SINBON Electronics — Governance Information 2017

Jun 16, 2017

Procedures for the Acquisition and Disposal of Assets

Article 1 Purpose

The Procedures are stipulated to protect assets and ensure information disclosure.

Article 2 Legal basis

These Procedures are adopted in accordance with the provisions of Article 36-1 of the Securities and Exchange Act and “Regulations Governing the Acquisition and Disposal of Assets by Public Companies.”

Article 3 Scope of assets

1. Securities: including 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, rights to use land, and construction enterprise inventory) and equipment.

3. Memberships.

4. Intangible assets: including 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 major assets.

Article 4 Definitions

1. Derivatives: Forward contracts, options contracts, futures contracts, leverage contracts, and swap 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.

2. Assets acquired or disposed through mergers, demergers, acquisitions, or transfer of shares in accordance with law: Refers to assets acquired or disposed through mergers, demergers, or acquisitions conducted under the Business Mergers and Acquisitions Act, Financial Holding Company Act, Financial Institution Merger Act and other acts, or to transfer of shares from another company through issuance of new shares of its own as the consideration therefor (hereinafter referred to as the “transfer of shares”) under Article 156, Paragraph 6 of the Company Act.

3. Related party or subsidiary: As defined in the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

4. Professional appraiser: Refers to a real property appraiser or other person duly authorized by law to engage in the value appraisal of real property or other fixed assets.

5. Date of occurrence: Refers to the date of contract signing, date of payment, date of consignment trade, date of transfer, dates of Board of Directors’ resolutions, or other date that can confirm the counterpart and monetary amount of the transaction, whichever date is earlier; provided, for investment for which approval of the competent authority is required, the earlier of the above date or the date of receipt of approval by the competent authority shall apply.

6. Mainland China area investment: Refers to investments in the mainland China area approved by the Ministry of Economic Affairs Investment Commission or conducted in accordance with the provisions of the Regulations Governing Permission for Investment or Technical Cooperation in the Mainland Area.

7. “Within the preceding year” as used herein refers to the year preceding the date of the current acquisition or disposal of assets. Items duly announced need not be counted toward the transaction amount.

8. “Financial Statements for the Most Recent Year” as used herein refers to Financial statements certified or reviewed by a certified public accountant prior to the date the Company acquires or disposes of the assets.

9. For the calculation of 10 percent of total assets under these Procedures, the total assets stated in the most recent parent company only financial report or individual financial report prepared under the Regulations Governing the Preparation of Financial Reports by Securities Issuers shall be used.

Article 5 The amount limits for investments in real property and securities for non-business use

The amount limits for the above assets acquired by the Company and each subsidiary individually are specified as follows:

1. The total amount of the real property for non-business use shall not be higher than 10 percent or more of paid-in capital.

2. The total amount of investments in short- and long-term securities shall not be higher than 150 percent of net value.

3. The amount of investments in individual securities shall not be higher than 25 percent of net value.

Article 6 Professional appraisers and their officers, certified public accountants, attorneys, and securities underwriters that provide the Company with appraisal reports, certified public accountant’s opinions, attorney’s opinions, or underwriter’s opinions shall not be a related party of any party to the transaction.

Article 7 Disposition procedures for acquisition or disposal of real property or other fixed assets

1. Appraisal and operating procedures

The Company shall handle the acquisition or disposal of real property or other fixed assets in compliance with the procedures for the Company’s internal control system of fixed asset cycle.

1. Determination procedures for the terms and conditions of the transaction and the degree of authority delegated

2. (1) Real property shall be acquired or disposed by making reference to the publicly announced current value, appraised price, and actual transaction price in neighboring area to determine the terms and conditions of the transaction and transaction price and prepare an analysis report, and submitted to the Group’s level of authority on common matters – business management, human resource, and administration for approval.

3. (2) Other fixed assets shall be acquired or disposed by adopting one of price inquiry, price comparison, price negotiation, or tendering procedures, and submitted to the Group’s level of authority on common matters – business management, human resource, and administration for approval.

4. Units responsible for implementation

5. The Company acquiring or disposing of real property or other fixed assets shall, upon approval according to the level of authority set forth in the preceding paragraph, be conducted under the charge of the user department and Administration Department.

6. Appraisal reports of real property or other fixed assets

7. In acquiring or disposing of real property or 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 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:

8. (1) Where due to special circumstances it is necessary to give a limited price, or specified price as a reference basis for the transaction price, the transaction shall be submitted for approval in advance by the Board of Directors, and the same procedure shall be followed for any future changes to the terms and conditions of the transaction.

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

10. (3) 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.

• (4) No more than three (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 six (6) months have elapsed, an opinion may still be issued by the original professional appraiser.

• (5) 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.

• The calculation of the transaction amounts shall be done in accordance with Article 14, Paragraph 1, Subparagraph 6 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 in accordance with these Procedures need not be counted toward the transaction amount.

