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TECO AGM Information 2019

Jun 26, 2019

51836_rns_2019-06-26_61e11d0f-7555-4d96-8c90-752900497aeb.pdf

AGM Information

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Stock Code: 1504

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TECO ELECTRIC & MACHINERY CO., LTD

GENERAL SHAREHOLDERS MEETING 2019 JUNE 14, 2019 AGENDA

Time: 09:00am, June 14, 2019 (Friday)

Place: 3F., Building A, No. 166, Jingmao 2[nd] Rd., Nangang District, Taipei City, Taiwan (Grande Luxe Banquet)

This English version is only a translation of the Chinese version. If there is any inconsistency or discrepancy between the Chinese and English versions, the Chinese version shall prevail for all intents and purposes.

Table of Contents

  1. MEETING PROCEDURE……..……………………………………………………..…. 3 2. MEETING AGENDA ............................................................................................ . 4 (1) REPORTS ................................................................................................... . 5 (2) RATIFICATION ............................................................................................. . 6 (3) DISCUSSION ................................................................................................. 7 (4) EXTEMPORE MOTIONS ................................................................................... 8 3. ATTACHMENTS ................................................................................................ ..9 (1) Business Report for 2018 .................................................................... ..…10 (2) Inspection Report of Audit Committee for 2018 .................................. ..…13 (3) Financial Statements and Auditors’ Report for 2018 ................................ 14 (4) Distribution of 2018 Profits ....................................................................... 42 (5) The comparison between the revision and the original of “Articles of Incorporation” ....................................................................................... 43 (6) The comparison between the revision and the original of “Procedure for Acquisition or Disposal of Assets” .................................... 46 4. APPENDICES ................................................................................................... 71 (1) Articles of Incorporation .......................................................................... 79 (2) Rules Governing Shareholders’ Meeting ................................................. 64 (3) Procedure for Acquisition or Disposal of Assets...................................... 82 (4) Shareholding of All Directors ................................................................. 100 (5) Notes ..................................................................................................... 101

~2~

TECO Electric & Machinery Co., Ltd.

General Shareholders Meeting 2019

Meeting Procedure

  1. Meeting called to order

  2. Addresses by Chairman

  3. Reports

  4. Ratification

  5. Discussion

  6. Extempore motions

  7. Meeting adjourned

~3~

TECO Electric & Machinery Co., Ltd.

General Shareholders Meeting 2019

Agenda

Time: 09:00am, June 14, 2019(Friday) Place: 3F., Building A, No. 166, Jingmao 2[nd] Rd., Nangang District, Taipei City, Taiwan (Grande Luxe Banquet)

  1. Meeting called to order

  2. Addresses by the Chairman.

3. Reports

3.1 Business Report for 2018

  • 3.2 Inspection Report of Audit Committee for 2018

3.3 Remuneration distribution to employees and directors for 2018

  • 3.4 Report on the purchase of treasury stock

4. Ratification

4.1 Business Report and Financial Statements for 2018 4.2 Distribution of 2018 Profits

5. Election

  • 5.1 Amendment to Articles of Incorporation

  • 5.2 Amendment to Procedure for Acquisition or Disposal of Assets

※ After being discussed case by case, voting for the Ratification and Discussion will take place at the same time. Vote counting will be conducted separately.

  1. Extempore motion(s)

  2. Meeting adjourned

~4~

Reports

  1. Business report for 2018 (pages 10-12)

  2. Inspection Report of Audit Committee for 2018 (page 13)

  3. Remuneration distribution to employees and directors for 2018

Explanatory note:

In 2018, income before tax is NT$ 3,294,809 thousands, and remuneration to employees is proposed to be NT$ 255,103 thousands, whilst remuneration to directors is proposed to be NT$ 113,379 thousands. The remuneration would be distributed in cash.

  1. Report on the purchase of treasury stock
Terms of repurchase 16th
Purpose of share repurchase To sustain the company’s credit
and shareholders’ interests
Originally determined number of
shares to berepurchased		 Common share
35,000,000 shares
Period for the repurchase 2019/1/2~2019/2/22
Originally determined repurchase
pricerange		 NT$12.15~NT$26.70
Number of shares repurchased Common share
35,000,000 shares
Ratio to total shares issued 1.75%
Total monetary amount of shares
repurchased		 NT$675,839,547
Any other matters that need to be
specified		 Shall file for change of share
register within 6 months staring
from the date starting to
repurchase(ended by2019/7/1)

~5~

Ratification

Proposal 1:

Business Report and Financial Statements for 2018 (proposed by the board of directors)

Explanatory note:

  1. The Board of Directors entrusted certified public accountants Wu, Yu-Lung and Chou, Chien-Hung with Pricewaterhouse Coopers to audit and certify the Business Report and Financial Statements (includes Consolidated Financial Statements) for 2018, both of which were subsequently inspected by Audit Committee and are hereby submitted for ratification.

  2. Please see pages 10-12 for the business report and pages 14-41 for the Auditors’ Report and the Financial Statements.

Proposal 2:

Distribution of 2018 profits (proposed by the board of directors)

Explanatory note:

  1. The board of directors plans to appropriate NT$1,770,923,597 from distributable earnings in 2018 for dividend payout, capable of paying NT$0.90 of cash dividend per share, which, though, will be rounded off, leaving out decimal fraction.

  2. Subject to the approval by the General Shareholders Meeting, it is proposed that the ex-dividend date and the distribution date shall be determined by the Board of Directors authorized to do so.

  3. Please see page 42 for the detailed profit distribution plan.

~6~

Discussion

Proposal 1:

Amendment to Articles of Incorporation (proposed by the board of directors)

Explanatory note:

  1. In accordance with the Company Act revised on August 1[st] , 2018, the company proposes to revise the related measures of Articles of Incorporation.

  2. For the comparison between the revision and the original, please refer to pages 43-45 and 71-78 .

Proposal 2:

Amendment to Procedure for Acquisition or Disposal of Assets (proposed by the board of directors)

Explanatory note:

  1. In accordance with Financial Supervisory Commission’s revision on “Regulations Governing the Acquisition and Disposal of Assets by Public Companies”, the company proposes to revise the partial measures of Procedure for Acquisition or Disposal of Assets.

  2. For the comparison between the revision and the original, please refer to pages 46-69 and 82-99 .

~7~

Extempore Motion(s)

Meeting Adjourned

~8~

Attachments

  1. Business Report for 2018 on pages 10-12

  2. Inspection Report of Audit Committee for 2018 on page 13

  3. Financial Statements and Auditors’ Report for 2018 on pages 14-41

  4. Distribution of 2018 Profits on page 42

  5. The comparison between the revision and the original of “Articles of Incorporation” on page 43-45

  6. The comparison between the revision and the original of “Procedure for Acquisition or Disposal of Assets” on page 46-69

~9~

Business Report

Dear Shareholders,

External environment fluctuated in 2018, posing multiple challenges for enterprise. Volatile factors include prolonging China-U.S. trade friction, stagnant Brexit, attempt by North Korea to return to the international arena, and slackened market of crude oil and raw materials. However, continuing expansion of the electric-car market has triggered demands for auto motors, and the automation and AI current has fostered huge business potential. In the quest for sustainable development, the company has adhered to the vision of "energy conservation, emission reduction, intelligence, and automation," pushing the automation, smart production, and consistency of the company's production bases worldwide and rolling out innovative high-performance and smart products, in order to uphold strong growth momentum, minimize the effect of external changes, and retain steady profits.

A. Review of Business Performance in 2018

Analysis of the company’s business performance in 2018 follows: a. Parent Company

Unit: NT$ thousand

2018 2017 Change
Sales revenue 20,879,719 21,301,208 -1.98%
Operating profit 1,410,943 1,507,068 -6.38%
Profit for theyear 3,150,089 3,092,358 1.87%

Motor’s order intake and sales picked up significantly, thanks to increased share on domestic and Australian markets, plus robust demands from power generation and oil & gas industries in North America. Affected by sluggish realty market and private consumption, sales of home appliances and power devices dropped. In general, the company's 2018 revenue scored slight decline of 1.98%.

In response to China-U.S. trade war, some orders for the U.S. were shifted to Taiwan for production, dampening gross margin. Consequently, the company has endeavored to cut material and other costs, reduce product weight and size, to boost competitiveness. Still, affected mainly by profit margin drop of air conditioning products, overall gross margin decreased by 0.9%. The company, though, managed to decrease operating expense by near NT$70 million, via working-flow improvement and outlay rationalization, as a result of which operating profit only declined by NT$96 million.

Continuing sales and profit growth of affiliates in China, North America, and Australia

~10~

led to increase of NT$330 million in investment income under equity method in 2018. In 2018, the company's net profit increased by 1.87%.

In 2018, the company had a remarkable performance in R&D, launching high-power smart motor, permanent-magnet motor for electric car, smart air quality and airconditioning energy management system for hospitals, and service-oriented robot, which won the company 15 awards of Taiwan Excellent Award, the highest among electromechanical manufacturers.

b. Consolidated Financial Statements

Unit: NT$ thousand

2018 2017 Change
Sales revenue 50,104,927 50,942,521 -1.64%
Operating profit 3,520,486 3,496,200 0.69%
Profit for theyear 3,475,969 3,544,248 -1.93%
Total comprehensive income 3,908,980 4,326,037 -9.64%

Sales in China grew, thanks to the policy separating production and sales, increased market share of large-sized motor and air-separation equipment, grasp of the business opportunities related to "Road and Belt" program, and focus on gear reducer and explosion-proof electric machinery. Sales in North America and Europe both scored double-digit growth, thanks to brisk demands for large-sized motors and gear reducers, respectively, while sales growth in Australia exceeds 5% and domestic sales also grew, despite exclusion of the revenue of Kuenling Air. After excluding the contribution of Kuenling Air, operating income still grew slightly by NT$60 million, due to merger of regional organizations and further rationalization of expenses. Affected by loss in the valuation of financial assets and reduced investment income, current net profit dropped by 1.93%, while total comprehensive income also tumbled by 9.64%, due to decline in unrealized valuation income from equity investment instruments.

B. Outline of 2019 Business Plan

The global economy is expected to remain sluggish in 2019, according to the prediction of major forecast bodies. The Cabinet-level Directorate General of Budget, Accounting, and Statistics forecasts that Taiwan's economy will score 2.27% growth in 2019, compared with the forecasts of other bodies ranging 2.18-2.45%. Faced with even steeper challenges, the company will continue embracing the vision of "energy conservation, emission reduction, intelligence, and automation," focusing on IoT-

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enabled motor digital service, double growth for inverters, electromechanical equipment sales program, overseas electromechanical engineering, and smart communities, so as to sustain sales growth.

To achieve intelligence and automation, the company will establish industry IoT at all of its factories, on the basis of MES (manufacturing execution system), which will be coupled with big-data analysis in forging smart electromechanical factory solutions. Automated guided vehicles and service-oriented robots will also be applied, to further boost the operating efficiency of factories.

For energy conservation and emission reduction, the company has engaged in the RD& on high-efficiency low-energy consumption permanent-magnet motor for use as motive force, and the development, via utilization of "synchronous reluctance assisted permanent magnet technology," of traction power modules, for deployment in the markets of electric cars and electric vessels. The company is also actively foraying into the supply chain for offshore wind-power turbines, plans to engage in the gridconnection power control panel and assembly of wind turbine, using Taiwan as a springboard for inroads into the markets of Japan, South Korea, and Southeast Asia.

The company has been granted golden award of Taiwan Top 50 Corporate Sustainability Report Award for five years in row and Corporate Citizen Award by Commonwealth magazine for seven consecutive years. As a vanguard of Taiwan's electromechanical industry, the company will continue adhering to the concept of sustainable development and, in response to the need for innovative technology and the current of Industry 4.0, will dedicate to the development of IoT and smart environment-friendly products, in the hope of turning in a good performance amid stern international environment and creating optimal benefits for shareholders and investing public, in return for their longstanding support and patronage.

TECO Electric & Machinery Co., Ltd

~12~

Inspection Report of Audit Committee

(This English version is only a translation of the Chinese version.)

The Audit Committee has duly inspected and approved the financial statements for 2018 (including consolidated financial statements), the business report and proposed profit distribution plan prepared and proposed by the Board of Directors, with the financial statements having been audited and certified by Pricewaterhouse Coopers, hereby submit this report pursuant to Article 14 of Securities and Exchange Act and Article 219 of the Company Act.

To

General Shareholders Meeting 2019

TECO Electric & Machinery Co., Ltd

Audit Committee Convener ： Ting-Wong, Cheng

Date: March 26, 2019

~13~

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To TECO Electric & Machinery Co., Ltd.

Opinion

We have audited the accompanying parent company only balance sheets of TECO Electric & Machinery Co., Ltd. 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 audit reports of other independent accountants, as described in the other matter section of our report, the parent company only financial statements present fairly, in all material respects, the financial position of TECO Electric & Machinery Co., Ltd. as of December 31, 2018 and 2017, and its financial performance and 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 Auditor’s Responsibilities for the Audit of the Consolidated 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 audit reports of other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, 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

~14~

statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Company’s financial statements of the current period are stated as follows:

Revenue recognition of export sales of heavy industrial products group

Description

Refer to Note 4(31) of the parent company only financial statements for the accounting policies on revenue recognition. Heavy industrial products group handles the manufacturing and sales of various machinery, equipment and motors. Aside from domestic sales in Taiwan, the customers of heavy industrial products group are from China, America, Southeast Asia and Europe and the sales terms vary for different customers. Thus, we consider the revenue recognition of export sales of heavy industrial products group as a key audit matter.

How our audit addressed the matter

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

  1. Obtained an understanding of and validated the internal controls over revenue recognition of export sales of heavy industrial products group to assess the effectiveness of the internal control process.

  2. Validated selected samples of export sales revenue transactions of heavy industrial products group to confirm the existence of export sales revenue transactions.

Investment accounted for under equity method – impairment assessment of premium generated from the acquisition of subsidiaries

Description

Motovario S.p.A. is headquartered in Italy, and is engaged in the manufacturing and sales of gear reducers and other power transmission equipment. Motovario S.p.A. is considered a minor cash-generating unit of TECO Electric & Machinery Co., Ltd.. As of December 31, 2018, the balance of goodwill was NT$5,207,755 thousand. Refer to Note 4(18) of the parent company only financial statement for the accounting policies on the impairment of non-financial assets and Note 5(2) for the uncertainty of the accounting estimate regarding impairment of

~15~

investment in premium. TECO Electric & Machinery Co., Ltd. assesses the impairment of investment in premium using the recoverable amount generated from the cash flow forecast discounted using a reasonable discount rate.

The aforesaid recoverable amount includes several assumptions such as the discount rate used and the preparation of financial projections to estimate the cash flows for the next three years. The discount rate and financial projections relating to the future operations of Motovario S.p.A. are subject to management judgement which have a significant impact on the measurement of the recoverable amount, thus affecting the results of the impairment assessment. Accordingly, we consider management’s impairment assessment of investments accounted for under equity method as a key audit matter.

How our audit addressed the matter

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

  1. Obtained an understanding and assessed the Company’s policies and procedures in relating to the goodwill impairment assessment.

  2. Assessed whether the future cash flows adopted in the valuation model was in accordance with Motovario S.p.A’s operation plan, and reviewed the results of the previous operating plans prepared by management.

  3. Evaluated the reasonableness of major assumptions (including the expected growth rate and discount rate) used in the model.

