for approval.

  • Business report

  • Financial statements

  • Proposal for distribution of earning or offset of losses

Article 18 If gained profits within a fiscal year, the Company shall allocate at a maximum of 3% of the profits as directors’ remuneration, and allocate no less than 1% of the profits as employees’ compensation. However, in case of the accumulated losses, certain profits shall first be reserved to cover the accumulated losses, and then allocate employees’ compensation and directors’ remuneration according to the proportion in the preceding paragraph.

The distribution of employees' compensation in the preceding paragraph shall be

61

in cash or in stock, and shall be resolved with a consent of a majority of the directors present at a meeting attended by over two-thirds of the total directors. The distribution of director's remuneration and employee’ compensation shall be reported to the shareholders meeting.

The employees entitled to receive employees’ compensation may include the employees of subsidiaries of the Company meeting certain specific requirements. The requirements are determined by the board of directors or its authorized person.

The Company belongs to the integrated circuit design industry and is in the growth phase of the enterprise life cycle. After considering the long-term business development of the Company, matching future investment fund requirements, and the long-term financial planning of the Company, if there are profits at the end of fiscal year, the Company shall first offset the accumulated losses with profits after tax, and then shall contribute 10% of profit as legal reserve, unless the accumulated legal reserve has reached the amount of the Company’s total capital, and contribute or reverse special reserve in accordance with relevant laws or regulation by the competent authority. If there are net profits remained, the remaining net profits and the retained earnings from previous years shall be distributed as shareholders’ dividend after the distribution proposal prepared by the board of directors is approved at a shareholders meeting. After considering financial, business and operational factors, the Company may distribute the whole of distributable earnings of the current year, and may also distribute whole or part of the reserves in accordance with the law or the regulation by the competent authority.

When distributing dividends, the main consideration is the Company's future expansion of operating scale and requirement of cash flow. The cash dividends shall not be less than 10% of the total dividends distributed to shareholders in the current year.

VII. Supplementary Provisions

Article 19 For matters not provided herein, provisions in the Company Act shall govern. Article 20 The Articles of Incorporation hereof were established on Oct. 16, 1987; 1st amended on Sep. 25, 1989; 2nd amended on Oct. 7, 1989; 3rd amended on Dec. 5, 1990; 4th amended on Jun. 26, 1991; 5th amended on Jun. 27, 1992; 6th amended on Jun. 26, 1993; 7th amended on Apr. 2,1994; 8th amended on May 20, 1995; 9th amended on May 4, 1996; 10th amended on Jan. 21, 1997; 11th amended on May 5, 1997; 12th amended on May 19, 1998; 13th amended on Apr. 30, 1999; 14th amended on Jun. 9, 2000; 15th amended on May 30, 2001; 16th amended on Jun. 3, 2002; 17th amended on Jun. 9, 2003; 18th amended on Jun. 1, 2004; 19th amended on Jun. 13, 2005; 20th amended on Jun. 12, 2006; 21st amended on Jun. 11,2007; 22nd amended on Jun. 13, 2008; 23rd amended on Jun. 10, 2009; 24th amended on Jun. 15, 2010; 25th amended on Jun. 15, 2011; 26th amended on Jun. 12, 2012; 27th amended on Jun. 21, 2013; 28th amended on Jun. 24, 2014; 29th amended on Jun. 7, 2016; 30th amended on Jun. 8, 2017; 31st amended on Jun. 5, 2018.

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Appendix 2

Realtek Semiconductor Corporation Rules of Procedures for Shareholders Meeting (Translation)

Article 1 The rules of procedures for the Company's shareholders meetings, except as
otherwise provided by law, regulation, or the articles of incorporation, shall be as
provided in these Rules.
Article 2 Shareholders and their proxies (collectively, "shareholders") shall attend
shareholders meetings based on attendance cards, sign-in cards, or other
certificates of attendance. Solicitors soliciting proxy forms shall also bring
identification documents for verification.
Attending shareholders may hand in a sign-in card in lieu of signing in. The
number of shares in attendance shall be calculated according to the shares
indicated by the sign-in cards handed in plus the number of shares whose voting
rights are exercised by correspondence or electronic means.
Article 3 Attendance and voting at shareholders meetings shall be calculated based on
numbers of shares.
With respect to resolutions of shareholders meetings, the number of shares held
by a shareholder with no voting rights shall not be calculated as part of the total
number of issued shares.
When the Company holds a shareholders meeting, the shareholders may
exercise voting rights by electronic or correspondence means. Shareholders
who exercise his/her votes by way of electronic means shall be in accordance
with the Company Act, Securities and Exchange Act, and Regulations
Governing the Administration of Shareholder Services of Public Companies, to
exercise voting rights on the electronic voting platform designated by the
Company. Shareholders exercising voting rights by electronic means will be
deemed to have attended the meeting in person.
Shareholder who are not able to attend the shareholders meeting in person may
appoint a proxy to attend the meeting by providing the proxy form issued by
this Company and stating the scope of the proxy's authorization.
A shareholder may issue only one proxy form and appoint only one proxy for
any given shareholders meeting, and shall deliver the proxy form to this
Corporation before 5 days before the date of the shareholders meeting. When
duplicate proxy forms are delivered, the one received earliest shall prevail
unless a declaration is made to cancel the previous proxy appointment.
After a proxy form has been delivered to this Corporation, 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 this Corporation before 2 business days before the meeting date. If
the cancellation notice is submitted after that time, votes cast at the meeting by
the proxy shall prevail.
After a shareholder has exercised voting rights by electronic means, in the event
the shareholder intends to attend the shareholders meeting in person, a written
declaration of intent to retract the voting rights already exercised under the
preceding paragraph shall be made known to the Company, by the same means
by which the voting rights were exercised, before 2 business days before the
date of the shareholders meeting. If the notice of retraction is submitted after