Article 8 Disposition procedures for acquisition or disposal of securities investments

1. Appraisal and operating procedures

   • The Company shall handle the acquisition or disposal of securities in compliance with the procedures for the Company’s internal control system of investment cycle operation.

2. Determination procedures for the terms and conditions of the transaction and the degree of authority delegated

3. (1) Securities traded on the centralized exchange market or at the business premises of securities firms shall be judged and determined based on the market conditions by the Finance Department, and submitted to the Group’s level of authority on common matters – finance for approval.

4. (2) Securities not traded on the centralized exchange market or at the business premises of securities firms shall 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, take into consideration the net value per share, profitability, and future growth

potential thereof, and submitted to the level of authority on investment operations for approval.

1. Units responsible for implementation

The Company acquiring or disposing of securities shall, upon approval according to the level of authority set forth in the preceding paragraph, be conducted under the charge of the Finance Department.

1. Obtaining expert opinion

2. (1) Where the Company acquires or disposes of securities and one of the following circumstances exists, and the dollar amount of the transaction is 20 percent of the company's paid-in capital or NT$300 million or more, 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):

3. A. Acquisition or disposal of securities not traded on the stock exchanges or at the business premises of securities firms

4. B. Acquisition or disposal of private placed securities

5. (2) 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.

6. The calculation of the transaction amounts shall be done in accordance with Article 14, Paragraph 1, Subparagraph 6 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 in accordance with these Procedures need not be counted toward the transaction amount.

Article 9 Disposition procedures for acquisition or disposal of real property from or to a related party

1. When the Company engages in any acquisition or disposal of assets from or to a related party, in addition to ensuring that the disposition procedures for acquisition of real property are conducted in accordance with the provisions of Article 7, 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 accordance with relevant regulations, and the necessary resolutions are adopted and the reasonableness of the transaction terms is appraised in accordance with the following stipulations. The calculation of the preceding transaction amounts shall be done in accordance with Article 14, Paragraph 1, Subparagraph 6 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 in accordance with these Procedures need not be counted toward the transaction amount.

Moreover, when judging whether a trading counterparty is a related party, in addition to legal formalities, the substance of the relationship shall also be considered.

1. Appraisal and operating procedures

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 buyback of domestic money market funds, which issued by securities trust companies, 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 trading 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 this Article, Paragraph 3, Subparagraph 1 and 4.

• (4) The date and price at which the related party originally acquired the real property, the original trading counterparty, and that trading counterparty’s relationship to the company and the related party.

• (5) Monthly cash flow forecasts for the year commencing from the anticipated month of signing of the contract, and evaluation of the necessity of the transaction, and reasonableness of the funds utilization.

• (6) An appraisal report from a professional appraiser or a CPA’s opinion obtained in compliance with the preceding article.

• (7) Restrictive covenants and other important stipulations associated with the transaction.

The calculation of the transaction amounts in the preceding paragraph shall be done in accordance with Article 14, Paragraph 1, Subparagraph 6 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 in accordance with these Procedures need not be counted toward the transaction amount.

With respect to the acquisition or disposal of business-use equipment between the Company and its parent or subsidiaries, the Company’s Board of Directors may delegate the Board Chairman to decide such matters when the transaction is within a certain amount and have the decisions subsequently submitted to and ratified by the next Board of Directors meeting.

1. Evaluation on the reasonableness of the transaction costs

2. (1) The Company that acquires real property from a related party shall evaluate the reasonableness of the transaction costs by the following means:

3. A. Based upon the related party’s transaction price plus necessary interest on funding and the costs to be duly borne by the buyer. “Necessary interest on funding” is imputed as the weighted average interest rate on borrowing in the year the company purchases the property; provided, it may not be higher than the maximum non-financial industry lending rate announced by the Ministry of Finance.

4. B. Total loan value appraisal from a financial institution where the related party has previously created a mortgage on the property as security for a loan; provided, the actual cumulative amount loaned by the financial institution shall have been 70 percent or more of the financial institution’s appraised loan value of the property and the period of the loan shall have been one (1) year or more. However, this shall not apply where the financial institution is a related party of one of the trading counterparties.

5. (2) Where land and structures thereupon are combined as a single property purchased in one transaction, the transaction costs for the land and the structures may be separately appraised in accordance with either of the means listed in the preceding paragraph.

6. (3) The Company that acquires real property from a related party and appraises the cost of the real property in accordance with this Article, Paragraph 3, Subparagraph 1 and 2 shall also engage a CPA to check the appraisal and render a specific opinion.