  4. Reviewed the sensitivity analysis for the above significant assumptions and parameters prepared by management and confirmed whether management has adequately addressed the possible impact of the estimation uncertainty on the impairment assessment.

Reclassification from investments accounted for under equity method - subsidiaries into associates due to loss of control

Description

Refer to Note 4(13) for accounting policies adopted when losing control over subsidiaries accounted for under equity method. As mentioned in Note 6(7) of the parent company only financial statements, Kuen Ling Machinery Refrigerating Co., Ltd. (“Kuen Ling”) was a subsidiary accounted for under equity method and included in the parent company only financial statements given a control over the Kuen Ling’s Board of Directors through 19.98% of equity previously held by TECO Electric & Machinery Co., Ltd.. However, based on the

~16~

management’s assessment, TECO Electric & Machinery Co., Ltd. has lost control and yet still retained significant influence over the Board of Directors of Kuen Ling following the reelection of directors by shareholders held on May 23, 2018. On the same date, the investments in Kuen Ling were remeasured at fair value. Kuen Ling was then accounted for under equity method but no longer a consolidated entity thereafter. In addition, Kuen Ling does not meet the criteria of Level 1 fair value because of its small stock trading amounts although it is an OTC company based on the management’s assessment. Per management’s request, external experts valued its fair value to be Level 3. Given that significant judgements exercised by both the management and valuers’ pertaining to the valuation techniques and parameters in Level 3 significantly affect accounting treatment for losing control, we consider it as a key audit matter.

How our audit addressed the matter

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

  1. Assessed the management’s judgements regarding the loss of control and yet still retaining significant

influence over the Board of Directors of Kuen Ling.

  1. Confirmed that the valuation models, assumptions and parameters used by external experts are justified.

  2. Assessed the relevance between the investments and the comparable companies used in the valuation report in terms of their business traits and financial information; reviewed referenced information and supporting documentation of the comparable companies.

  3. Verified that the amount of gain on remeasurement recognised by the management is accurate.

Other matter – Reports of other independent accountants

As described in Notes 6(6) of the parent company only financial statements, we did not audit the financial statements of certain investee accounted for under 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 investee disclosed in Note 13 was based solely on the reports of other independent accountants. The investments accounted for under the equity method amounted to NT$4,076,536 thousand and NT$4,043,134 thousand, both constituting 6% of the related total assets as of December 31, 2018 and 2017, respectively, and the comprehensive income amounting to NT$176,754 thousand and NT$89,767 thousand,

~17~

constituting 5% and 2% of the total comprehensive income for the years then ended, respectively.

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.

Auditor’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

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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 controls.

2.

3.

4.

5.

6.

Obtain an understanding of internal controls 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 controls.

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

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 TECO Electric & Machinery Co., Ltd. to cease to continue as a going concern.

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.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within TECO Electric & Machinery Co., Ltd. to express an opinion on the parent company only 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 controls 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 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

~19~

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.

Wu, Yu-Lung

Chou, Chien-Hung

For and on behalf of PricewaterhouseCoopers, Taiwan March 28, 2019

------------------------------------------------------------------------------------------------------------------------------------------------The accompanying parent company only financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying parent company only financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

~20~

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets Notes
6(1) and 8
6(4) and 12(2)
7
6(4) and 12(2)
6(6) and 7
12(4)
6(6) and 7
6(5)
6(1) and 8
6(2)(21)
6(3)
12(4)
6(6) and 7
6(7) and 7
6(8)
6(24)
6(9)		 December31,2018
AMOUNT
%
$ 1,232,796
2
1,074,420
1
405,734
1
326,842
-
1,528,892
2
1,284,953
2
-
-
62,938
-
1,293,359
2
2,758,641
4
168,385
-
206,812
-
10,343,772
14
1,835,790
3
5,983,461
8
-
-
47,877,378
66
3,739,530
5
2,060,182
3
803,739
1
151,848
-
62,451,928
86
$ 72,795,700
100		 December31,2017 December31,2017
AMOUNT
$ 1,232,796
1,074,420
405,734
326,842
1,528,892
1,284,953
-
62,938
1,293,359
2,758,641
168,385
206,812
10,343,772
1,835,790
5,983,461
-
47,877,378
3,739,530
2,060,182
803,739
151,848
62,451,928
$ 72,795,700		 AMOUNT
$ 887,185
-
289,239
316,590
1,567,629
1,641,299
836,338
143,086
1,257,512
2,612,493
53,287
176,650
9,781,308
-
-
6,609,115
47,511,672
3,761,489
2,167,540
794,842
148,967
60,993,625
$ 70,774,933		 %
Current assets
1100
Cash and cash equivalents
1140
Current contract assets
1150
Notes receivable, net
1160
Notes receivable - related parties
1170
Accounts receivable, net
1180
Accounts receivable - related
parties
1190
Receivables from customers on
construction contracts
1200
Other receivables
1210
Other receivables - related parties
130X
Inventory
1410
Prepayments
1470
Other current assets
11XX
Total current assets
Non-current assets
1510
Non-current financial assets at
fair value through profit or loss
1517
Non-current financial assets at
fair value through other
comprehensive income
1523
Available-for-sale financial assets
- non-current
1550
Investments accounted for under
equity method
1600
Property, plant and equipment
1760
Investment property - net
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Total non-current assets
1XXX
Total assets		 1
-
1
1
2
2
1
-
2
4
-
-
14
-
-
10
67
5
3
1
-
86
100

(Continued)

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TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity December31,2018
December31,2017
Notes
AMOUNT
%
AMOUNT
%
6(10)
$ 49,110
-
$ 275,784
-
6(11)(21)
-
-
2,529
-
6(19)
356,457
-
-
-
6,861
-
19,630
-
7
162,340
-
169,104
-
3,371,424
5
3,321,297
5
7
876,705
1
1,275,730
2
12(4)
-
-
164,333
-
2,590,466
4
2,554,240
4
7
635,479
1
711,805
1
6(24)
269,312
-
548,103
1
91,679
-
83,418
-
58,851
-
224,744
-
8,468,684
11
9,350,717
13
6(12)
4,000,000
6
4,000,000
6
6(13)
4,249,725
6
3,090,794
5
6(24)
814,098
1
893,369
1
6(14)
1,584,533
2
1,610,288
2
10,648,356
15
9,594,451
14
19,117,040
26
18,945,168
27
6(15)
20,026,929
28
20,026,929
28
6(16)
7,647,215
10
7,628,542
10
6(17)
6,387,454
9
6,078,219
9
3,640,779
5
3,640,779
5
15,192,788
21
12,750,338
18
6(18)
1,105,058
1
2,026,521
3
6(6)(15)
(
321,563)
- (
321,563)
-
53,678,660
74
51,829,765
73
9
10
11
$ 72,795,700
100
$ 70,774,933
100		 December31,2017 December31,2017
%
Current liabilities
2100
Short-term borrowings
2120
Financial liabilities at fair value
through profit or loss - current
2130
Current contract liabilities
2150
Notes payable
2160
Notes payable - related parties
2170
Accounts payable
2180
Accounts payable - related parties
2190
Payables to customers on
construction contracts
2200
Other payables
2220
Other payables - related parties
2230
Current income tax liabilities
2250
Provisions for liabilities - current
2300
Other current liabilities
21XX
Total current liabilities
Non-current liabilities
2530
Corporate bonds payable
2540
Long-term borrowings
2570
Deferred income tax liabilities
2600
Other non-current liabilities
25XX
Total non-current liabilities
2XXX
Total liabilities
Equity
Share capital
3110
Common stock
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Unappropriated retained earnings
Other equity interest
3400
Other equity interest
3500
Treasury stocks
3XXX
Total equity
Commitments and Contingent
Liabilities
Extraordinary Items
Subsequent Events
3X2X
Total liabilities and equity		 -
-
-
-
-
5
2
-
4
1
1
-
-
13
6
5
1
2
14
27
28
10
9
5
18
3
-
73
100

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

~22~

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(19) and 7
$ 20,879,719
100
$ 21,301,208
100
6(5)(14)(23) and 7
(
16,506,775) (
79) (
16,655,569) (
78)
4,372,944
21
4,645,639
22
7
(
614,532) (
3) (
653,779) (
3)
653,779
3
584,325
2
4,412,191
21
4,576,185
21
6(14)(23) and 7
(
1,879,790) (
9) (
1,898,343) (
9)

(
552,893) (
2) (
536,338) (
2)
(
568,565) (
3) (
634,436) (
3)
(
3,001,248) (
14) (
3,069,117) (
14)
1,410,943
7
1,507,068
7
6(2)(8)(20) and 7
548,375
3
602,694
3
6(2)(3)(6)(11)(21)
and 7
(
548,547) (
3) (
344,071) (
2)
6(22) and 7
(
99,181)
-
(
109,565) (
1)
6(6)
1,983,219
9
1,648,342
8
1,883,866
9
1,797,400
8
3,294,809
16
3,304,468
15
6(24)
(
144,720) (
1) (
212,110) (
1)
$ 3,150,089
15
$ 3,092,358
14
4000
Sales revenue
5000
Operating costs
5900
Net operating margin
5910
Unrealized profit from sales
5920
Realized profit from sales
5950
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6000
Total operating expenses
6900
Operating profit
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7070
Share of profit of subsidiary,
associates and joint ventures
accounted for under equity method
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the year

(Continued)

~23~

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(14)
($ 34,335)
-
($ 34,361)
-
6(18)
1,251,661
6
-
-
(
692,289) (
3) (
13,830)
-
6(24)
19,779
-
-
-
544,816
3
(
48,191)
-
6(18)
(
185,820) (
1) (
775,713) (
3)
6(18) and 12(4)
-
-
1,133,547
5
-
-
433,805
2
6(18)(24)
43,453
-
68,109
-
(
142,367) (
1)
859,748
4
$ 402,449
2
$ 811,557
4
$ 3,552,538
17
$ 3,903,915
18
6(25)
$ 1.59
$ 1.56
$ 1.59
$ 1.56
Other comprehensive income
Components of other comprehensive
income that will not be reclassified to
profit or loss
8311
Other comprehensive income, before
tax, actuarial losses on defined
benefit plans
8316
Unrealised gains (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
8349
Income tax related to components of
other comprehensive income that
will not be reclassified to profit or
loss
8310
Components of other
comprehensive loss that will not
be reclassified to profit or loss
Components of other comprehensive
loss that will be reclassified to profit
or loss
8361
Other comprehensive income, before
tax, exchange differences on
translation
8362
Other comprehensive income, before
tax, available-for-sale financial
assets
8380
Share of other comprehensive
income of subsidiary, associates and
joint ventures accounted for using
equity method, components of other
comprehensive income that will be
reclassified to profit or loss
8399
Income tax relating to the
components of other comprehensive
income
8360
Components of other
comprehensive (loss) income
that will be reclassified to profit
or loss
8300
Other comprehensive (loss) income
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.

~24~

TECO ELECTRIC & MACHINERY CO., LTD. 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
Profit for the year
Other comprehensive income (loss) for the year
Total comprehensive income
Appropriations of 2016 earnings
Legal reserve
Cash dividends
Effect of changes in net equity of associates and
joint ventures amount for under the equity method
Balance at December 31, 2017
2018
Balance at January 1, 2018
Effect of retrospective application
Balance at 1 January after adjustments
Profit (loss)
Other comprehensive income
Total comprehensive income
Appropriations of 2017 earnings
Legal reserve
Cash dividents
Effect of changes in net equity of associates and
joint ventures accounted for under the equity
method
Disposal of investment in equity instrument at fair
value through other comprehensive income
Balance at December 31, 2018		 Notes Share capital -
common stock		 Total capital
surplus		 RetainedEarnings O therequityinterest
Treasurystocks		 Total equity
Legal reserve Special reserve Unappropriated
retained earnings		 Financial statements
translation differences
of foreign operations		 Unrealised gains
(losses) from
financial assets
measured at fair
value through
other
comprehensive
income		 Unrealized gain or loss
on available-for-sale
financial assets
6(18)
6(17)
12(4)
6(18)
6(17)
6(3)(6)		 $20,026,929
-
-
-
-
-
-
$20,026,929
$ 20,026,929
-
20,026,929
-
-
-
-
-
-
-
$20,026,929		 $7,671,889
-
-
-
-
-
(
43,347 )
$7,628,542
$ 7,628,542
-
7,628,542
-
-
-
-
-
18,673
-
$7,647,215		 $5,730,071
-
-
-
348,148
-
-
$6,078,219
$ 6,078,219
-
6,078,219
-
-
-
309,235
-
-
-
$6,387,454		 $3,640,779
-
-
-
-
-
-
$3,640,779
$ 3,640,779
-
3,640,779
-
-
-
-
-
-
-
$3,640,779		 $11,816,689
3,092,358
(
48,191 )
3,044,167
(
348,148 )
(
1,762,370 )
-
$12,750,338
$ 12,750,338
1,937,121
14,687,459
3,150,089
(
40,562 )
3,109,527
(
309,235 )
(
1,722,316 )
-
(
572,647 )
$15,192,788		 ($ 1,051,753 )
-
(
707,604 )
(
707,604 )
-
-
-
($ 1,759,357 )
($ 1,759,357 )
-
(
1,759,357 )
-
(
142,367 )
(
142,367 )
-
-
-
-
($ 1,901,724 )		 $ -
-
-
-
-
-
-
$ -
$ -
1,848,757
1,848,757
-
585,378
585,378
-
-
-
572,647
$3,006,782		 $ 2,218,526
-
1,567,352
1,567,352
-
-
-
$ 3,785,878
$ 3,785,878
(
3,785,878 )
-
-
-
-
-
-
-
-
$ -		 ($ 321,563 )
-
-
-
-
-
-
($ 321,563 )
($ 321,563 )
-
(
321,563 )
-
-
-
-
-
-
-
($ 321,563 )		 $49,731,567
3,092,358
811,557
3,903,915
-
(
1,762,370 )
(
43,347 )
$51,829,765
$ 51,829,765
-
51,829,765
3,150,089
402,449
3,552,538
-
(
1,722,316 )
18,673
-
$53,678,660

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

~25~

TECO ELECTRIC & MACHINERY CO., LTD.