63

that time, the voting rights already exercised by electronic means shall prevail.
When a shareholder has exercised voting rights both by electronic means and
by appointing a proxy to attend a shareholders meeting, the voting rights
exercised by the proxy in the meeting shall prevail.
Article 4 Unless otherwise provided by law or regulation, the Company's shareholders
meetings shall be convened by the board of directors.
The venue for a shareholders meeting shall be the premises of the Company, or
a place easily accessible to shareholders and suitable for a shareholders
meeting. The meeting may begin no earlier than 9 a.m. and no later than 3 p.m.
Full consideration shall be given to the opinions of the independent directors
with respect to the place and time of the meeting.
Article 5 If a shareholders meeting is convened by the board of directors, the meeting
shall be chaired by the chairman of the board. When the chairman of the board
is on leave or for any reason unable to exercise the powers of the chairman, the
vice chairman shall act in place of the chairman; if there is no vice chairman or
the vice chairman also is on leave or for any reason unable to exercise the
powers of the vice chairman, the directors shall select from among themselves
one person to serve as chair.
If a shareholders meeting is convened by a party with power to convene but
other than the board of directors, the convening party shall chair the meeting.
When there are two or more such convening parties, they shall mutually select a
chair from among themselves.
Article 6 The Company may appoint its attorneys, certified public accountants, or related
persons retained by it to attend a shareholders meeting in a non-voting capacity.
Staff handling administrative affairs of a shareholders meeting shall wear
identification cards or arm bands.
Article 7 The Company shall make completed audio and video recording of the
proceedings of the shareholders meeting. The recorded materials of the
preceding paragraph shall be retained for at least 1 year.
Article 8 The chairman shall call the meeting to order at the appointed meeting time.
However, when the attending shareholders do not represent a majority of the
total number of issued shares, the chairman may announce a postponement,
provided that no more than two such postponements, for a combined total of no
more than 1 hour, may be made.
If the quorum is not met after two postponements, but the attending
shareholders represent one third or more of the total number of issued shares, a
tentative resolution may be adopted pursuant to Article 175, paragraph 1 of the
Company Act.
When, prior to conclusion of the meeting, the attending shareholders represent a
majority of the total number of issued shares, the chairman may resubmit the
tentative resolution for a vote by the shareholders meeting pursuant to Article
174 of the Company Act.
Article 9 If a shareholders meeting is convened by the board of directors, the meeting
agenda shall be set by the board of directors. The meeting shall proceed in the
order set by the agenda, which may not be changed without a resolution of the
shareholders meeting.
The provisions of the preceding paragraph apply mutatis mutandis to a
shareholders meeting convened by a party with the power to convene that is not
the board of directors.
The chairman may not declare the meeting adjourned prior to completion of

64

deliberation on the meeting agenda of the preceding two paragraphs (including
extraordinary motions), except by a resolution of the shareholders meeting. If
the chairman declares the meeting adjourned in violation of the rules of
procedure, the other members of the board of directors shall promptly assist the
attending shareholders in electing a new chair in accordance with statutory
procedures, by agreement of a majority of the votes represented by the
attending shareholders, and then continue the meeting. After adjournment,
shareholders are not allowed to elect another chairman to continue the meeting
at the original place or another place.
Article 10 Before speaking, an attending shareholder must specify on a speaker's slip the
subject of the speech, his/her shareholder account number (or attendance card
number), and account name. The order in which shareholders speak will be set
by the chairman. A shareholder in attendance who has submitted a speaker's slip
but does not actually speak shall be deemed to have not spoken. When the
content of the speech does not correspond to the subject given on the speaker's
slip, the spoken content shall prevail. When an attending shareholder is
speaking, other shareholders may not speak or interrupt unless they have sought
and obtained the consent of the chairman and the shareholder that has the floor.
The chairman shall stop any violation.
Article 11 Attending shareholders' enquiries on the matters set out in the agenda shall be
made after all the reported matters have been read or reported by the chairman
or his designated person. Except with the consent of the chairman, a
shareholder may not speak more than twice on the same proposal, and a single
speech may not exceed 5 minutes. If the shareholder's speech violates the rules
or exceeds the scope of the agenda item, the chairman may terminate the
speech.
Article 12 When a juristic person is appointed to attend as proxy, it may designate only
one person to represent it in the meeting. When a juristic person shareholder
appoints two or more representatives to attend a shareholders meeting, only one
of the representatives so appointed may speak on the same proposal.
Article 13 After an attending shareholder has spoken, the chairman may respond in person
or direct relevant personnel to respond.
Article 14 The chairman shall allow ample opportunity during the meeting for explanation
and discussion of proposals and of amendments or extraordinary motions put
forward by the shareholders. When the chairman is of the opinion that a
proposal has been discussed sufficiently to put it to a vote, the chairman may
announce the discussion closed and call for a vote.
Article 15 Vote monitoring and counting personnel for the voting on a proposal shall be
appointed by the chairman, provided that all monitoring personnel shall be
shareholders of the Company. Immediately after vote counting has been
completed, the results of the voting shall be announced on-site at the meeting
and be recorded.
The ballot of voting at the shareholders meeting shall be deemed void if one of
the following conditions are found by all of the vote monitoring personnel:
(1) The Ballot was not prepared or issued by the company.
(2) No meaning is marked on the ballot or the ballot in the ballot box is not for
the designated motion.