7. (4) The Company that acquires real property from a related party and the results of the Company’s appraisal conducted in accordance with this Article, Paragraph 3, Subparagraph 1 and 2 are uniformly lower than the transaction price, the matter shall be handled in compliance with this Article, Paragraph 3, Subparagraph 5. However, where the following circumstances exist, objective evidence has been submitted and specific opinions on reasonableness have been obtained from a professional real property appraiser and a CPA has been obtained, this restriction shall not apply:

8. A. Where the related party acquired undeveloped land or leased land for development, it may submit proof of compliance with one of the following conditions:

   • a. Where undeveloped land is appraised in accordance with the means in the preceding Article, and structures according to the related party’s construction cost plus reasonable construction profit are valued in excess of the actual transaction price. The “Reasonable construction profit” shall be deemed the average gross operating profit margin of the related party’s construction division over the most recent three (3) years or the gross profit margin for the construction industry for the most recent period as announced by the Ministry of Finance, whichever is lower.

   • b. Completed transactions by unrelated parties within the preceding year involving other floors of the same property or neighboring or closely valued parcels of land, where the land area and transaction terms are similar after calculation of reasonable price discrepancies in floor or

area land prices in accordance with standard property market practices.

  - c. Completed leasing transactions by unrelated parties for other floors of the same property from within the preceding year, where the transaction terms are similar after calculation of reasonable price discrepancies among floors in accordance with standard property leasing market practices.

• B. Where the Company acquiring real property from a related party provides evidence that the terms of the transaction are similar to the terms of transactions completed for the acquisition of neighboring or closely valued parcels of land of a similar size by unrelated parties within the preceding year. Completed transactions for neighboring or closely valued parcels of land as prescribed above in principle refers to parcels on the same or an adjacent block and within a distance of no more than 500 meters or parcels close in publicly announced current value; transaction for similarly sized parcels in principle refers to transactions completed by unrelated parties for parcels with a land area of no less than 50 percent of the property in the planned transaction; within the preceding year refers to the year preceding the date of occurrence of the acquisition of the real property.

• (5) Where the Company acquires real property from a related party and the results of appraisals conducted in accordance with this Article, Paragraph 3, Subparagraph 1 and 2 are uniformly lower than the transaction price, the following steps shall be taken. Where the Company and a public company uses the equity method to account for their investments in the Company, and have set aside a special reserve under the above provisions may not utilize the special reserve until it has recognized a loss on decline in market value of the assets it purchased at a premium, or they have been disposed of, or adequate compensation has been made, or the status quo ante has been restored, or there is other evidence confirming that there was nothing unreasonable about the transaction, and the Financial Supervisory Commission , Executive Yuan has given its consent.

• A. A special reserve shall be set aside in accordance with Article 41, Paragraph 1 of the Securities and Exchange 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 a public company uses the equity method to account for its investment in the Company, then the special reserve called for under Article 41, Paragraph 1 of the Securities and Exchange Act shall be set aside pro rata in a proportion consistent with the share of public company’s equity stake in the other company.

• B. Supervisors shall comply with Article 218 of the Company Act.

• C. Actions taken pursuant to this Article, Paragraph 3, Subparagraph 5, Item 1 and Item 2 shall be reported to a shareholders meeting, and the details of the transaction shall be disclosed in the annual report and any investment prospectus.

• (6) Where the Company acquires real property from a related party and one of the following circumstances exists, the acquisition shall be conducted in

accordance with the appraisal and operating procedures under this Article, Paragraph 1 and Paragraph 2 and the evaluation on the reasonableness of the transaction costs under this Article, Paragraph 3, Subparagraph 1, Subparagraph 2, and Subparagraph 3 do not apply:

• A. The related party acquired the real property through inheritance or as a gift.

• B. More than five (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.

• C. 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.

• (7) When the Company obtains real property from a related party, it shall also comply with this Article, Paragraph 3, Subparagraph 5 if there is other evidence indicating that the acquisition was not an arm’s length transaction.

Article 10 Disposition procedures for acquisition or disposal of memberships or intangible assets

1. Appraisal and operating procedures

2. The Company shall handle the acquisition or disposal of memberships or intangible assets in compliance with the procedures for the Company’s internal control system of investment cycle and fixed asset cycle, respectively.

3. Determination procedures for the terms and conditions of the transaction and the degree of authority delegated

4. (1) Memberships shall be acquired or disposed by making reference to the fair market value to determine the terms and conditions of the transaction and transaction price, and prepare an analysis report. They shall be submitted to the Group’s level of authority on common matters – business management, human resource, and administration and the Group’s level of authority on common matters – finance for approval.

5. (2) Intangible assets shall be acquired or disposed by making reference to the expert evaluation reports and fair market value to determine the terms and conditions of the transaction and transaction price, and prepare an analysis report. They shall be submitted to the Group’s level of authority on common matters – business management, human resource, and administration and the Group’s level of authority on common matters – finance for approval.

6. Units responsible for implementation

7. The Company acquiring or disposing of memberships or intangible assets shall, upon approval according to the level of authority set forth in the preceding paragraph, be conducted under the charge of the user department and Finance Department or Administration Department.

8. Expert evaluation opinion reports of memberships or intangible assets Where the Company acquires or disposes of memberships or intangible 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 engage a certified public accountant prior to the date of occurrence of the event to render an opinion on the reasonableness of the transaction price; the

CPA shall comply with the provisions of Statement of Auditing Standards No. 20 published by the ARDF.