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)
Net loss on financial assets at fair value through profit or loss
Net (gain) loss on financial liabilities at fair value through
profit or loss
Impairment loss determined in accordance with IFRS 9
Gain on reversal of bad debts
Interest income
Interest expense
Dividend income
Loss on disposal of investments
Gain on remeasurement
Changes in unrealized (gain) loss from downstream sales
Share of profit of associates and joint ventures accounted for
under the equity method
Depreciation, amortization and net gain or loss on disposal of
property, plant and equipment, net
Changes in operating assets and liabilities
Changes in operating assets
Financial assets at fair value through profit or loss - current
Current contract assets
Notes receivable
Notes receivable - related parties
Accounts receivable
Accounts receivable - related parties
Receivables from customers on construction contract
Other receivables
Other receivables - related parties
Inventories
Prepayments
Other current asset
Financial assets at fair value through profit or loss - non-
current
Changes in operating liabilities
Contract liabilities - current
Notes payable
Notes payable - related parties
Accounts payable
Accounts payable - related parties
Payables to customers on construction contract
Other payables
Other payables - related parties
Provisions for liabilities
Other current liabilities
Other non-current liabilities
Cash inflow generated from operations
Interest received
Dividends received
Payment of interest
Payment of income tax
Net cash flows from operating activities		 Notes
2018
2017
$ 3,294,809
$ 3,304,468
6(2)(21)
103,280
19,806
6(11)(21)
(
2,529 )
2,529
12(2)
513
-
12(4)
-
(
3,738 )
6(20)
(
8,879 )
(
13,550 )
6(22)
94,730
94,354
6(20)
(
223,794 )
(
187,217 )
6(21)
(
1,385 )
(
25,874 )
6(21)
(
46,515 )
-
(
39,247 )
69,454
6(6)
(
1,983,219 )
(
1,648,342 )
6(7)(8)(21)(23)
436,151
412,618
-
11,026
(
238,082 )
-
(
116,473 )
65,852
(
10,252 )
21,892
38,202
377,433
321,893
(
159,426 )
-
275,897
80,148
(
85,009 )
(
97,285 )
(
27,098 )
(
146,148 )
381,189
(
115,098 )
(
29,293 )
(
22,011 )
85,850
(
39,765 )
-
84,127
-
(
12,769 )
10,489
(
6,764 )
(
618 )
50,127
(
84,995 )
(
399,025 )
17,258
-
(
18,265 )
55,208
(
59,991 )
(
5,876 )
37,489
8,261
11,640
(
57,896 )
40,609
(
21,613 )
(
187,248 )
972,824
2,709,189
6(20)
8,879
13,550
752,339
277,809
(
94,730 )
(
94,354 )
(
448,447 )
(
72,890 )
1,190,865
2,833,304

(Continued)

~26~

TECO ELECTRIC & MACHINERY CO., LTD.

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 INVESTING ACTIVITIES
Decrease in other receivables - related parties
Increase in pledged fixed deposit
Increase in financial assets at fair value through other
comprehensive income - non-current
Proceeds from disposal of available-for-sale financial assets -
non-current
Increase in investments accounted for under equity method
Proceeds from disposal of property, plant and equipment
Acquisition of property, plant and equipment
Increase in deferred expenses
(Increase) decrease in refundable deposits
Dividends received
Proceeds from disposal of investments accounted for under equity
method
Decrease in other non-current assets
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans
(Decrease) increase in other payables - related parties financing
Proceeds from issuance of bonds payable
Increase (decrease) in long-term loans
Cash dividends paid
Net cash flows used in financing activities
Net increase 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
$ 61,438
$ 21,023
8
(
8,151 )
(
3,338 )
(
21,990 )
-
-
240,756
(
208,226 )
(
35,848 )
46,307
892
6(7)(26)
(
352,913 )
(
451,717 )
(
19,691 )
(
15,061 )
(
9,331 )
822
223,794
635,789
297,087
8,889
6,931
157,552
15,255
559,759
(
226,674 )
(
201,886 )
7
(
70,450 )
297,600
-
1,000,000
1,158,931
(
2,599,804 )
6(17)
(
1,722,316 )
(
1,762,370 )
(
860,509 )
(
3,266,460 )
345,611
126,603
887,185
760,582
$ 1,232,796
$ 887,185

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

~27~

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To TECO Electric & Machinery Co., Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of TECO Electric & Machinery Co., Ltd. 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 the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the audit reports of other independent accountants, as described in the Other matter section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended, in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and 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 Auditor’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 audit reports of other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements 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.

~28~

Key audit matters for the Group’s consolidated financial statements of the current period are stated as follows:

Revenue recognition of export sales of heavy industrial products group

Description

Refer to Note 4(34) of the consolidated financial statements for the accounting policies on revenue recognition and Note 14 for the segment financial information. The Group disclosed the financial information of heavy industrial products group and home electric appliance division in the segment financial information. Heavy industrial products group handles the manufacturing and sales of various machinery, equipment and motors. The sales revenue of the heavy industrial products group amounted to NT$33,448,989 thousand, representing 66.76% of the consolidated total sales revenue for the year ended December 31, 2018. Aside from domestic sales in Taiwan, the customers of heavy industrial products group are from China, America, Southeast Asia and Europe and the sales terms vary for different customers. Thus, we consider the revenue recognition of export sales of heavy industrial products group as a key audit matter.

How our audit addressed the matter

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

  • Obtained an understanding of and validated the internal controls over revenue recognition of export sales of heavy industrial products group to assess the effectiveness of the internal control process.

  • Validated selected samples of export sales revenue transactions of heavy industrial products group to confirm the existence of export sales revenue transactions.

Impairment assessment of goodwill from the acquisition of Motovario S.p.A.

Description

Motovario S.p.A. is headquartered in Italy, and is engaged in the manufacturing and sales of gear reducers and other power transmission equipment. Motovario S.p.A. is considered a minor cash-generating unit of the Group. As of December 31, 2018, the balance of goodwill was NT$5,207,755 thousand. Refer to Note 6(10) of the consolidated financial statements for information of goodwill, Note 4(21) for the accounting policies on the impairment of non-financial assets and Note 5(2) for the uncertainty of the accounting estimate regarding impairment of goodwill. The Group assesses the impairment of goodwill using the recoverable amount generated from the cash flow forecast discounted using a reasonable discount rate.

~29~

The aforesaid recoverable amount includes several assumptions such as the discount rate used and the preparation of financial projections to estimate the cash flows for the next three years. The discount rate and financial projections relating to the future operations of Motovario S.p.A. are subject to management judgement which have a significant impact on the measurement of the recoverable amount, thus affecting the results of the impairment assessment. Accordingly, we consider management’s impairment assessment of goodwill as a key audit matter.

How our audit addressed the matter

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

  • Obtained an understanding and assessed the Group’s policies and procedures in relating to the goodwill impairment assessment.

  • Assessed whether the future cash flows adopted in the valuation model was in accordance with Motovario S.p.A’s operation plan, and reviewed the results of the previous operating plans prepared by management.

  • Evaluated the reasonableness of major assumptions (including the expected growth rate and discount rate) used in the model.

  • Reviewed the sensitivity analysis for the above significant assumptions and parameters prepared by management and confirmed whether management has adequately addressed the possible impact of the estimation uncertainty on the impairment assessment.

Reclassification from investments accounted for under equity method - subsidiaries into associates due to loss of control

Description

Refer to Note 4(3) for accounting policies adopted when losing control over subsidiaries accounted for under equity method. As mentioned in Note 6(7) of the consolidated financial statements, Kuen Ling Machinery Refrigerating Co., Ltd. (“Kuen Ling”) was a subsidiary accounted for under equity method and included in the consolidated financial statements given a control over the Kuen Ling’s Board of Directors through 19.98% of equity previously held by the Group. However, based on the management’s assessment, the Group has lost control and yet still retained significant influence over the Board of Directors of Kuen Ling following the re-election of directors by shareholders held on May 23, 2018. On the same date, the investments in Kuen Ling were remeasured at fair value. Kuen Ling was then accounted for under equity method but no longer a consolidated entity thereafter. In addition, Kuen Ling does not meet the criteria of Level 1 fair value because of its small stock trading amounts although it is an OTC company based on the

~30~

management’s assessment. Per management’s request, external experts valued its fair value to be Level 3. Given that significant judgements exercised by both the management and valuers’ pertaining to the valuation techniques and parameters in Level 3 significantly affect accounting treatment for losing control, we consider it as a key audit matter.

How our audit addressed the matter

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

  1. Assessed the management’s judgements regarding the loss of control and yet still retaining significant influence over the Board of Directors of Kuen Ling.

  2. Confirmed that the valuation models, assumptions and parameters used by external experts are justified.

  3. Assessed the relevance between the investments and the comparable companies used in the valuation report in terms of their business traits and financial information; reviewed referenced information and supporting documentation of the comparable companies.

  4. Verified that the amount of gain on remeasurement recognised by the management is accurate.

Other matter – Reports of other independent accountants

As described in Notes 4(3) and 6(7) of the consolidated financial statements, we did not audit the financial statements of certain subsidiaries and investments accounted for under 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 investee disclosed in Note 13 was based solely on the reports of other independent accountants. Total assets amounted to NT$2,630,617 thousand and NT$2,363,784 thousand, both constituting 3% of the consolidated total assets as of December 31, 2018 and 2017, respectively, and total operating revenues amounted to NT$2,475,154 thousand and NT$2,156,230 thousand, constituting 5% and 4% of consolidated total operating revenues for the years then ended, respectively. The investments accounted for under the equity method amounted to NT$2,630,962 thousand and NT$2,490,857 thousand, both constituting 3% of consolidated total assets as of December 31, 2018 and 2017, respectively, the credit balance of investments accounted for under the equity method amounted to NT$83,459 thousand and NT$66,393 thousand, both constituting 0% of consolidated total assets as of December 31, 2018 and 2017, respectively, and the share of profit of associates and joint ventures accounted for under the equity method amounted to NT$143,935 thousand and NT$187,682 thousand, both constituting 4% of the consolidated total comprehensive income for the years then ended, respectively.

~31~

Other matter –Parent company only financial reports

We have audited and expressed an unqualified opinion with other matter section on the parent company only financial statements of TECO Electric & Machinery Co., Ltd. as of 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.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue 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:

~32~

  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 controls.

  2. Obtain an understanding of internal controls 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 controls.

  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 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 controls 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

~33~

be expected to outweigh the public interest benefits of such communication.

Wu, Yu-Lung

Chou, Chien-Hung

For and on behalf of PricewaterhouseCoopers, Taiwan March 28, 2019

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

~34~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets Notes
6(1) and 8
6(2)
6(3)
8 and 12(4)
6(22)
12(4)
6(5) and 8
7
6(5)
7
12(5)
7
6(6) and 8
6(1) and 8
6(2)
6(3) and 8
8 and 12(4)
6(4) and 8
6(7) and 8
6(8) and 8
6(9)
6(10)
6(28)
6(11) and 8		 December 31, 2018
AMOUNT
%
$ 17,535,566
19
193,955
-
995,951
1
-
-
1,350,238
2
-
-
1,063,991
1
2,641
-
9,102,428
10
241,272
-
-
-
360,606
-
70,979
-
11,429,685
13
432,419
1
980,640
1
43,760,371
48
2,140,203
2
11,354,525
12
-
-
182,725
-
4,207,360
5
17,363,543
19
2,783,774
3
5,557,343
6
1,250,743
1
3,380,699
4
48,220,915
52
$ 91,981,286
100		 December 31, 2017 December 31, 2017
AMOUNT
$ 17,535,566
193,955
995,951
-
1,350,238
-
1,063,991
2,641
9,102,428
241,272
-
360,606
70,979
11,429,685
432,419
980,640
43,760,371
2,140,203
11,354,525
-
182,725
4,207,360
17,363,543
2,783,774
5,557,343
1,250,743
3,380,699
48,220,915
$ 91,981,286		 AMOUNT
$ 14,129,330
254,003
-
871,041
-
3,794,570
1,188,761
931
9,439,077
183,701
1,030,504
601,279
34,844
11,336,492
422,892
975,343
44,262,768
-
-
12,925,119
-
4,022,455
17,922,299
2,883,477
5,612,315
1,382,884
3,005,640
47,754,189
$ 92,016,957		 %
Current assets
1100
Cash and cash equivalents
1110
Financial assets at fair value
through profit or loss - current
1120
Current financial assets at fair
value through other
comprehensive income
1125
Available-for-sale financial assets
- current
1140
Current contract assets
1147
Bond investments without active
markets - current
1150
Notes receivable, net
1160
Notes receivable - related parties
1170
Accounts receivable, net
1180
Accounts receivable - related
parties
1190
Receivables from customers on
construction contracts
1200
Other receivables
1210
Other receivables - related parties
130X
Inventories, net
1410
Prepayments
1470
Other current assets
11XX
Total current assets
Total Non-current assets
1510
Financial assets at fair value
through profit or loss - noncurrent
1517
Non-current financial assets at
fair value through other
comprehensive income
1523
Available-for-sale financial assets
- non-current
1535
Non-current financial assets at
amortised cost, net
1550
Investments accounted for under
the equity method
1600
Property, plant and equipment,
net
1760
Investment property, net
1780
Intangible assets
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Non-current assets
1XXX
Total assets		 16
-
-
1
-
4
1
-
10
-
1
1
-
12
1
1
48
-
-
14
-
4
20
3
6
2
3
52
100

(Continued)

~35~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity December 31, 2018
December 31, 2017
Notes
AMOUNT
%
AMOUNT
%
6(12) and 8
$ 1,994,360
2
$ 2,187,621
3
6(13)
-
-
2,528
-
6(22)
899,728
1
-
-
73,105
-
195,407
-
7
136,874
-
1,368
-
7,517,824
8
7,589,788
8
7
90,047
-
123,271
-
12(5)
-
-
178,165
-
6(14)
4,720,360
5
4,839,917
5
6(28)
690,853
1
917,494
1
269,254
1
308,744
-
6(16) and 8
1,748,975
2
2,398,053
3
18,141,380
20
18,742,356
20
6(15)
4,000,000
4
4,000,000
4
6(16) and 8
6,746,354
7
6,466,239
7
113,947
-
179,189
-
6(27)
2,254,076
3
2,423,023
3
6(7)(17)
2,234,614
2
2,332,013
3
15,348,991
16
15,400,464
17
33,490,371
36
34,142,820
37
6(18)
20,026,929
22
20,026,929
22
6(19)
7,647,215
8
7,628,542
8
6(20)
6,387,454
7
6,078,219
6
3,640,779
4
3,640,779
4
15,192,788
17
12,750,338
14
6(21)
1,105,058
1
2,026,521
2
6(18) and 8
(
321,563)
- (
321,563)
-
53,678,660
59
51,829,765
56
6(31)
4,812,255
5
6,044,372
7
58,490,915
64
57,874,137
63
9
11
$ 91,981,286
100
$ 92,016,957
100		 December 31, 2017 December 31, 2017
%
Current liabilities
2100
Short-term borrowings
2120
Financial liabilities at fair value
through profit or loss - current
2130
Current contract liabilities
2150
Notes payable
2160
Notes payable - related parties
2170
Accounts payable
2180
Accounts payable - related parties
2190
Payables to customers on
construction contracts
2200
Other payables
2230
Current income tax liabilities
2250
Provisions for liabilities - current
2300
Other current liabilities
21XX
Total current liabilities
Non-current liabilities
2530
Corporate bonds payable
2540
Long-term borrowings
2550
Provisions for liabilities - non-
current
2570
Deferred income tax liabilities
2600
Other non-current liabilities
25XX
Total non-current liabilities
2XXX
Total liabilities
Equity attributable to owners of
parent
Share capital
3110
Common stock
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Unappropriated retained earnings
Other equity interest
3400
Other equity interest
3500
Treasury stocks
31XX
Equity attributable to owners
of the parent
36XX
Non-controlling interest
3XXX
Total equity
Commitments and contingent
liabilities
Significant events after the
balance sheet date
3X2X
Total liabilities and equity		 3
-
-
-
-
8
-
-
5
1
-
3
20
4
7
-
3
3
17
37
22
8
6
4
14
2
-
56
7
63
100

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

~36~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(8)(9)(22), 7 and
12(5)
$ 50,104,927
100
$ 50,942,521
100
6(6)(17)(26) and 7
(
38,052,253) (
76) (
38,743,733) (
76)
12,052,674
24
12,198,788
24
(
9,160)
-
(
9,145)
-
9,145
-
6,625
-
12,052,659
24
12,196,268
24
6(17)(26)
(
4,636,195) (
9) (
4,702,844) (
9)