(3) The ballot is not placed in the ballot box. (4) The ballot is not recognizable due to damaged or handwriting blurred. (5) The ballot has been altered or written with other characters or symbols.

65

(6) Both for and against are marked on the ballot.
If there is a dispute from shareholders on the voting process, the vote counting
method, the validity of the votes, etc., the chairman shall make a determination.
Article 16 When a meeting is in progress, the chairman may announce a break based on
time considerations.
Article 17 Except as otherwise provided in the Company Act and in the articles of
incorporation, the passage of a proposal shall require an affirmative vote of a
majority of the voting rights represented by the attending shareholders.
The resolution of the shareholders meeting shall be decided by the chairman by
way of voting or solicitation. Except for the proposals without objection from
any shareholders after solicitation by the chairman are deemed approval, the
chairman shall decide that a vote to be held on whole or part of the proposals at
the same time before extraordinary motions with the ballots to be counted
separately for each proposal.
If no objection from any shareholders after solicitation by the chairman, the
resolution shall be deemed approval with the same effect as the resolution by
voting.
Article 18 When there is an amendment or an alternative to a proposal, the chair shall
present the amended or alternative proposal together with the original proposal
and decide the order in which they will be put to a vote. When any one among
them is passed, the other proposals will then be deemed rejected, and no further
voting shall be required.
The discussion and voting order of the shareholders' proposals in the
extraordinary motions shall be determined by the chairman. Those belonging to
the same type of motions shall be merged by the chairman.
Article 19 The chairman may direct the proctors or security personnel to help maintain
order at the meeting place. When proctors or security personnel help maintain
order at the meeting place, they shall wear an identification card or arm band.
At the place of a shareholders meeting, if a shareholder attempts to speak
through any device other than the public address equipment set up by the
Company, the chairman may prevent the shareholder from so doing.
When a shareholder violates the rules of procedure and defies the chairman's
correction, obstructing the proceedings and refusing to heed calls to stop, the
chairman may direct the proctors or security personnel to escort the shareholder
from the meeting.
Article 20 When a meeting is in progress, if a force majeure event occurs, the chairman
may rule the meeting temporarily suspended and announce a time when, in
view of the circumstances, the meeting will be resumed.
If the meeting venue is no longer available for continued use and not all of the
items (including extraordinary motions) on the meeting agenda have been
addressed, the shareholders meeting may adopt a resolution to resume the
meeting at another venue.
Article 21 These Rules shall be implemented after adoption by shareholders meetings.
Amendments based on demand of these Rules are authorized to the board of
directors.

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Appendix 3

Shareholding of Directors

Shareholding of Directors Shareholding of Directors Shareholding of Directors Shareholding of Directors Shareholding of Directors
Record date:April 14,2019
Position Name Date
Elected		 Shares Shareholding
Ratio (%)
Chairman Cotek Pharmaceutical Industry Co., Ltd.
Representative: Yeh,Nan-Horng		 2018.06.05 22,146,604
4.36%
Vice
Chairman		 Forehead International Co., Ltd.
Representative: Chiu,Sun-Chien		 2018.06.05 6,184,359
1.22%
Director Forehead International Co., Ltd.
Representative: Chern,Kuo-Jong		 2018.06.05 6,184,359
1.22%
Director Sonnen Limited
Representative: Yeh,Po-Len		 2018.06.05 66,000
0.01%
Director Sonnen Limited
Representative: Huang,Yung-Fang		 2018.06.05 66,000
0.01%
Director Ni, Shu-Ching 2018.06.05 6,308,389
1.24%
Independent
Director		 Chen, Fu-Yen 2018.06.05 0
0
Independent
Director		 Wang, Chun-Hsiung 2018.06.05 0
0
Independent
Director		 Ou Yang, Wen-Han 2018.06.05 563,688
0.11%
Total 35,269,040

Total shares issued as of April 14, 2019: 508,095,464 common shares

Note ： The Company’s Directors are required by the law to hold in the aggregate not less than 16,259,054 shares. As of April 14, 2019, the shareholdings of all Directors (not including Independent Directors) were 34,705,352 shares.

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