1. The calculation of the transaction amounts shall be done in accordance with Article 14, Paragraph 6 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 transaction amount.

Article 11 Disposition procedures for acquisition or disposal of Claims of financial institutions

Basically, the Company does not acquire or dispose the claims of financial institutions. The Company that intends to acquire or dispose the claims of financial institutions afterwards, and submit it to the Board of Directors for approval. Then the appraisal and operating procedures thereof will be formulated.

Article 12 Disposition procedures for acquisition or disposal of derivatives

1. Types of derivatives traded

2. (1) Trading principles and strategies

   • A. Financial derivatives traded by the Company refer to the transaction contracts (such as forward contracts, options contracts, futures contracts, leverage contracts, and swap contracts, and compound contracts combining the above products) for products whose value are derived from assets, interest rates, foreign exchange rates, indexes or other interests.

   • B. Relevant matters on bond margin transactions shall be conducted in accordance with the relevant provisions of these Procedures. However, this may not apply to bonds under repurchase agreements.

3. (2) Operational strategy

   • A. Hedging purpose:

The Company engaging in financial derivatives trading shall be mainly for hedging purpose and select instruments to avoid risks arising from the Company’s business operations. The currency (or the trend in interest rates) of the position held shall be the same as the one used actually in the Company’s import/export transactions, and the Company’s overall internal position (for foreign currency income and expenses, or the periods and amounts of loans) shall be balanced itself basically to reduce the Company’s overall foreign exchange risks and interest rate risks, and save costs on foreign exchange operations.

• B. Trading purpose:

• a. For foreign exchange options traded by the Company that are options embedded by selling options, since there are several option positions held of the “seller, obligation end” at the same time against the same hedged target, such positions will not be regarded as “hedging purpose” under IFRS, and can only be regarded as “trading purposes” pattern.

And the forex options shall be used for the Company’s financial operation purposes, which are related to the Company’s business.

• b. The Company shall not engage in trades on any other financial

derivatives held for “trading purpose” unless they are in forex options

as prescribed in the above item a.

• (3) Division of authority and responsibility

• A. Finance Department

  • a. Trader

    • a.1 Responsible for establishing the overall Company’s trading strategies of financial instruments

    • a.2 Traders shall, based on the trading position undertaken, regularly (e.g. twice per month for options, forward contracts, and swap contracts) collect the market information, perform the trend analysis and risk assessment, and develop operational strategies to be used as bases for trade execution upon approval of the level of authority.

    • a.3 Execute trades based on the delegation of authority and existing strategies

    • a.4 When there are significant changes in the financial markets and the traders judge that the existing strategies are no longer applicable, evaluation reports, they shall submit evaluation reports at any time and formulate new strategies to be used as bases for trade execution upon approval of General Manager (Vice President) and Chairman (or the evaluation team with expertise designated by the Chairman or General Manager).

  • b. Accounting personnel

    • b.1 Perform the trade confirmation

    • b.2 Verify whether the trade is made in accordance with the delegation of authority and existing strategies

    • b.3 Value on a monthly basis, and the valuation report is submitted to approval of General Manager (Vice President) and Chairman (or the evaluation team with expertise designated by the Chairman or General Manager) for approval

    • b.4 Accounting treatment

    • b.5 Report and publicly announced in accordance with applicable

regulations of the Financial Supervisory Commission, Executive Yuan

• c. Settlement personnel

Carry out the task of settlement

• d. Level of authority on derivatives

The level of authority on hedging transactions shall be in accordance with Paragraph 1, Subparagraph 3, Item 4 and the description in the “establishment of the total amount and maximum loss limit on contracts.”

B. Auditing Department

Responsible for understanding the suitability of internal controls on derivatives and auditing how faithfully derivatives trading by the trading department adheres to the operating procedures, analyzing trading cycle,

and preparing an audit report. In case any material deficiency is found in the audit, the auditing department shall promptly report the matter to the Board of Directors.

• C. Performance evaluation

• a. Hedging purpose:

  • a.1 The profit/loss arising between the Company’s book value of the foreign exchange rate costs (or interest rate costs) and the amounts of financial derivatives trading engaged in is used as a basis for performance evaluation.

  • a.2 To fully grasp and express risks of valuation on transactions, the Company adopts the monthly valuation method to evaluate the profit/loss.

  • a.3 The Finance Department shall provide the valuation of foreign exchange positions (or interest rate costs), trends in foreign exchange markets, and market analysis for General Manager (Vice President) and Chairman (or the evaluation team with expertise designated by the Chairman or General Manager) to be used as management references and instructions.

• b. Trading purpose:

The total amount of “circumstance of being carried out” and “loss occurred after being carried out” of the “seller, obligation end” in the forex options, which embedded by selling options, is used for performance evaluation.