(
2,735,191) (
6) (
2,716,018) (
5)
(
1,120,748) (
2) (
1,281,206) (
3)
12(2)
(
40,039)
-
-
-
(
8,532,173) (
17) (
8,700,068) (
17)
3,520,486
7
3,496,200
7
6(4)(9)(23) and 7
1,264,083
3
1,506,936
3
6(2)(7)(13)(24)(26)
(
389,884) (
1) (
628,521) (
1)
6(25)
(
222,540)
-
(
254,638)
-
6(7)
114,143
-
233,927
-
765,802
2
857,704
2
4,286,288
9
4,353,904
9
6(27)
(
810,319) (
2) (
809,656) (
2)
$ 3,475,969
7
$ 3,544,248
7
4000
Sales revenue
5000
Operating costs
5900
Net operating margin
5910
Unrealized loss from sales
5920
Realized profit from sales
5950
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6450
Impairment loss (impairment gain
and reversal of impairment loss)
determined in accordance with IFRS
9
6000
Total operating expenses
6900
Operating profit
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 the
equity method
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the period

(Continued)

~37~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(17)
($ 39,123)
-
($ 58,868)
-
6(3) and 12(4)
615,645
1
-
-
(
24,384)
-
(
2,751)
-
6(27)
21,442
-
3,037
-
573,580
1
(
58,582)
-
6(21)
(
185,642)
-
(
803,071) (
2)
12(4)
-
-
1,570,454
3
6(21)
-
-
4,019
-
6(27)
45,073
-
68,969
-
(
140,569)
-
840,371
1
$ 433,011
1
$ 781,789
1
$ 3,908,980
8
$ 4,326,037
8
$ 3,150,089
6
$ 3,092,358
6
325,880
1
451,890
1
$ 3,475,969
7
$ 3,544,248
7
$ 3,552,538
7
$ 3,903,915
7
356,442
1
422,122
1
$ 3,908,980
8
$ 4,326,037
8
6(29)
$ 1.59
$ 1.56
$ 1.58
$ 1.55
Other comprehensive income
Other comprehensive income that
will not be reclassified to profit or
loss
8311
Other comprehensive income, before
tax, actuarial losses on defined
benefit plans
8316
Unrealized gain on investments in
equity instruments 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
8349
Income tax related to 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
Other comprehensive income that
will be reclassified to profit or loss
8361
Currency translation differences of
foreign operations
8362
Unrealized gain on valuation of
available-for-sale financial assets
8370
Share of other comprehensive
income of associates and joint
ventures accounted for under the
equity method - other comprehensive
income that will be reclassified to
profit or loss
8399
Income tax relating to the
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 for the
period
8500
Total comprehensive income for the
period
Profit attributable to:
8610
Owners of the parent
8620
Non-controlling interest
Comprehensive income attributable
to:
8710
Owners of the parent
8720
Non-controlling interest
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.

~38~

TECO ELECTRIC & MACHINERY CO., LTD. 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
Profit for the year
Other comprehensive income (loss)
for the year
Total comprehensive income
Appropriations of 2016 earnings
Legal reserve
Cash dividends
Effect of changes in net equity of
associates and joint ventures
amount for under the equity method
Changes in non-controlling interests
Balance at December 31, 2017
2018
Balance at January 1, 2018
Effect of retrospective application
Balance at 1 January after
adjustments
Profit (loss)
Other comprehensive income
Total comprehensive income
Appropriations of 2017 earnings
Legal reserve
Cash dividents
Effect of changes in net equity of
associates and joint ventures
accounted for under the equity
method
Changes in non-controlling interests
Disposal of investment in equity
instrument at fair value through
other comprehensive income
Balance at December 31, 2018		 Notes Equity attributable to Equity attributable to owners ofthe parent Non-controlling
interest		 Total equity
Share capital -
common stock		 Capital surplus RetainedEarnings Otherequityinterest Treasurystocks Total
Legal reserve Special reserve Unappropriated
retained earnings		 Financial
statements
translation
differences of
foreign operations		 Unrealised gains
(losses) from
financial assets
measured at fair
value through other
comprehensive
income		 l Unrealized gain or
oss on available-for-
sale financial assets

6(21)
6(20)

12(4)
6(21)
6(20)

6(21)		 $ 20,026,929
-
-
-
-
-
-
-
$ 20,026,929
$ 20,026,929
-
20,026,929
-
-
-
-
-
-
-
-
$ 20,026,929		 $ 7,671,889
-
-
-
-
-
(
43,347 )
-
$7,628,542
$ 7,628,542
-
7,628,542
-
-
-
-
-
18,673
-
-
$ 7,647,215		 $ 5,730,071
-
-
-
348,148
-
-
-
$6,078,219
$ 6,078,219
-
6,078,219
-
-
-
309,235
-
-
-
-
$ 6,387,454		 $ 3,640,779
-
-
-
-
-
-
-
$3,640,779
$ 3,640,779
-
3,640,779
-
-
-
-
-
-
-
-
$ 3,640,779		 $ 11,816,689
3,092,358
(
48,191 )
3,044,167
(
348,148 )
(
1,762,370 )
-
-
$ 12,750,338
$ 12,750,338
1,937,121
14,687,459
3,150,089
(
40,562 )
3,109,527
(
309,235 )
(
1,722,316 )
-
-
(
572,647 )
$ 15,192,788		 ($ 1,051,753 )
-
(
707,604 )
(
707,604 )
-
-
-
-
($1,759,357 )
($ 1,759,357 )
-
(
1,759,357 )
-
(
142,367 )
(
142,367 )
-
-
-
-
-
($ 1,901,724 )		 $ -
-
-
-
-
-
-
-
$ -
$ -
1,848,757
1,848,757
-
585,378
585,378
-
-
-
-
572,647
$ 3,006,782		 $ 2,218,526
-
1,567,352
1,567,352
-
-
-
-
$ 3,785,878
$ 3,785,878
(
3,785,878 )
-
-
-
-
-
-
-
-
-
$ -		 ($ 321,563 )
-
-
-
-
-
-
-
($321,563 )
($ 321,563 )
-
(
321,563 )
-
-
-
-
-
-
-
-
($ 321,563 )		 $ 49,731,567
3,092,358
811,557
3,903,915
-
(
1,762,370 )
(
43,347 )
-
$ 51,829,765
$ 51,829,765
-
51,829,765
3,150,089
402,449
3,552,538
-
(
1,722,316 )
18,673
-
-
$ 53,678,660		 $ 5,992,976
451,890
(
29,768 )
422,122
-
-
-
(
370,726 )
$ 6,044,372
$ 6,044,372
-
6,044,372
325,880
30,562
356,442
-
-
-
(
1,588,559 )
-
$ 4,812,255		 $ 55,724,543
3,544,248
781,789
4,326,037
-
(
1,762,370 )
(
43,347 )
(
370,726 )
$ 57,874,137
$ 57,874,137
-
57,874,137
3,475,969
433,011
3,908,980
-
(
1,722,316 )
18,673
(
1,588,559 )
-
$ 58,490,915

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

~39~

TECO ELECTRIC & MACHINERY CO., LTD. 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)
Net loss on financial assets at fair value through profit or loss
Net (gain) loss on financial liabilities at fair value through
profit or loss
Provision for allowance for doubtful accounts
Impairment loss determined in accordance with IFRS 9
Provision for decline in value of inventories
Interest income
Dividend income
Interest expense
Depreciation and amortization
Gain on disposal of investments
Gain on remeasurement
Loss on disposal of property, plant and equipment
(Reversal of) provison for impairment loss
Share of profit of associates and joint ventures accounted for
under the equity method
Changes in operating assets and liabilities
Changes in operating assets
Financial assets at fair value through profit or loss - current
Current contract assets
Notes receivable
Notes receivable - related parties
Accounts receivable
Accounts receivable - related parties
Receivables from customers on construction contracts
Other receivables
Other receivables - related parties
Inventories
Prepayments
Other current assets
Changes in operating liabilities
Current contract liabilities
Notes payable
Notes paypale - related parties
Accounts payable
Accounts payable - related parties
Payables to customers on construction contracts
Other payables
Provisions for liabilities
Other current liabilities
Other non-current liabilities
Cash inflow generated from operations
Interest received
Dividend received
Interest paid
Income tax paid
Net cash flows from operating activities		 Notes
2018
2017
$ 4,286,288
$ 4,353,904
6(2)(22)(24)
160,975
4,573
6(13)(24)
(
2,528 )
2,528
12(4)
-
39,339
12(2)
40,039
-
6(6)
88,300
114,196
6(23)
(
219,986 )
(
150,197 )
6(23)
(
553,818 )
(
508,613 )
6(25)
222,540
254,638
6(8)(9)(26)
1,528,540
1,483,888
6(22)(24)
(
631 )
(
239,595 )
6(7)(24)
(
46,515 )
-
6(24)
29,086
(
150,541 )
6(8)(24)
(
32,335 )
889
6(7)
(
114,143 )
(
233,927 )
106,333
(
25,068 )
(
363,976 )
-
(
40,235 )
29,665
(
88,707 )
4,468
(
211,181 )
945,770
(
82,463 )
51,054
-
205,452
233,001
(
358,975 )
(
36,135 )
407,881
(
729,564 )
(
273,647 )
(
94,809 )
48,308
196,526
366,416
170,447
-
(
54,021 )
32,246
136,981
(
6,243 )
266,296
78,435
(
33,031 )
24,154
-
(
23,856 )
155,244
(
143,811 )
(
34,934 )
(
34,618 )
31,178
287,157
(
50,020 )
(
257,468 )
4,862,742
6,328,402
219,986
150,197
443,772
289,350
6(25)
(
222,540 )
(
254,638 )
6(27)
(
975,268 )
(
621,659 )
4,328,692
5,891,652

(Continued)

按一下這裡以輸入文字。 ~40~

TECO ELECTRIC & MACHINERY CO., LTD. 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 INVESTING ACTIVITIES
Increase in financial assets at fair value through other
comprehensive income - current
Decrease in available-for-sale financial assets - current
Decrease in other receivables-related parties
Decrease (incerease) decrease in bond investments without active
market
(Increase) decrease in pledged demand and fixed deposits
Increase in financial assets at fair value through other
comprehensive income - non-current
Decrease in financial assets at fair value through other
comprehensive income - non-current
Proceeds from disposal of available-for-sale financial assets -
non-current
Acquisition of available-for-sale financial assets - non-current
Increase in financial assets at amortised cost - non-current
Increase in investments accounted for under the equity method
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
Increase in restricted assets
(Increase) decrease in other non-current assets
Net cash outflow on acquisitions of subsidiaries
Cash dividents received
Net cash flows from (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans
Increase (decrease) in long-term loans
Proceeds from issuance of bonds payable
Cash dividends paid to non-controlling interest
Cash dividends paid
Net cash flows used in financing activities
Exchange rate effect
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Notes
2018
2017
( $ 424,082 )
$ -
-
552,833
7
-
55,071
3,794,570
(
963,998 )
6(1) and 8
(
201,823 )
8,847
(
76,384 )
-
184,067
-
-
549,407
-
(
128,435 )
6(4)
(
182,725 )
-
(
149,083 )
(
38,001 )
6(8)(29)
(
1,190,647 )
(
1,021,817 )
90,173
619,976
(
242,354 )
(
103,174 )
-
(
425 )
(
450,185 )
102,313
6(29)
(
434,442 )
-
287,870
351,648
1,004,955
(
15,755 )
(
121,466 )
(
890,740 )
311,897
(
2,927,291 )
-
1,000,000
(
156,477 )
(
265,099 )
6(20)
(
1,722,316 )
(
1,762,370 )
(
1,688,362 )
(
4,845,500 )
(
239,049 )
(
890,893 )
3,406,236
139,504
14,129,330
13,989,826
$ 17,535,566
$ 14,129,330

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

~41~

TECO Electric & Machinery Co., Ltd.

Distribution of 2018 Profits

(In NT$)
Item Amount
Accumulated undistributed profit as of the beginning of the period
Add: Impact of retrospective application of IFRS9
Accumulated undistributed earnings after adjustment
Less: Retained earnings after adjustment in 2018 (Note 1)
Add: Net Profit after tax in 2018
Less: Legal Reserve		 10,718,786,062
1,937,121,448
12,655,907,510
(613,208,392)
3,150,088,912
(315,008,891)
Total distributable earnings 14,877,779,139
Profit available for distribution for the period:
Profit-sharing to shareholders
(Dividendper share)		 1,770,923,597
0.90
Undistributedprofit as of the end of 2018 10,718,786,062
Note：
1. Including a. Remeasurement of actuarial gains and losses of
defined benefit plan, (NT$40,561,743)
b. Disposal of financial assets at fair value through
other comprehensive income NT$86,645,851
c. Derecognition of financial assets at fair value through
other comprehensive income (NT$659,292,500)

Notes:

  1. Dividend per share in 2018 is NT$0.90 and all dividends distributed this year shall be cash dividend.

  2. The profit distributed this period will be distributed from the distributable earnings received in 2017 and from the accumulated undistributed profits from previous years where there is a shortfall.

  3. In the event of any change to the total number of outstanding shares as a result of transfer, conversion or deregistration of treasury shares, exercise of employees’ stock option and other factors, it is proposed that the Shareholders’ Meeting grants the Chairman full authority to handle all relevant matters subject to the fixed payout rate mentioned above.

~42~

TECO Electric & Machinery Co., Ltd. Comparison between the Revision and the Original of

“Articles of Incorporation”

Proposed Revision Current Clauses Note
Article 1
The Company is incorporated in
accordance with the Company
Act and is named TECO Electric
& Machinery Co., Ltd.The
company is named as TECO
Electric and Machinery Co., Ltd.
in English.		 Article 1
The Company is incorporated in
accordance with the Company
Act and is named TECO Electric
& Machinery Co., Ltd.		 Addition of the
company's
English name, in
line with article
392-1 of the
Company Act
and the trend of
internationalizati
on.
Article 2
The scope of business of this
Company is as follows:
1.~60. (omitted)
61.E606010 Testing and
inspection of electrical equipment
services;
62.~63.(omitted)		 Article 2
The scope of business of this
Company is as follows:
1.~60. (omitted)
61. IF02010 Testing and
inspection of electrical equipment
services;
62.~63.(omitted)		 Code number
61. IF02010 for
the company's
Testing and
inspection of
electrical
equipment
services is no
longer in use
and has been
changed to
E606010, for
which the
revision is made
accordingly.
Article 6
(Item1~item3 omitted)
The company's share-
subscription warrants for
employees can also be issued to
employees of subordinate
companies meeting a certain
conditions.		 Article 6
(Item1~item3 omitted)
(New addition)		 According to item
3 of article 167-2
of the revised
Company Act
stipulating that
"the charter can
specify the
targets for the
issuance of
share-
subscription
warrants for
employees can
be employees of
controlling or
subordinate
company
meeting a certain
conditions," add
item 4 to the
article, giving the
company
flexibility in

~43~

execution and
assuring its legal
compliance.
Article 7
(omitted)
Targets for transfer of shares
purchased by the company legally
can include employees of the
company meeting a certain
conditions.		 Article 7
(omitted)
(New addition)		 According to item
4 of article 167-1
of the revised
Company Act
stipulating that
"the charter can
specify the
targets for the
transfer specified
in item 2 can be
employees of
controlling or
subordinate
company
meeting a certain
conditions," add
item 2 to the
article, giving the
company
flexibility in
execution and
assuring its legal
compliance.
Article 25
The Board of Directors shall after
the end of each fiscal year
produce the following reports and
statements and submit the same
to the Shareholders Meetingfor
ratification:
1. Business report.
2. Financial statement.
3. Proposedstock dividend of
profit distribution or loss make-up
plan.		 Article 25
The Board of Directors shall after
the end of each fiscal year
produce the following reports and
statements and submit the same
tothe Audit Committee for
inspection and, thereafter,the
Shareholders Meeting:
1. Business report.
2. Financial statement.
3. Proposed profit distribution or
loss make-up plan.		 1. As actual flow
of item 1 should
be audit
committee, the
board of
directors, and
shareholders'
meeting, the item
only refers to
"board of
directors,
shareholders'
meeting," in
conformance to
the actual
situation.
2. As article 27 of
the charter
authorizes the
board of directors
to make
resolution on
cash-dividend
payout, add the
statement to item
1-3 that only
stock-dividend

~44~

payout needs the
approval of the
shareholders'
meeting.
Article 27
Profit, should it appear in final
account, should be used, in
descending order, in paying tax,
making up for accumulated loss,
and then appropriating 10% of
the remainder for legal reserve,
on top of appropriation or reversal
of special reserve, according to
the regulation of regulator. The
balance, should it exist, should be
combined with retained earnings
of previous year for the board of
directions to formulate proposal
of profit distribution. Proposal for
stock-dividend payout should be
submitted to shareholders'
meeting for approval, while the
board of directors is authorized to
determine the proposal for cash-
dividend payment with a
resolution which needs the
support of over half of the
directors present at a meeting
attended by over two thirds of all
the directors before reporting the
resolution to the shareholders'
meeting.
(omitted)		 Article 27
Profit, should it appear in final
account, should be used, in
descending order, in paying tax,
making up for accumulated loss,
and then appropriating 10% of
the remainder for legal reserve,
on top of appropriation or reversal
of special reserve, according to
the regulation of regulator. The
balance, should it exist, should be
combined with retained earnings
of previous year for the board of
directions to formulate proposal
of profit distribution for approval
by the shareholders' meeting.
(omitted)		 According to item
5 of article 240 of
the revised
Company Act,
the charter can
specify
authorization for
the board of
directors to
determine cash-
dividend payout
via special
resolution before
reporting the
resolution to
shareholders'
meeting (without
needing its
approval).
Accordingly, item
1 contains
description of the
flow for the
payout of cash
and stock
dividends.
Article 30
(Omitted)
The fifty-seventh amendment was
on June 14, 2019
It took effect after the approval of
shareholders’ meeting.		 Article 30
(Omitted)
The fifty-sixth amendment was on
June 16, 2016
It took effect after the approval of
shareholders’ meeting.		 Addition of the
date and number
of the revision

~45~

TECO Electric & Machinery Co., Ltd. Comparison between the Revision and the Original of

“Procedure for Acquisition or Disposal of Assets”

Proposed Revision Current Clauses Note
Article 3
1. The term_marketable securities_
include investments in stocks,
government bond, corporate
bond, financial debenture,
mutual fund securities,
depository receipts, share
warrant certificates,
beneficiary securities, asset-
back securities and so on.
2. Real property (including land,
house & construction,
investment real assets and
inventory of construction
business) and equipment.
3. Membership.
4. Intangible assets, including,
patent, copyright, trademark,
franchise and so on.
5. Right-of-use asset
6. Credit claims in financial
institutions (including accounts
receivable, foreign exchange
discount, lending, overdue
receivables).
7. Derivatives.
8. Assets acquired or disposed of
as a result of legal merger,
spin-off, acquisition or
assignment of shares.
9. Other important assets.		 Article 3
1. The term_marketable securities_
include investments in stocks,
government bond, corporate
bond, financial debenture,
mutual fund securities,
depository receipts, share
warrant certificates, beneficiary
securities, asset-back
securities and so on.
2. Real property (including land,
house & construction,
investment real assets,land
utilization rightand inventory of
construction business) and
equipment.
3. Membership.
4. Intangible assets, including,
patent, copyright, trademark,
franchise and so on.
5. Credit claims in financial
institutions (including accounts
receivable, foreign exchange
discount, lending, overdue
receivables).
6. Derivatives.
7. Assets acquired or disposed of
as a result of legal merger,
spin-off, acquisition or
assignment of shares.
8. Other important assets.		 1. In line with
change of
acquisition
and disposal
rules by
Taiwan Stock
Exchange,
add Right-of-
use asset,
expand the
scope of the
Right-of-use
asset, and
move land
usage right,
now under
section 2, to
section 5.
2. In line with
addition of
Right-of-use
asset as
section 5 in
the rules of
Taiwan Stock
Exchange,
change
section 5 to
section 6.
Article 4
1. Derivatives means the
forward contracts, options
contracts, futures contracts,
hedge margin contracts,
swaps contracts, and
combination of
aforementioned contracts or
derivatives-based
combination contracts, or
structured productsthe value
of which is derived from
specific interest rates, prices
of financial instruments,		 Article 4
1. Derivatives means the
forward contracts, options
contracts, futures contracts,
hedge margin contracts,
swaps contracts,and
compound contracts of the
combination of the abovethe
value of which is derived from
assets, interest rates,
exchange rate, indices or
other interests.Forward
contracts do not include
insurance contracts,		 1. In line with the
change of
acquisition
and disposal
rules by
Taiwan Stock
Change,
revise the
scope of
derivatives.
2. In line with
revision of the
Company Act,
change the
reference of

~46~

commodity price, exchange
rate, indices of price or rate,
credit rating or credit standing
indices, or other variables.
Forward contracts do not
include insurance contracts,
performance guaranty
contracts, after-sale service
contracts, long-term leases
and long-term purchase (sale)
contracts.
2. Assets acquired or disposed
of as a result of legal merger,
spin-off, acquisition or
assignment of shares means
the assets acquired from or
disposed of as a result of a
merger, spin-off or acquisition
conducted in accordance with
the Business Merger and
Acquisition Act, Financial
Holding Company Act,
Financial Institutions Merger
Act or other laws, or the
stocks of another company
acquired by issuing new
shares pursuant to thethird
paragraph of Article 156 of the
Company Act.
(Omitted)		 performance guaranty
contracts, after-sale service
contracts, long-term leases
and long-term purchase (sale)
contracts.
2. Assets acquired or disposed
of as a result of legal merger,
spin-off, acquisition or
assignment of shares means
the assets acquired from or
disposed of as a result of a
merger, spin-off or acquisition
conducted in accordance with
the Business Merger and
Acquisition Act, Financial
Holding Company Act,
Financial Institutions Merger
Act or other laws, or the
stocks of another company
acquired by issuing new
shares pursuant to theeighth
paragraph of Article 156 of the
Company Act.
(Omitted)		 "item 8 of
article 156" in
section 2 to
"article 156-
3."
Article 6
The company's appraisal report
or certified public account,
attorney at law, or securities
underwriter should meet the
following conditions:
1. without subjection to verdict of
over one year of
imprisonment for violation of
the law, the Company Act, the
Banking Act, the Insurance
Act, the Financial Holding
Company Act, or the Business
Entity Accounting Act, or
commitment of fraud, breach
of trust, conversion, forgery, or
business-related crimes,
except those who have
served the imprisonment or
those with completion of
probation or reception of
pardon forthree years or		 Article 6
Noappraiser, certified public
account, legal counsel or
securities underwriterwho has
provided the Company with the
appraisal report or opinion may
involve in the transaction in issue
as a related party. Nor shall the
transaction counterpart be a
related party in the transaction.		 1. In line with
the change of
acquisition
and disposal
rules by
Taiwan Stock
Exchange,
include in the
guidelines
notices for
the company
in the
employment
of appraiser,
certified
public
account,
attorney at
law, or
security
underwriter
and add

~47~

more.
2. Trading partners should not
be stakeholders or those with
substantive relationship.
3. Should it need to obtain
appraisal reports from two or
more appraisers, those
appraisers should not have
the relationship of
stakeholders or other
substantive relationship.
The aforementioned appraisers
should abide by the following
regulations when producing
appraisal report or opinions:
1. Cautiously evaluation their
own expertise, experience,
and independence before
undertaking the cases;
2. when inspecting cases,
properly plan and execute
operating flow for formation of
conclusions, as basis for
producing report or opinions
and register in detail
execution procedure, data
collection, and conclusions in
working paper;
3. evaluate one by one the
completeness, accuracy, and
reasonableness of data
sources, parameters, and
information, as the basis for
production of appraisal report
or opinions;
4. declaration should include
expertise and independence
of related persons, evaluation
of the reasonableness of
information in use, and legal
compliance.		 sections 1-3
of item 1
specifying
ineligible
conditions for
related
experts and
revocation of
previous
stipulation, in
reference to
ineligible
conditions for
directors,
supervisors,
and
managerial
staffers in
section 4 of
article 53 of
the Securities
and
Exchange
Act, as well
as principle of
integrity for
issuer and
person in
charge in
section 15,
item 1 of
article 8 of
the
Regulations
Governing
the Offering
and Issuance
of Securities
by Securities
Issuers.
2. Specify the
responsibilitie
s of outside
experts and
add item 2 to
the guideline
specifying the
evaluation,
auditing, and
declaration of
appraisal
report or
opinions
produced by
related

~48~

experts, in
reference to
article 9 of
the
Regulations
Governing
the
Preparation
of Financial
Reports by
Securities
Issuers
pertaining to
the
evaluation,
auditing, and
declaration of
certified
public
accountant
on appraisal
report and
reasonable
opinions
about realty
investment.
Article 7
1. Evaluation and procedure of
operation
Acquisition or disposal of real
property, andequipment and
its right-of-use assetby the
Company shall be in
accordance with the
Company’s internal control
policy pertaining to the
revolving of fixed assets.
2. Procedure for determining the
terms of transaction and
approval of transaction
2.1 The terms and transaction
price of the acquisition or
disposal of real property
and its right-of-use asset
shall be determined by
reference to, among
others, the posted current
value, appraised value,
and the actual transaction
price of other real
property located nearby.
Transactions with a value
ofless thanTWD50		 Article 7
1. Evaluation and procedure of
operation
Acquisition or disposal of real
property andequipmentby the
Company shall be in
accordance with the
Company’s internal control
policy pertaining to the
revolving of fixed assets.
2. Procedure for determining the
terms of transaction and
approval of transaction
2.1 The terms and transaction
price of the acquisition or
disposal of real property
shall be determined by
reference to, among
others, the posted current
value, appraised value,
and the actual transaction
price of other real
property located nearby.
Transactions with a value
ofless thanTWD50
million may precede with
the approval of the		 1. In line with
change of
acquisition
and disposal
rule by
Taiwan Stock
Exchange,
add Right-of-
use asset and
expand the
scope of
Right-of-use
asset, as well
as addition of
the
regulations
on Right-of-
use asset to
acquisition
and disposal
procedure
stipulated in
article 7
accordingly.
2. Make proper
revision of the
texts from
section 2 to
section3,for

~49~

2.2
2.3		 million may precede with
the approval of the
President. Transactions
with a value of between
TWD50 million and
TWD100 million each may
proceed with the approval
of the Chairman of the
Board of Directors and
shall be reported to the
immediately subsequent
meeting of the Board of
Directors. Transactions
with a value of over
TWD100 million must be
approved by the Board of
Directors in advance.
Acquisition or disposal of
equipmentits right-of-use
assetshall be conducted
by way of issuing request
for proposal, price
competition under
restricted tendering, and
price negotiation under
single tendering or
bidding. The approval
thereof shall be in
accordance with the
Schedule of Functions
and Authority compiled
pursuant to the relevant
bylaws of the Company.
Where the acquisition or
disposal of assets by the
Company in accordance
with the relevant
procedure or other laws
must be approved by the
Board of Directors in
advance, the opposition
expressed by the Director
with written record thereof
taken or in writing shall be
submitted to Audit
Committee. On the
acquisition or disposal of
assets duly proposed to
the Board of Directors for
approval, opinion
expressed by the
Independent Director shall
be sufficientlyconsidered		 President. Transactions
with a value of between
TWD50 million and
TWD100 million each may
proceed with the approval
of the Chairman of the
Board of Directors and
shall be reported to the
immediately subsequent
meeting of the Board of
Directors. Transactions
with a value of over
TWD100 million must be
approved by the Board of
Directors in advance.
2.2 Acquisition or disposal of
equipment shall be
conducted by way of
issuing request for
proposal, price
competition under
restricted tendering, and
price negotiation under
single tendering or
bidding. The approval
thereof shall be in
accordance with the
Schedule of Functions
and Authority compiled
pursuant to the relevant
bylaws of the Company.
2.3 Where the acquisition or
disposal of assets by the
Company in accordance
with the relevant
procedure or other laws
must be approved by the
Board of Directors in
advance, the opposition
expressed by the Director
with written record thereof
taken or in writing shall be
submitted to Audit
Committee. On the
acquisition or disposal of
assets duly proposed to
the Board of Directors for
approval, opinion
expressed by the
Independent Director shall
be sufficiently considered
with their concurrence or
dissent expressed and the		 the sake of
legal
compliance.
3. In line with
change of
acquisition
and disposal
rule by
Taiwan Stock
Exchange,
revise section
4 with
confinement
of domestic
government
agencies,
plus proper
modification
of text, for the
sake of legal
compliance.
4. Proper
revision of the
text of section
4-1, for the
sake of legal
compliance.

~50~

3.
t




t

t

t
t
4.


t








f




t





 with their concurrence or
dissent expressed and the
reason therefore duly
recorded in the meeting
minutes.
Unit in charge of execution of
ransaction
Upon approval of the proposed
acquisition or disposal of real
property, equipment orits
right-of-use assetpursuant to
he preceding paragraph, the
responsible department and
he Corporate Finance &
Management Division shall
ake charge of the execution
hereof.
Appraisal report on real
property or equipment
Where the transaction value of
he acquisition or disposal of
real property, equipmentor its
right-of-use assetamounts to
20% or more of the paid-in
capital of the Company or
TWD300 million or more, an
appraisal report produced by a
professional appraiser must be
obtained before the date the
act happens in accordance
with the following, except in
cases where the transaction
counterpart is adomestic
government agencies, or the
ransaction is an entrusted
construction project on a self-
owned land or a leased land,
or the objects to be acquired
or disposed of equipmentor its
right-of-use assetfor business
purpose.
4.1 Where the transaction
price shall be determined
by reference to any
restricted, designated
price or special price for
whatever special reason,
the transaction andall
subsequent changes to
the terms thereof (if any)
must be submitted to the		 reason therefore duly
recorded in the meeting
minutes.
3. Unit in charge of execution of
transaction
Upon approval of the proposed
acquisition or disposal of real
propertyor equipment
pursuant to the preceding
paragraph, the responsible
department and the Corporate
Finance & Management
Division shall take charge of
the execution thereof
4. Appraisal report on real
property or equipment
Where the transaction value of
the acquisition or disposal of
real propertyor equipment
amounts to 20% or more of the
paid-in capital of the Company
or TWD300 million or more, an
appraisal report produced by a
professional appraiser must be
obtained before the date the
fact happens in accordance
with the following, except in
cases where the transaction
counterpart is a government
agencies, or the transaction is
an entrusted construction
project on a self-owned land or
a leased land, or the objects to
be acquired or disposed of is
equipment for business
purpose.
4.1 Where the transaction
price shall be determined
by reference to any
restricted, designated
price or special price for
whatever special reason,
the transaction andall
subsequent changes to
the terms thereof (if any)
must be submitted to the
Board of Directors for
approval in advance.
(Omitted)
purp
4.1

  1. Unit in charge of execution of transaction Upon approval of the proposed acquisition or disposal of real property, equipment or its right-of-use asset pursuant to the preceding paragraph, the responsible department and the Corporate Finance & Management Division shall take charge of the execution thereof.