• D. Establishment of the total amount and maximum loss limit on contracts

• a. Total amount of contracts

  • a.1 Limits on derivatives transactions

The Finance Department shall control the Company’s overall position to hedge the trading risk. The maximum amount and authority of approval for operating limits of derivatives transactions are as follows:

  - a.1-1 “Foreign exchange derivatives” part:

     - a.1-1-1 The “amount of derivatives instruments” does not exceed 150% of the “amount of hedged target”: A multi-level approval by the person in charge, financial officer, General Manager (Vice President) and Chairman is required for making trades (Note 1).

  - a.1-2 “Interest rate trading” part:

     - Whether or not the “amount of derivatives instruments” exceeds 100% of the “amount of derivatives target,” a multi-level approval by the person in charge, financial officer, General Manager (Vice President) and Chairman is required for making trades.

• b. Establishment of the maximum loss limit (applicable to “foreign exchange derivatives” and “Interest rate trading”)

• The maximum stop-loss point set on total trading and for individual financial derivatives contracts shall not exceed 10% of the amount of “derivatives instruments” (Note 2) trading contracts. This position shall

be settled immediately once the amount has exceeded the maximum limit on total trading and for individual financial derivatives contracts (Note 3).

1. Risk management measures

2. (1) Credit risk management

The market is subject to changes of many factors, which may easily cause operational risks of the derivatives. Hence, the below principles shall be followed to manage market risk:

• A. Counterparty: It shall be mainly the well-known domestic and overseas financial institutions.

• B. Trading instrument: It shall be a financial instrument offered by the well-known domestic and overseas financial institutions only.

• C. Transaction amount: Please refer to the provisions of the above “establishment of the total amount and maximum loss limit on contracts.”

• (2) Market risk management

Aiming primarily at open foreign exchange (interest rate) transaction markets provided by the banks, and no consideration given to future markets.

• (3) Liquidity risk management

• To ensure the market liquidity, financial instruments with high liquidity (the position can be covered in the market at any time) shall be chosen first. Financial institutions who are trusted to make trades shall provide sufficient information and have the capability to trade in any markets over any time zone.

• (4) Cash-flow risk management

• To maintain stability in turnover of the working capital of the Company, only self-owned capital shall be the source of capital for derivatives trading, and the operating amount shall take the demand for money in the cash flow forecast for the future three (3) months into consideration. In view of the forecast of future overall economic situation, when the total amount undertaken by the Company exceeds the amount of cash flow forecast for more than three months, the relevant unit in charge shall present supporting information such as detailed economic numbers. And also, a multi-level approval by the person in charge, financial officer, General Manager (Vice President) and Chairman is required for making trades.

• (5) Operational risk management

• A. To avoid operational risks, the Company’s authorization limits, operating procedures, and integrate with the internal audit system shall be faithfully complied with.

• B. The trading, trade confirmation and settlement personnel for derivatives transactions shall not act concurrently in each other’s capacity.

• C. The risk measurement, monitoring, and control personnel shall not be at the same department as those described in the preceding provision, and shall report to the Board of Directors or the senior management personnel who is not responsible for trading or position decision-making responsibilities.

  • D. The risk of the trading position undertaken shall be periodically evaluated (e.g. twice per month for options, forward contracts, and swap contracts) for the position held under the derivatives trading, and the evaluation report shall be submitted to General Manager (Vice President) and Chairman (or the evaluation team with expertise designated by the Chairman or General Manager).

• (6) Product risk management

  • The internal trading personnel shall have complete and correct professional knowledge on financial instruments, and shall request the banks to fully disclose the risks in order to avoid risks of financial products

• (7) Legal risk management

  • To avoid legal risks, any documents can only be signed with financial institutions after being reviewed by the specialists such as foreign exchange and compliance or legal adviser.

• Internal audit system

• (1) The internal audit personnel shall regularly understand the suitability of internal controls on derivatives and monthly audit how faithfully derivatives trading by the trading department adheres to the procedures for engaging in derivatives trading, analyze trading cycle, and prepare an audit report. If any material violation is discovered, supervisors shall be notified in writing.

• (2) The internal audit personnel shall submit the audit reports and annual inspections of internal control activities to the Securities and Futures Institute before the end of February next year, and shall file with the Securities and Futures Institute for recordation its improvements of deficiencies no later than the end of May next year.

• Regular evaluation method

• (1) The Board of Directors shall authorize the senior management personnel to periodically monitor and evaluate whether derivatives trading is faithfully conducted in accordance with the procedures for engaging in derivatives trading formulated by the company and whether the risk undertaken is within the company's permitted scope of tolerance. When irregular circumstances (e.g. the position held exceeds the maximum loss limit) are found in the market evaluation reports, appropriate measures shall be adopted and a report immediately made to the Board of Directors.

• (2) The risk of the trading position undertaken shall be periodically evaluated (e.g. twice per month for options, forward contracts, and swap contracts) for the position held under the derivatives trading, and the evaluation report shall be submitted to General Manager (Vice President) and Chairman (or the evaluation team with expertise designated by the Chairman or General Manager).