  2. Appraisal report on real property or equipment Where the transaction value of the acquisition or disposal of real property, equipment or its right-of-use asset amounts to 20% or more of the paid-in capital of the Company or TWD300 million or more, an appraisal report produced by a professional appraiser must be obtained before the date the fact happens in accordance with the following, except in cases where the transaction counterpart is a domestic government agencies, or the transaction is an entrusted construction project on a selfowned land or a leased land, or the objects to be acquired or disposed of equipment or its right-of-use asset for business purpose.

~51~

Board of Directors for
approval in advance.
(Omitted)
Article 8
Procedure for acquisition or
disposal of marketable securities
1. Evaluation and procedure of
operation
Trading of long- or short-term
securities by the Company
shall be in accordance with
the Company’s internal control
policy pertaining to the
revolving of investments.
Acquisition or disposal of long-
term securities mentioned in
the procedure refers to the
holding of over 20% stake or
long-term equity investment.
Acquisition or disposal of long-
term securities mentioned in
the procedure refers to the
holding of over 20% stake or
long-term equity investment in
a company.
2. Procedure for determining the
terms of transaction and
approval of transaction
2.1 For acquisition and
disposal of long-term
securities, the execution
unit should evaluate
transaction conditions
and authorized quota,
under the principle of
legal compliance, for the
sake of timing and
company interests,
investments less than
NT$300 million in value
can be approved by the
board of standing
directors during the
recess of the board of
directors before being
reported to the latter at its
next meeting. Cases with
value exceeding NT$300
million still need the
approval of the board of
directors, though.		 Article 8
Procedure for acquisition or
disposal of marketable securities
1. Evaluation and procedure of
operation
Trading of long- or short-term
securities by the Company
shall be in accordance with
the Company’s internal control
policy pertaining to the
revolving of investments.
Acquisition or disposal of long-
term securities mentioned in
the procedure refers to the
holding of over 20% stake or
long-term equity investment.
Acquisition or disposal of long-
term securities mentioned in
the procedure refers to the
holding of over 20% stake or
long-term equity investment in
a company.
2. Procedure for determining the
terms of transaction and
approval of transaction
2.1 For acquisition and
disposal of long-term
securities, the execution
unit should evaluate
transaction conditions
and authorized quota
before submitting its
proposal to the board of
directors for approval.
(Omitted)		 Taking into
account that
purchase of the
shares of joint
ventures
(subsidiaries) in
the past, any
value of cases
need of the
approval by the
board of directors
affects the timing,
price, and
efficiency of
transactions,
such as
investment in the
joint venture of
Mitsui and
TEMICO
(NT$80,000) in
April and
transaction for
the shares of
Roteco of the
Philippines (over
6 million pesos)
in August. For the
sake of timing
and company
interests, it is
suggested to
authorize, in a
legal manner, the
board of standing
directors to
determine the
long-term
acquisition of
disposal of
securities with
value less than
NT$300 million,
in exercise the
power of the
board of directors
during the latter's
recess period.
Such cases,
however, have to
be reported to

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(Omitted)

Article 9

  1. In addition to the procedure for acquisition or disposal of assets or its right-of-use asset from a related party provided in Article 7-11, requirements with respect to the procedure of approval and evaluation of the acceptability of the terms of transaction. According the stipulations of article 7-11 of the handling procedure, when the trading value exceeds 10% of the company’s total assets, the appraisal report of professional appraisers or the opinions of CPA should be obtained. The substance of the relationship other than the formation as a legal matter must be considered when determining whether the transaction counterpart is a related party

  2. Evaluation and procedure of operation Acquisition or disposal of real property or its right-of-use asset from a related party, or acquires r disposes nonproperty assets or its right-ofuse asset with related parties and the trading value exceeds 20% of the company’s paid-in capital, 10% of total assets, or NT$300 million, must be approved by the Board of Directors based on the materials on the following matters and ratified by the Audit Committee in advance to sign the transaction contract and make payment: 2.1 The purpose, necessity and anticipated efficacy of the proposed acquisition or disposal of assets.

2.2 The reason for selecting the related party in issue

the board of directors at its next meeting.

the board of
directors at its
next meeting.
Article 9 1. In line with
1. In addition to the procedure for
acquisition or disposal of
assets from a related party
provided in Article 7-11,
requirements with respect to
the procedure of approval and
evaluation of the acceptability		 the change of
acquisition
and disposal
rule by
Taiwan Stock
Exchange,
add right-of -
use assets
of the terms of transaction.
According the stipulations of
article 7-11 of the handling
procedure, when the trading		 and expand
the scope of
the usage
right for
value exceeds 10% of the assets; add
company’s total assets, the regulations
appraisal report of professional on right-of -
appraisers or the opinions of use asset and
CPA should be obtained. The lease to the
substance of the relationship acquisition
other than the formation as a and disposal
legal matter must be procedure
considered when determining stipulated in
whether the transaction article 9,
counterpart is a related party
2. Evaluation and procedure of
operation
Acquisition or disposal of real
property from a related party,
or acquires r disposes non-
property assets with related
parties and the trading value
exceeds 20% of the
company’s paid-in capital, 10%
of total assets, or NT$300
million, must be approved by
the Board of Directors based
on the materials on the		 according to
the rule of
Taiwan Stock
Exchange.
2. Make proper
revision of the
text, in line
with
relaxation by
Taiwan Stock
Exchange of
the regulation
authorizing
chairman to
determine
following matters and ratified transactions
by the Audit Committee in between
advance to sign the
transaction contract and make
payment:		 public
companies
and their
2.1 The purpose, necessity parent firms
and anticipated efficacy of or
the proposed acquisition subsidiaries,
or disposal of assets. or between
2.2 The reason for selecting directly or
the related party in issue indirectly
as the transaction 100%-owned
counterpart. subsidiaries,
due to the

~53~

as the transaction
counterpart.
2.3 Acquiring real propertyor
its right-of-use assetfrom
related parties, the
evaluation materials
regarding the acceptability
of the proposed terms of
transaction produced
pursuant to paragraphs .1
and 3.4 of this Article.
(omitted)
Transaction between the
company and subsidiaries or
between directly or indirectly
100%-owned subsidiaries, in
terms of issued shares or paid-in
capital, board of directors could
authorize the chairperson to
make decision with the value falls
within NT300 million:
a.for the acquisition or
disposal of the
equipment or its right-of-
use asset for business
use
b.for the acquisition or
disposal of right-of-use
asset of real property for
business use
3. Evaluation of acceptability of
the transaction cost
3.1 The acceptability of
transaction cost of the
proposed acquisition of
real propertyor its right-of-
use asset by the Company
from a related party shall
be evaluated in
accordance with the
following:
(omitted)
3.2 Where the subject real
property boughtor leased
jointly comprises the land
and the building thereon,
the transaction cost of the
land and the building may
be evaluated separately
accordingto anyof the		 2.3 Acquiring real property
from related parties, the
evaluation materials
regarding the acceptability
of the proposed terms of
transaction produced
pursuant to paragraph 3
of this Article.
(omitted)
The board of directors could
authorize the chairperson to
make decision for acquiring from,
or disposing with, related parties
equipment whose value falls
within a certain scope.
3. Evaluation of acceptability of
the transaction cost
3.1 The acceptability of
transaction cost of the
proposed acquisition of
real property by the
Company from a related
party shall be evaluated
in accordance with the
following:
(omitted)
3.2 Where the subject real
property bought jointly
comprises the land and
the building thereon, the
transaction cost of the
land and the building may
be evaluated separately
according to any of the
methods provided in the
preceding paragraph
3.3 The cost of the real
property to be acquired by
the Company from a
related party shall be
evaluated in accordance
with paragraph 3.1 and
3.2 of this Article and
review and workable
opinion by a certified
public accountant on such
evaluation should be
sought for.
3.4 Where the values of the
real property to be		 need of
collective
purchase or
transfer of
leased
business
equipment
(via
transaction or
release) and
lease of part
of leased real
estate, plus
lower risk
involved.
3. In line with
change of
acquisition
and disposal
rule by
Taiwan Stock
Exchange,
relax
regulation
governing
acquisition of
usage right
for the
realties by
stakeholders,
with
reference to
lease
transactions
between non-
stakeholders
in
neighboring
area as basis
in the
calculation of
transaction
prices, plus
incorporation
of existing 4-
1.3 of item 3
into 4-1.2 and
addition of
lease cases
as transaction
cases.

~54~

methods provided in the preceding paragraph 3.3 The cost of the real property or its right-of-use asset to be acquired by the Company from a related party shall be evaluated in accordance with paragraph 3.1 and 3.2 of this Article and review and workable opinion by a certified public accountant on such evaluation should be sought for. 3.4 Where the values of the real property to be acquired by the Company from a related party in conclusion of the evaluation pursuant to paragraphs 3.1 and 3.2 of this Article respectively both are lower than the proposed transaction price, paragraph 3.5 of this Article shall apply except in the following cases where objective evidence has been produced and workable opinion has been sought for from the professional appraiser and a certified public on the acceptability of the transaction price: 3.4.1 The related party has acquired or leased a vacant land to build the building and evidence has been produced to prove fulfillment of any of the following: (omitted) 3.4.1(2) The terms of the proposed transaction are considered acceptable by

acquired by the Company from a related party in conclusion of the evaluation pursuant to paragraphs 3.1 and 3.2 of this Article respectively both are lower than the proposed transaction price, paragraph 3.5 of this Article shall apply except in the following cases where objective evidence has been produced and workable opinion has been sought for from the professional appraiser and a certified public on the acceptability of the transaction price: 3.4.1 The related party has acquired or leased a vacant land to build the building and evidence has been produced to prove fulfillment of any of the following: (omitted) 3.4.1(2) The terms of the proposed transaction are considered acceptable by reference to the successful transaction s of the other floors of the same building or nearby buildings concluded by nonrelated parties, each of

~55~

3.4.2 reference
to the
transaction
sof the
other floors
of the same
building or
nearby
buildings
concluded
by non-
related
parties,
each of
which is of
similar
square
measure to
that of the
subject real
property,
and the
term of
such
successful
transaction
s are
considered
comparable
to the
relevant
terms of
the
proposed
transaction
according
to the
common
practice of
real
property
transaction
or leasing
applicable
to the area.
The Company has
produced evidence to
prove the terms of
the proposed
purchase of real
propertyor its right-
of-use asset
thorough leasing		 3.4.1(3) which is of
similar
square
measure to
that of the
subject real
property,
and the
term of
such
successful
transaction
sare
considered
comparable
to the
relevant
terms of
the
proposed
transaction
according
to the
common
practice of
real
property
transaction
applicable
to the area.
The terms
of the
proposed
transaction
are
considered
acceptable
by
reference
to the
successful
leases of
the other
floors of the
same
building or
nearby
buildings
concluded
by non-
related
parties
within one
year and
the terms

~56~

3.5 from a related party
are comparable to
the terms of
transactionsof
nearby real property
of similar square
measure which were
concluded by non-
related parties within
one year.Transaction
of nearby real
property means the
transactionof a real
property which is
located in the same
block as the subject
real property and
within a radius of 500
meters from the
subject real property
or the posted present
value of which is
similar to that of the
subject real property.
Of similar square
measure means,
basically, the square
measure of the real
propertyor its right–
of-use assetin the
transaction
concluded by a non-
related party being
referred to is no less
than 50% of the
square measure of
the subject real
property. Within one
year means within
the year immediately
preceding the date of
occurrence of the
proposed transaction.
Where the values of the
real propertyor its right–
of-use assetto be
acquired by the Company
from a related party
appraised in conclusion of
the evaluation pursuant to
paragraphs 3.1 and 3.2 of
this Article respectively
3.4.2		 of such
successful
leases are
considered
comparable
to the
relevant
terms of
the
proposed
transaction
according
to the
common
practice of
real
property
leases
applicable
to the area.
The Company has
produced evidence
to prove the terms
of the proposed
purchase of real
property from a
related party are
comparable to the
terms ofsuccessful
transactions of
nearby real property
of similar square
measure which
were concluded by
non-related parties
within one year.
Successful
transaction of
nearby real property
means the
successful
transaction of a real
property which is
located in the same
block as the subject
real property and
within a radius of
500 meters from the
subject real property
or the posted
present value of
which is similar to

~57~

both are lower than the
proposed transaction
price, the Company shall
act in accordance with the
following:
3.5.1 The Company shall
appropriate an
amount equal to the
difference between
the transaction price
and the appraised
cost of the real
property for special
earnings reserve
pursuant to the first
paragraph of Article
41 of the Securities
and Exchange Act,
which shall be set
aside from
distribution or new
issues of shares for
capital increase.
Investors who
recognize their
investment in the
Company on equity
method and who
are public listed
companies shall
also appropriate an
amount equal to the
recognized value
according to the
shareholding
percentage for
special earnings
reserve pursuant to
the first paragraph
of Article 41 of the
Securities and
Exchange Act.
3.5.2 Audit Committee
shall act in
accordance Article
218 of the Company
Act.
3.5.3 The result of
handling pursuant to
aforementioned two
points shall be
reported to the		 that of the subject
real property. Of
similar square
measure means,
basically, the square
measure of the real
property in the
successful
transaction
concluded by a non-
related party being
referred to is no less
than 50% of the
square measure of
the subject real
property. Within one
year means within
the year
immediately
preceding the date
of occurrence of the
proposed
transaction.
3.5 Where the values of the
real property to be
acquired by the Company
from a related party
appraised in conclusion of
the evaluation pursuant to
paragraphs 3.1 and 3.2 of
this Article respectively
both are lower than the
proposed transaction
price, the Company shall
act in accordance with the
following:
3.5.1 The Company shall
appropriate an
amount equal to the
difference between
the transaction price
and the appraised
cost of the real
property for special
earnings reserve
pursuant to the first
paragraph of Article
41 of the Securities
and Exchange Act,
which shall be set
aside from

~58~

Shareholders distribution or new Meeting and the issues of shares for particulars of the capital increase. transaction shall be Investors who disclosed in the recognize their relevant annual investment in the report and the Company on equity prospectus. method and who are public listed The special earnings reserve set companies shall aside pursuant to the above shall also appropriate an not be applied for use without the amount equal to the prior approval by the Financial recognized value Supervisory Commission until the according to the loss from depreciation arising shareholding from the purchase or lease of the percentage for asset by paying a high premium special earnings price is duly recognized, reserve pursuant to disposed of, end of leasing the first paragraph appropriately made up, restored of Article 41 of the or there being no other evidence Securities and challenging the acceptability Exchange Act. issue. 3.5.2 Audit Committee shall act in 3.6 Acquisition of real accordance Article property or its right –of218 of the Company use asset by the Act. Company from a related 3.5.3 The result of party will be forthwith handling pursuant to handled in accordance paragraphs 3.5.1 with paragraphs 1 and 2 and 3.5.2 of this of this Article in any of the Article shall be following cases, in which reported to the case paragraphs 3.1, 3.2 Shareholders and 3.3 of this Article Meeting and the regarding evaluation of particulars of the acceptability of the transaction shall be transaction cost shall not disclosed in the operate: relevant annual report and the 3.6.1 The related party prospectus. has acquired the subject real property or its right –of-use The special earnings reserve set aside pursuant to the above shall asset by inheritance not be applied for use without the or as a gift. prior approval by the Financial 3.6.2 Over five years has Supervisory Commission until the lapsed since the loss from depreciation arising related party signed from the purchase of the asset by the contract on paying a high premium price is acquisition of the duly recognized, disposed of, subject real property appropriately made up, restored or there being no other evidence

~59~

or its right –of-use challenging the acceptability asset. issue. 3.6.3 The related party acquired the subject 3.6 Acquisition of real real property under property by the Company a signed joint from a related party will construction be forthwith handled in contract with its accordance with related party or paragraphs 1 and 2 of this entrustment of Article in any of the related parties for following cases, in which realty constructions, case paragraphs 3.1, 3.2 either on own land and 3.3 of this Article or leased land. regarding evaluation of 3.6.4 Transaction acceptability of the between the transaction cost shall not company and operate: subsidiaries or between directly or 3.6.1 The related party - indirectly 100% has acquired the owned subsidiaries, subject real property in terms of issued by inheritance or as shares or paid-in a gift. capital, for the 3.6.2 Over five years has - acquisition of right lapsed since the of- use asset for related party signed realty assets for the contract on business use. acquisition of the subject real 3.7 In case there is any property. evidence proving any 3.6.3 The related party irregularity of the acquired the subject proposed transaction for real property under the Company to acquire a signed joint the subject real property construction from a related party, the contract with its Company shall still act in related party or accordance with entrustment of paragraph 3.5 of this related parties for Article. realty constructions, either on own land or leased land.