• When engaging in derivatives trading, the principles for the Board of Directors to supervise and manage such trading

• (1) The Board of Directors shall designate senior management personnel to pay continuous attention to monitoring and controlling derivatives trading risk, and shall manage derivatives trading in accordance with the following principles:

  • A. Periodically evaluate the risk management measures currently employed

are appropriate and are faithfully conducted in accordance with these Regulations and the procedures for engaging in derivatives trading formulated by the company.

• B. When irregular circumstances are found in the course of supervising trading and profit-loss circumstances, appropriate measures shall be adopted and a report immediately made to the Board of Directors; where the Company has independent directors, an independent director shall be present at the meeting and express an opinion.

• (2) Periodically evaluate whether derivatives trading performance is consistent with established operational strategy and whether the risk undertaken is within the company’s permitted scope of tolerance.

• (3) The Company shall report to the soonest meeting of the Board of Directors after it authorizes the relevant personnel to handle derivatives trading in accordance with its procedures for engaging in derivatives trading.

• (4) When engaging in derivatives trading, the Company shall establish a log book in which details of the types and amounts of derivatives trading engaged in, Board of Directors approval dates, and the matters required to be carefully evaluated under this Article, Paragraph 4, Subparagraph 1, and Subparagraph 1 and Subparagraph 2, Paragraph 5, shall be recorded in detail in the log book. 【Note】:

  • (Note 1): The “amount of derivatives instruments” is generally the amount of financial option contracts of the “buyer, right end.” However, when the Company engages in foreign exchange options in foex options, which embedded by selling options, under the same contract, there are several option positions held of the “seller, obligation end” at the same time for the contract in such pattern. Therefore, in the calculation of the “amount of derivatives instruments,” the Company shall not only calculate the amount of “financial instruments” of options held of the “buyer, right end,” but also include the amount of “financial instruments” of the “seller, obligation end” in the calculation at the same time. In addition, the “amount of hedging instruments” shall not be calculated by “offsetting” the amount of “financial instruments” between the “buyer, right end” and “seller, obligation end.”

  • (Note 2): The maximum loss limit on individual contracts shall be 10% of the amount of “derivatives instruments” as the standard, and not 10% of the “amount of hedged target.”

  • (Note 3): For the foreign exchange option undertaken, if involved in Knock-in and Knock-out, at early maturity, the maximum loss limit on thereof shall not be limited to 10% of individual contracts.

Article 13 Disposition procedures for mergers, demergers, acquisitions,

or transfer of shares

1. Appraisal and operating procedures

2. (1) When conducting a merger, demerger, acquisition, or transfer of shares, the Company shall engage certified public accounts, attorneys, and securities underwriters to jointly reviewed the expected timetable of statutory procedures and form a task force to implement it in accordance with the statutory procedures. Prior to convening the Board of Directors to resolve on the matter, it shall engage a CPA, attorney, or securities underwriter to give an opinion on the reasonableness of the share exchange ratio, acquisition price, or distribution of cash or other property to shareholders, and submit it to the Board of Directors for deliberation and passage. But the merger of the subsidiaries, which are directly or indirectly 100% held by the Company, or the merger between the said subsidiaries shall be exempted from the reasonableness opinion reports.

3. (2) The Company shall prepare a public report to shareholders detailing important contractual content and matters relevant to the merger, demerger, or acquisition prior to the shareholders meeting and include it along with the expert opinion referred to in this Article, paragraph 1, subparagraph 1 when sending shareholders notification of the shareholders meeting for reference in deciding whether to approve the merger, demerger, or acquisition. Provided, where a provision of another act exempts a company from convening a shareholders meeting to approve the merger, demerger, or acquisition, this restriction shall not apply. In addition, where the shareholders meeting of any one of the companies participating in a merger, demerger, or acquisition fails to convene or pass a resolution due to lack of a quorum, insufficient votes, or other legal restriction, or the proposal is rejected by the shareholders meeting, the companies participating in the merger, demerger or acquisition shall immediately publicly explain the reason, the follow-up measures, and the preliminary date of the next shareholders meeting.

4. Other important matters

5. (1) Date of Board of Directors meeting: A company participating in a merger, demerger, or acquisition shall convene a Board of Directors meeting and shareholders meeting on the day of the transaction to resolve matters relevant to the merger, demerger, or acquisition, unless another act provides otherwise or the FSC is notified in advance of extraordinary circumstances and grants consent. A company participating in a transfer of shares shall call a Board of Directors meeting on the day of the transaction, unless another act provides otherwise or the FSC is notified in advance of extraordinary circumstances and grants consent.

6. (2) Advance undertaking of confidentiality: Every person participating in or privy to the plan for merger, demerger, acquisition, or transfer of shares shall issue a

written undertaking of confidentiality and may not disclose the content of the plan prior to public disclosure of the information and may not trade, in their own name or under the name of another person, in any stock or other equity security of any company related to the plan for merger, demerger, acquisition, or transfer of shares.