3.7 In case there is any evidence proving any irregularity of the proposed transaction for the Company to acquire the subject real property from a related party, the Company shall still act in accordance with

~60~

paragraph 3.5 of this
Article.
Article 11
1. Evaluation and procedure for
operation
The acquisition or disposal of
intangible assetsor its right–
of-use assetby the Company
shall be conducted in
accordance with the
Company’s internal control
policy pertaining to the
revolving of fixed assets.
2. Terms of transaction and
procedure for approval of
transaction
2.1 The terms and transaction
price of the proposed
acquisition or disposal of
intangible assetsor its
right–of-use assetshall
be determined by
reference to the
evaluation report
produced by an expert or
the fair market value.
Transactions with a
transaction value of less
than TWD30 million each
may proceed with the
approval of the President.
Transactions with a value
of between TWD30 million
and TWD60 million may
proceed with the approval
of the Chairman and shall
be reported to the
immediate subsequent
meeting of the Board of
Directors. Transactions
with a value of over
TWD60 million each must
be approved by the Board
of Directors in advance.
2.2 Where the acquisition or
disposal of assetsor its
right–of-use assetby the
Company in accordance
with the relevant
procedure or other laws		 Article 11
1. Evaluation and procedure for
operation
The acquisition or disposal of
intangible assets by the
Company shall be conducted
in accordance with the
Company’s internal control
policy pertaining to the
revolving of fixed assets.
2. Terms of transaction and
procedure for approval of
transaction
2.1 The terms and transaction
price of the proposed
acquisition or disposal of
intangible assets shall be
determined by reference
to the evaluation report
produced by an expert or
the fair market value.
Transactions with a
transaction value of less
than TWD30 million each
may proceed with the
approval of the President.
Transactions with a value
of between TWD30 million
and TWD60 million may
proceed with the approval
of the Chairman and shall
be reported to the
immediate subsequent
meeting of the Board of
Directors. Transactions
with a value of over
TWD60 million each must
be approved by the Board
of Directors in advance.
2.2 Where the acquisition or
disposal of assets by the
Company in accordance
with the relevant
procedure or other laws
must be approved by the
Board of Directors in
advance, the opposition
expressed bythe Director		 In line with
change of
acquisition and
disposal rule by
Taiwan Stock
Exchange, add
usage right for
assets and
expand the
scope of the
right-of-use
assets.

~61~

must be approved by the with written record thereof
Board of Directors in taken or in writing shall be
advance, the opposition submitted to Audit
expressed by the Director Committee. On the
with written record thereof acquisition or disposal of
taken or in writing shall be assets duly proposed to
submitted to Audit the Board of Directors for
Committee. On the approval, opinion
acquisition or disposal of expressed by the
assets duly proposed to Independent Director shall
the Board of Directors for be sufficiently considered
approval, opinion with their concurrence or
expressed by the dissent expressed and the
Independent Director shall reason therefore duly
be sufficiently considered recorded in the meeting
with their concurrence or minutes.
dissent expressed and the 3. Unit in charge of execution of
reason therefore duly transaction
recorded in the meeting Upon approval of the proposed
minutes. acquisition or disposal of
3. Unit in charge of execution of membership or intangible
transaction assets pursuant to the
Upon approval of the proposed preceding paragraph, the
acquisition or disposal of responsible department and
membership or intangible the Corporate Finance &
assetsor its right–of-use Management Division shall
assetpursuant to the take charge of the execution
preceding paragraph, the thereof.
responsible department and (omitted)
the Corporate Finance &
Management Division shall
take charge of the execution
thereof.

(omitted) Article 13 Article 13 1. In line with article 18 of 1. Principle and policy of 1. Principle and policy of the transaction transaction "Regulations (omitted) (omitted) Governing 1.4 Key points of 1.4 Key points of the performance evaluation: performance evaluation: Acquisition 1.4.1 Non-hedging part 1.4.1 Transaction part and Disposal shall be evaluated shall be evaluated of Assets by according to the according to the Public accumulated accumulated Companies" realized amount of realized amount of and the net foreign net foreign suggestion of exchange gain exchange gain securities (loss) of the year. (loss) of the year. regulator, set 1.4.2 Hedging part shall 1.4.2 Non-transaction loss ceiling be evaluated part shall be for a single according to their evaluated according contract on compliance with the to their compliance the operation

~62~

relevant policy and
rules for operation
of forward foreign
exchange of the
Company.
1.5 Total contractual
transaction amount
(omitted)
1.6Ceiling of loss value
1.6.1Loss ceiling for
open-interest
position of the
current quarter for
an individual
contract on risk-
hedging
merchandise
transaction is set at
NT$5 million, with
ceiling for all the
contracts set at
NT$50 million.
Cases with loss
surpassing the
aforementioned
ceiling should be
reported to
chairman, who is
authorized to adopt
proper
countermeasures
according to current
operating need and
expected situation
of the financial
market, so as to
reduce the losses of
individual or total
open-interest
positions under the
ceilings.
1.6.2The value of open-
interest positions for
non-risk hedging
merchandise
transactions is
calculated
according to the
closing price of New
York on the
previous day and		 with the relevant
policy and rules for
operation of forward
foreign exchange of
the Company.
1.5 Total contractual
transaction amount
(omitted)
1.6Limits on total loss from
all transaction contracts
and the loss from each
individual transaction
contract
The uncovered position of
derivative transactions by
the Company as a whole
shall be calculated
according to the closing
price of TWD at the
current day on and that of
the New York foreign
exchange market of the
previous day. When the
loss incurred amounts to
TWD2.5 million, 25%
thereof shall be covered
and the trader shall be
instructed to suspend all
transactions. When the
loss incurred amounts to
TWD5 million, 50% of the
uncovered position must
be covered with a relevant
report submitted to the
President. If the loss
incurred amounts to
TWD10 million, all
positions shall be closed
with a relevant report
submitted to the President
and the Chairman.
(omitted)
2. Risk management
2.5 Operational risk
management
The transactions shall be
conducted within the
relevant authorized
amount in full compliance		 of non-
transaction
derivatives ,
authorized
quota for
traders, and
stop-loss
quota,
stipulated in
section 1.
2. Proper
change of the
text of section
2-5.

~63~

that of NT dollar on
the day. Should the
loss already exceed
NT$2.5 million,
offset 25% of the
open-interest
position and stop all
trading carried out
by traders; should
the loss surpass
NT$5 million, offset
50% of open-
interest position and
report the case to
chairman; should
the loss top NT$10
million, close all
positions and report
the case to the
board of directors.
2. Risk management
2.5 Operational risk
management
The transactions shall be
conducted within the
relevant authorized
amount in full compliance
with the procedure for
operation and put under
internal control to prevent
operational risks. The
personnel conducting
derivatives must not act
concurrently as the
personnel responsible for
making the relevant
verification and delivery
and vice versa.
The personnel
responsible for weighing,
monitoring and controlling
the risks and the
personnel provided in the
preceding subparagraph
must be serving in
different departments of
the Company and they
must report to the Board
of Directors or a high-
ranking managerial officer
who is not in charge of the		 with the procedure for
operation and put under
internal control to prevent
operational risks. The
personnel conducting
derivatives must not act
concurrently as the
personnel responsible for
making the relevant
verification and delivery
and vice versa.
The personnel
responsible for weighing,
monitoring and controlling
the risks and the
personnel provided in the
preceding subparagraph
must be serving in
different departments of
the Company and they
must report to the Board
of Directors or a high-
ranking managerial officer
who is not in charge of the
transaction or decision-
making on the positions to
be taken.
The positions taken by
derivatives transaction
shall be evaluated at least
once a week except
hedging transactions
which have been
conducted to meet
business needs and
which shall be evaluated
twice a month. The
evaluation report shall be
submitted to the relevant
high-ranking managerial
officer authorized to do so
by the Board of Directors.
(omitted)

~64~

transaction or decision-
making on the positions to
be taken.
The positions taken by
derivatives transaction
shall be evaluated at least
once a week except
hedging transactions
which have been
conducted to meet
business needs and
which shall be evaluated
twice a month. The
evaluation report shall be
submitted to the relevant
high-ranking managerial
officer authorized to do so
by the Board of Directors.
(omitted)
Article 15
1. Matters which should be
reported for public disclosure
and the relevant standards
1.1 Acquisition of real
propertyor its right-of-use
assets,or disposal of
propertiesor its right-of-
use assetswith, related
parties, or acquisition of
non-property assetsor its
right-of-use assetsfrom,
or disposal of non-
property assetsor its
right-of-use assetswith,
related parties with the
trading value exceeding
20% of the company’s
paid-in capital or 10% of
total assets, or NT$300
million. However, trading
in government bonds or
bonds with repurchase
and resale agreements, or
subscription or
repurchase of money
market funds by domestic
securities investment trust
enterprises and
subscription or
redemption of domestic
money-market funds
issued by Securities		 Article 15
1. Matters which should be
reported for public disclosure
and the relevant standards
1.1 Acquisition of real
property, or disposal of
properties with, related
parties, or acquisition of
non-property assets from,
or disposal of non-
property assets with,
related parties with the
trading value exceeding
20% of the company’s
paid-in capital or 10% of
total assets, or NT$300
million. However, trading
in government bonds or
bonds with repurchase
and resale agreements, or
subscription or
repurchase of money
market funds by domestic
securities investment trust
enterprises and
subscription or
redemption of domestic
money-market funds
issued by Securities
Investment Trust
Enterprises are not
included.		 1. In line with
change of
acquisition
and disposal
rule by
Taiwan Stock
Exchange,
add usage
right for
assets and
expand the
scope of
right-of-use
assets; add
regulation on
right-of-use
assets to the
acquisition
and disposal
procedure
stipulated in
article 15,
according to
the rule of
Taiwan Stock
Exchange.
2. Add
restriction on
trading
partners for
the
acquisition of
realties via
commissione
d construction

~65~

1.2
1.3
1.4
1.5
1.6		 Investment Trust
Enterprises are not
included.
Merger, spin-off,
acquisition or assignment
of shares.
The amount of loss
incurred from the
derivatives transaction
exceeds the limit on loss
from all contracts or the
relevant individual
contract provided in the
relevant handling
procedure.
The subject assetor its
right-of-use assetsto be
acquired or disposed of is
equipment for business
use and the transaction
counterpart is a non-
related party and the
transaction value is above
TWD 1 billion.
The subject real property
or its right-of-use assetsis
to be acquired or
disposed of by the
construction business
division of the Company
for construction use and
the transaction
counterpart is a non-
related party and the
transaction value is above
TWD500 million.
The subject real property
to be acquired is a
building is to be
constructed on a self-
owned land, leased land,
jointly constructed and
shared by units, jointly
constructed and shared
by percentage, jointly
constructed and sold by
units and the anticipated
transaction value is above
TWD500 millionand
counterparties of
transaction are not related
parties.		 1.2 Merger, spin-off,
acquisition or assignment
of shares.
1.3 The amount of loss
incurred from the
derivatives transaction
exceeds the limit on loss
from all contracts or the
relevant individual
contract provided in the
relevant handling
procedure.
1.4 The subject asset to be
acquired or disposed of is
equipment for business
use and the transaction
counterpart is a non-
related party and the
transaction value is above
TWD 1 billion.
1.5 The subject real property
is to be acquired or
disposed of by the
construction business
division of the Company
for construction use and
the transaction
counterpart is a non-
related party and the
transaction value is above
TWD500 million.
1.6 The subject real property
to be acquired is a
building is to be
constructed on a self-
owned land, leased land,
jointly constructed and
shared by units, jointly
constructed and shared
by percentage, jointly
constructed and sold by
units and the anticipated
transaction value is above
TWD500 million.
1.7 Assets transactions or
disposals of credit claims
in financial institutions or
investment in PRC other
than those provided in the
preceding six
subparagraphs, the
transaction value of which
amounts to 20% of the		 on own land,
commissione
d construction
on leased
land, joint
construction
with
allocation of
completed
houses, joint
construction
with
allocation of a
share of
completed
houses, and
joint
construction
with separate
sales of
completed
houses.

~66~

1.7 Assets transactions or
disposals of credit claims
in financial institutions or
investment in PRC other
than those provided in the
preceding six
subparagraphs, the
transaction value of which
amounts to 20% of the
paid-in capital of the
Company or TWD300
million each, except for
these transactions:
1.7.1 The transaction is
the purchase or sale
ofdomestic
government bonds.
1.7.2 Professional
investors, who trade
in securities at stock
exchanges or
business outlets of
securities firms, or
subscribe to
common corporate
bonds and common
financial bonds
without stock right
(excluding
subordinated
bonds), or
subscription to of
redemption of
securities
investment trust
funds or futures
trust fundson the
domestic primary
market , security
brokers who
subscribe to
securities out of the
need for
underwriting
business or in the
capacity as a
assisting or
recommending
security firm for
share listing on the
Emerging Stock
Market, according to
the regulations of		 paid-in capital of the
Company or TWD300
million each, except for
these transactions:
1.7.1 The transaction is
the purchase or sale
of government
bonds.
1.7.2 Professional
investors, who trade
in securities at
domestic or
overseasstock
exchanges or
business outlets of
securities firms, or
subscribe to
common corporate
bonds and common
financial bonds
without stock right
on the domestic
primary market,
security brokers
who subscribe to
securities out of the
need for
underwriting
business or in the
capacity as a
assisting or
recommending
security firm for
share listing on the
Emerging Stock
Market, according to
the regulations of
the ROC Gretai
Market (over-the-
counter market)
1.7.3 The subject asset to
be acquired or
disposed of is bond
with re-purchase,
re-sale agreements.
Subscription to and
redemption of
domestic money-
market funds issued
by Securities
Investment Trust
Enterprises.