• (3) Stipulation of the share exchange ratio or acquisition price and principles of alteration: A company participating in a merger, demerger, acquisition, or transfer of shares, prior to convening the Board of Directors of both parties, shall engage a CPA, attorney, or securities underwriter to give an opinion on the reasonableness of the share exchange ratio, acquisition price, or distribution of cash or other property to shareholders, and submit it to the shareholders’ meeting. The share exchange ratio or acquisition price shall not be arbitrarily altered basically, unless under the circumstance that the terms/conditions that the contract stipulates may be altered and that have been publicly disclosed. The terms/conditions that the share exchange ratio or acquisition price may be altered are as follows:

• A. 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.

• B. An action, such as a disposal of major assets, that affects the company's financial operations.

• C. An event, such as a major disaster or major change in technology, that affects shareholder equity or share price.

• D. An adjustment where any of the companies participating in the merger, demerger, acquisition, or transfer of shares from another company, buys back treasury stock.

• E. An increase or decrease in the number of entities or companies

  • participating in the merger, demerger, acquisition, or transfer of shares.

• F. Other terms/conditions that the contract stipulates may be altered and that have been publicly disclosed.

• (4) Matters shall be recorded in the contract: Contracts of the companies participating in the merger, demerger, acquisition, and share transfer shall, in addition to conducting such matters in compliance with the provisions of Article 317-1 of the Company Act and Article 22 of the Business Mergers and Acquisitions Act, shall also record the following:

• A. Handling of breach of contract

• B. Principles for the handling of equity-type securities previously issued or treasury stock previously bought back by any company that is extinguished in a merger or that is demerged.

• C. The amounts of treasury stock participating companies are permitted under law to buy back after the record date of calculation of the share exchange ratio, and the principles for handling thereof.

• D. The manner of handling changes in the number of participating entities or companies.

• E. Preliminary progress schedule for plan execution, and anticipated completion date.

• F. Scheduled date for convening the legally mandated shareholders meeting if the plan exceeds the deadline without completion, and relevant procedures.

• (5) Any changes in the number of companies participating in the merger, demerger, acquisition, or share transfer: After public disclosure of the information, if any company participating in the merger, demerger, acquisition, or share transfer intends further to carry out a merger, demerger, acquisition, or share transfer with another company, all of the participating companies shall carry out anew the procedures or legal actions that had originally been completed toward the merger, demerger, acquisition, or share transfer; except that where the number of participating companies is decreased and a participating company’s shareholders meeting has adopted a resolution authorizing the Board of Directors to alter the limits of authority, such participating company may be exempted from calling another shareholders meeting to resolve on the matter anew.

• (6) Where any of the companies participating in a merger, demerger, acquisition, or transfer of shares is not a public company, the Company shall sign an agreement with the non-public company whereby the latter is required to abide by the provisions of this Article, Paragraph 2, the date of Board of Directors meeting under Subparagraph 1, advance undertaking of confidentiality under Subparagraph 2, and any changes in the number of companies participating in the merger, demerger, acquisition, or share under Subparagraph 5.

Article 14 Public disclosure of information

1. Items required to be publicly announced and standard for public announcement and regulatory filing

2. (1) When acquiring or disposing of real property from or to a related party, or when acquiring or disposing 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; provided, this shall not apply to trading of government bonds or bonds under repurchase and resale agreements, or subscription or buyback of domestic money market funds, which issued by securities trust companies.

3. (2) Merger, demerger, acquisition, or transfer of shares

4. (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.

5. (4) The types of acquired or disbursed assets are used for business purposes and the counterparty is not related to the Company, the amount of the transaction reached following one of:

   • A. NT$500 million or more for the Companies’ paid-in capital below 10 billion,

   • B. NT$1 billion or more for the Companies’ paid-in capital over 10 billion.

6. (5) Acquisition or disposal by the Company in the construction business of real property for construction use, where the trading counterparty is not a related party, and the transaction amount is less than NT$500 million.

7. (6) 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 is less than NT$500 million.

• (7) Where an asset transaction other than any of those referred to in the preceding six (6) 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. Securities trading by investment professionals on foreign or domestic securities exchanges or over-the-counter markets, or subscription of securities by a securities firm, either in domestic primary market or in accordance with relevant regulations, such as trading domestic corporate bonds, financial bonds, or underwriting business needed to trading securities.

  • C. Trading of bonds under repurchase/resale agreements, or subscription or buyback of domestic money market funds, which issued by securities trust companies.

• (8) The calculation of the transaction amount referred to Subparagraph 5 in the preceding paragraph shall be made as follows, and “within the preceding year” as used herein refers to the year preceding the date of occurrence of the current transaction. Items that have been publicly announced as required by regulations need not be counted toward the transaction amount.

  • A. The amount of any individual transaction.

  • B. The cumulative transaction amount of acquisitions and disposals of the same type of underlying asset with the same trading counterparty within the preceding year.

  • C. The cumulative transaction amount of real property acquisitions and disposals (cumulative acquisitions and disposals, respectively) within the same development project within the preceding year.

  • D. The cumulative transaction amount of acquisitions and disposals (cumulative acquisitions and disposals, respectively) of the same security within the preceding year.

• Time limit for public announcement and regulatory filing

The Company acquiring or disposing of assets with items required to be publicly announced and the transaction amount reaching the standard for public announcement under this Article shall publicly announce and report the relevant information within two (2) days commencing immediately from the date of occurrence of the event.

1. Public announcement and regulatory filing procedures

2. (1) The Company shall publicly announce and report the relevant information on the Securities and Futures Commission’s designated website

3. (2) The Company shall compile monthly reports on the status of derivatives trading engaged in up to the end of the preceding month by itself and any subsidiaries that are not domestic public companies and enter the

4. information in the prescribed format into the information reporting website designated by the FSC by the 10th day of each month.

5. (3) When the 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 in 2 days when knew, all the items shall be again publicly announced and reported in their entiretyThe 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 headquarters, where they shall be retained for five (5) years except where another act provides otherwise.

6. (4) Where any of the following circumstances occurs with respect to a transaction that the Company has already publicly announced and reported in accordance with the preceding article, a public report of relevant information shall be made on the information reporting website designated by the FSC within 2 days commencing immediately from the date of occurrence of the event:

7. A. Change, termination, or rescission of a contract signed in regard to the original transaction.

8. B. The merger, demerger, acquisition, or transfer of shares is not completed by the scheduled date set forth in the contract.

Article 15 Subsidiaries of the Company shall carry out the procedures for public disclosure of information in compliance with the following provisions:

1. A subsidiary shall also establish its “procedures for the acquisition or disposal of assets” in accordance with the “Regulations Governing the Acquisition and Disposal of Assets by Public Companies.” The procedures shall be approved by the Board of Directors of the subsidiary and submitted to shareholders’ meetings of both parties for approval; the same applies when the procedures are amended.

2. When a subsidiary acquiring and disposing of assets, it shall also comply with the Company’s procedures.

3. Information required to be publicly announced and reported in accordance with the “Regulations Governing the Acquisition and Disposal of Assets by Public Companies” on acquisitions and disposals of assets by a subsidiary that is not itself a public company in Taiwan shall be reported by the parent company.

4. The paid-in capital of the parent company shall be the standard for determining whether or not a subsidiary is subject to the standard for a public announcement and regulatory filing in the event the type of transaction specified therein reaches 20 percent of paid-in capital.

Article 16 Penalties

The employees of the Company who handle the acquisition or disposal of assets violating these procedures shall be periodically reported for performance review in accordance with the Company’s Regulations Governing Personnel Management and Employee Handbook, and punished according to the seriousness of the case.

Article 17 Reference list

Regulations Governing the Acquisition and Disposal of Assets by Public Companies

Article 18 Forms used

None.

Article 19 Implementation and amendment

1. After the Company’s procedures for the acquisition or disposal of assets have been approved by the Board of Directors, they shall be submitted to each supervisor, and then to a shareholders’ meeting for approval; the same applies when the procedures are amended. If any director expresses dissent and it is contained in the minutes or a written statement, the Company shall submit the director’s dissenting opinion to each supervisor.

2. Where the position of independent director has been created by the Company, when the procedures for the acquisition and disposal of assets are submitted for discussion by the Board of Directors, the Board of Directors shall take into full consideration each independent director’s opinions. If an independent director objects to or expresses reservations about any matter, it shall be recorded in the minutes of the Board of Directors meeting.

3. Where an audit committee has been established by the Company in accordance with the provisions of the Securities Exchange Act, 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.

4. 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.

5. The terms “all audit committee members” in Paragraph 3 and “all directors” in the preceding paragraph shall be counted as the actual number of persons currently holding those positions.

Article 20 Board of Directors

1. The Company’s procedures for the acquisition or disposal of assets that is subject to the approval of the Board of Directors, if a director expresses dissent and it is contained in the minutes or a written statement, the Company shall submit the director’s dissenting opinion to each supervisor.

2. Where the position of independent director has been created by the Company, when a transaction involving the acquisition or disposal of assets is submitted for discussion by the Board of Directors pursuant to the preceding paragraph, the Board of Directors shall take into full consideration each independent director's opinions. If an independent director objects to or expresses reservations about any matter, it shall be recorded in the minutes of the Board of Directors meeting.

3. Where an audit committee has been established by the Company in accordance with the provisions of the Securities Exchange Act, any transaction involving major assets or derivatives shall be approved by more than half of all audit committee

members and submitted to the Board of Directors for a resolution, and shall be subject to mutatis mutandis application of Article 19, Paragraphs 4 and 5.

Article 21 Additional Provisions

Any other matters not set forth in the Procedures shall be dealt with in accordance with the applicable laws, rules, and regulations.