~67~

the ROC Gretai
Market (over-the-
counter market)
1.7.3 The subject asset to
be acquired or
disposed of is bond
with re-purchase,
re-sale agreements.
Subscription to and
redemption of
domestic money-
market funds issued
by Securities
Investment Trust
Enterprises.
1.8 The transaction value
provided in previous
paragraph 1.8 above shall
be calculated as follows,
where within one year
means within the year
immediately preceding the
date of occurrence of the
proposed transaction,
excluding the items which
have been publicly
disclosed.
1.8.1 The value of each
transaction.
1.8.2 The total value of
the property of the
same nature
acquired from or
transferred to the
same transaction
counterpart within
one year.
1.8.3 The total value of
the real propertyor
its right-of-use
assetsunder the
same development
project acquired or
disposed of within
one year (the sum
acquired and the
sum disposed of
shall be calculated
separately).
(omitted)		 1.8 The transaction value
provided in previous
paragraph 1.8 above shall
be calculated as follows,
where within one year
means within the year
immediately preceding the
date of occurrence of the
proposed transaction,
excluding the items which
have been publicly
disclosed.
1.8.1 The value of each
transaction.
1.8.2 The total value of
the property of the
same nature
acquired from or
transferred to the
same transaction
counterpart within
one year.
1.8.3 The total value of
the real property
under the same
development project
acquired or
disposed of within
one year (the sum
acquired and the
sum disposed of
shall be calculated
separately).
(omitted)

~68~

Article 19
This Procedure (omitted)
and the tenth amendment on 16
June 2017.
and the eleventh amendment on
14 June 2019.		 Article 19
This Procedure (omitted)
and the tenth amendment on 16
June 2017.		 Addition of the
date for the
current revision

~69~

Appendices

  1. Articles of Incorporation on pages 71-78

  2. Rules Governing Shareholders’ Meeting on pages 79-81

  3. Procedure for Acquisition or Disposal of Assets on pages 82-99

  4. Shareholding of All Directors on page 100

  5. Notes on page 101

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TECO Electric & Machinery Co., Ltd.

Articles of Incorporation

Chapter 1 General Provisions

Article 1

The Company is incorporated in accordance with the Company Act and is named TECO Electric & Machinery Co., Ltd.

Article 2

The scope of business of this Company is as follows:

  1. C805050 Manufacture of industrial plastic products;

  2. 2 C805070 Manufacture of reinforced plastic products;

  3. CA01030 Steel casting;

  4. CA01050 Secondary processing of steel materials;

  5. CA02010 Manufacture of metal structure and building parts;

  6. CB01010 Manufacture of machinery equipment;

  7. CB01020 Manufacture of office machines;

  8. CB01030 Manufacture of pollution-control equipment;

  9. CB01071 Manufacture of refrigerating, air-conditioning equipment;

  10. CC01010 Manufacture of generators, power dispatching, power distributing machinery;

  11. CC01030 Manufacture of electrical appliance and audio-visual electronic products;

  12. CC01060 Manufacture of cable telecommunication machinery and equipment;

  13. CC01070 Manufacture of wireless telecommunication machinery and equipment;

  14. CC01080 Manufacture of electrical parts and components;

  15. CC01101 Manufacturing of controlled telecom radio-frequency products

  16. CC01110 Manufacture of computers and the peripheral thereof;

  17. CD01010 Manufacture of boats and the parts thereof;

  18. CD01020 Manufacture of rail cars and the parts thereof;

  19. CD01030 Manufacture of automobiles and the parts thereof;

  20. CD01040 Manufacture of motorbikes and the parts thereof;

  21. CD01060 Manufacture of aircrafts and the parts thereof;

  22. CE01010 Manufacture of general instruments;

  23. CE01030 Manufacture of optical instruments;

  24. E501011 Services regarding water utilities as contractor;

  25. E502010 Installation of fuel pipes;

  26. E599010 Engineering of pipe lines;

  27. E601010 Service regarding electrical appliance as contractor;

  28. E601020 Installation of electrical appliance;

  29. E602011 Engineering of refrigerating, air-conditioning equipment;

  30. E603010 Installation of cables;

  31. E603040 Installation of firefighting safety equipment;

  32. E603050 Engineering of automatic control equipment;

  33. E603080 Installation of traffic signs;

  34. E603090 Installation of illuminating equipment;

  35. E604010 Installation of machines;

  36. E605010 Installation of computer equipment;

  37. F106010 Wholesale of hardware;

  38. F106030 Wholesale of tooling;

  39. F108031 Wholesale of medical devices

  40. F113070 Wholesale of telecom-products

  41. F114080 Wholesale of rail cars and the parts thereof;

  42. F117010 Wholesale of fire-fighting safety equipment;

  43. F119010 Wholesale of electrical materials;

~71~

  1. F206010 Retail sale of hardware;

  2. F206030 Retail sale of tooling;

  3. F206040 Retail sale of water equipment and relevant materials;

  4. F208031 Retail sale of medical devices;

  5. F213040 Retail sale of precision instruments;

  6. F213060 Retail of telecom products

  7. F218010 Retail of information software

  8. F401010 International Trade;

  9. F401021 Import of controlled telecommunication radio-frequency devices;

  10. F501060 Restaurant services;

  11. G801010 Warehousing services;

  12. H701010 Development and leasing of residential and business buildings;

  13. I103060 Management consulting services;

  14. I301010 Information application services;

  15. I301020 Data-processing services;

  16. I301030 Supply of electronic information services;

  17. IF01010 Inspection and repair of firefighting safety equipment services;

  18. IF02010 Testing and inspection of electrical equipment services;

  19. JE01010 Leasing services;

  20. ZZ99999 Other businesses not prohibited or restricted legally except those with special permit.

Article 3

The Company may, for the purpose of meeting business needs, provide guarantees to others.

Article 4

The Company may, for the purpose of meeting business needs, authorize the Board of Directors to make investment in relevant businesses without regard to Article 13 of the Company Act.

Article 5

The Company will have its head office located in Taipei and the Board of Directors may set up branch offices and production facilities from time to time in consideration of the business needs of the Company.

Chapter 2 Capital stocks

Article 6

The total capital of the Company is NT$30,305,500,000 divided into 3,030,550,000 shares with a par value of NT$10 each. The Board of Directors is authorized to issue the shares in installment in consideration of the business needs of the Company.

A total of NT$1,000,000,000 of the above total capital will be reserved for issuance of employee stock options for a total of 100,000,000 shares of stocks with a par value of NT$10 each, which may be issued in installments according to the resolution adopted by the relevant meeting of the Board of Directors.

With the approval of two thirds of voting right owned by attending shareholders representing over half of the total issued shares at a shareholders’ meeting, subscription price for the issuance of employee warrants can be exempt from the restriction included in article 53 of the “guidelines for the raising and issuance of securities” and the issuance can be carried out in several batches within one year after the resolution is made by shareholders’ meeting.

~72~

Article 7

The company can buy back issued shares from the centralized securities market, according to article 10-1 of “measures for buying back shares by listed firms.” With approval of two thirds of voting right owned by attending shareholders representing over half of issued shares, the company can transfer the bought-back shares to employees at price lower the average purchase price.

Article 8

The Company may issue shares without printing share certificates. All of the stocks of the Company will be duly issued as name-bearing stocks and duly registered.

Article 9

All transfer of stocks shall be suspended 60 days prior to the annual general shareholders meeting date, 30 days prior the extraordinary shareholders meeting date, and five days prior to the date of distribution of dividend, profit-sharing or other interests.

Chapter 3 Shareholders’ Meeting

Article 10

The Company will have two types of shareholders meetings:

  1. General shareholder meeting to be convened within six months after the end of each fiscal year; and

  2. Extraordinary shareholders meeting to be convened where necessary.

The convention of the above shareholders meetings will be notified to the shareholders 30 days prior to the meeting date of the general shareholders meeting and 15 days prior to the meeting date of the extraordinary shareholders meeting.

Article 11

Each shareholder of this Company will have one vote on each share held except those without voting right according to company law and related regulations.

Article 12

Where the shareholder is unable to attend the shareholders meeting in person, he/she may appoint a proxy to act on his/her behalf at the meeting by signing the proxy form prepared by the Company. The number of votes by a proxy acting on behalf of two or more shareholders at the shareholders meeting shall not exceed the total number of votes representing 3% of the total issued shares of the Company with all excess votes disregarded, except where such proxy is a trust business or stock affairs agency institution approved by the competent securities authority.

Article 13

Except as otherwise provided by the Company Act, the Shareholders’ Meeting may be called to order on and only on the attendance by shareholders representing the majority of the total issued shares. Resolutions of the shareholders meeting shall be adopted by the majority votes at the meeting.

The resolutions of the shareholders meeting shall be recorded in the meeting minutes signed or sealed with the chop of the chairperson and distributed to the shareholders each within 20 days after the meeting, provided that the service of the meeting minutes may be made by public notice with respect to shareholders.

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Article 14

The shareholders shall be presided by the person who is legally authorized to convene the meeting. Where there are two or more conveners, they shall elect one from among themselves to preside the meeting.

Chapter 4 Board of Directors

Article 15

The Board of Directors of the Company will be formed by 15 Directors to be elected from among the shareholders with disposing capacity. The Director each will serve a term of office of three years and is eligible for re-election.

Three of the aforementioned directors are independent directors. Candidates for directors are nominated, according article 192-1 of the Company Law.

Method for acceptance of the nomination for directors, its publication, and other related affairs will be conducted according to the Company Law, the Securities and Exchange Act, and other related law/regulation.

Article 16

The Directors shall elect five from among themselves to act as the Managing Directors who shall then elect from among themselves the Chairman and Vice Chairman of the Company. The Chairman will externally represent the Company and act as the chairperson of the Shareholders’ Meetings, meetings of the Board of Directors and meetings of the Managing Directors. If the Chairman is for any reason unable to perform his/her functions at the meeting, the Vice Chairman shall act on his/her behalf If the Vice Chairman is also for any reason unable to perform the chairperson’s functions at the meeting, the Chairman shall appoint one from among the Managing Directors to act on his/her behalf. In the absence of such appointment, the Managing Directors shall elect one from among themselves to act on behalf.

At least one of the nominated Managing Directors shall be an independent director, and no less than one fifth of the total number of Managing Directors.

Article 17

The Chairman will convene and preside the meetings of the Board of Directors except the first meeting of every new term of offence which shall be convened by the Director who was elected with the highest number of votes at the relevant election. Where the Chairman is for whatever reason unable to perform his/her functions at the meeting, the Vice Chairman shall act in his/her stead. If the Vice Chairman is for whatever reason unable to perform the function at the meeting, the Chairman shall appoint one from among the Managing Directors to act in his/her stead. Absent such appointment, the Managing Directors shall elect one from among themselves to act instead of the Chairman at the meeting.

Article 18

Except as otherwise provided by the Company Act, the meeting of the Board of Directors may be called to order on and only on attendance by the majority of the Directors. The resolution of the meeting of the Board of Directors shall be adopted by the majority votes at the meeting.

If the Director is for whatever reason unable to attend the meeting of the Board of Director in person, he/she may appoint another Director to act in his/her stead by issuing a signed proxy. The Managing Director may also appoint another Managing Director to act in his/her stead at the meeting of the Managing Directors.

~74~

The board of directors should be convened every quarter. Notice, along with the description of the meeting, will be given to every director seven days in advance. The notice can be given in written form, fax, or e-mail.

The meeting of the Board of Directors may be conducted via audio- or video-teleconference. All Directors present at the meeting via teleconference will be deemed present at the meeting in person.

Article 19

The function of the Board of Directors is to

  1. examine and determine important bylaws and contracts;

  2. determine business operation policy;

  3. examine and determine budgets and final accounting;

  4. propose capital increase (reduction);

  5. propose profit distribution plan;

  6. determine the organization of the business departments of the Company, appoint and discharge managerial officers;

  7. examine and approve purchase or disposal of important property and real estate;

  8. examine and approve provision of guaranty and loan to external investments;

  9. examine and approve investment in relevant business at home or abroad; and

  10. perform other functions conferred upon bylaw or the shareholders meeting.

Article 20

In case the vacancies on the Board of Directors exceed one third of the total number of Directors, the Board of Directors shall convene an extraordinary shareholders meeting within 60 days to elect new Directors to fill the vacancies.

The new Directors shall serve the remaining term of office of the predecessors.

Article 21

Compensations for the chairpersons, vice chairpersons, and directors should be proposed by “Compensation Committee”, according to their involvement in the company’s operation, the value of their contribution, and reference of domestic and overseas level. The proposal will be submitted to the board of directors for approval.

Chapter 5 Audit Committee

Article 22

The company institutes audit committee, consisting of all the independent directors, according to the law. Audit committee will take over the responsibilities and power of supervisors, stipulated in the Company Law, Securities Trading Law, and other laws. Organizational charter for the audit committee should be formulated to cover the number, term, meeting rules, and provision of resources by the company for the exercise of its duties.

Chapter 6 Managerial officers

Article 23

The Company will have presidents, vice presidents and assistant vice presidents to be appointed and discharged in accordance with Article 29 of the Company Act. The president

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will take general charge of the operation of the Company according to the instruction from the Chairman.

Article 24

The presidents, vice presidents and assistant vice presidents shall be the responsible person of the business they each take charge of with the powers and duties to operate and manage such business.

Chapter 7 Accounting

Article 25

The Board of Directors shall after the end of each fiscal year produce the following reports and statements and submit the same to the Audit Committee for inspection and, thereafter, the Shareholders Meeting for ratification:

  1. Business report.

  2. Financial statement.

  3. Proposed profit distribution or loss make-up plan.

Article 26

The company appropriates part of its annual profits, ranging from 1% to 10%, for distribution of remuneration to employee. Remuneration to directors are capped at 5% of profits. Employees of affiliated companies are also entitled to remuneration to employee. Profits should be used, in priority, for making up accumulated loss, should it exist.

The shares of the aforementioned distribution of remuneration to employee and the directors, as well as the choice of stock or cash should be resolved by the board of directors, with approval of over half of attendees in a meeting attended by over two thirds of directors, before being reported to shareholders' meeting.

The annual profit mentioned in item 1 refers to pre-tax profits of the year before deduction of distribution of remuneration to employee and directors.

Article 27

Profit, should it appear in final account, should be used, in descending order, in paying tax, making up for accumulated loss, and then appropriating 10% of the remainder for legal reserve, on top of appropriation or reversal of special reserve, according to the regulation of regulator. The balance, should it exist, should be combined with retained earnings of previous year for the board of directions to formulate proposal of profit distribution for approval by the shareholders' meeting.

The Company is in a stably growing industry with investment made in developing business. In consideration of possible expansion of operation and investment, the earnings distributed to the shareholders each year will basically be in an amount equal to 80% of the earnings received in the period combined with the retained earnings from the previous year, net of the legal reserve and special earning reserve. Basically 50% but not less than 5% of the earnings distributed to the shareholders shall be distributed in cash.

Chapter 8 Supplemental Provisions

Article 28

The rules governing the organization of the Company shall be prescribed by the Board of Directors.

~76~

Article 29

Matters not provided herein shall be in accordance with the Company Act and the relevant laws and regulations.

Article 30

These Articles of Incorporation was established on 12 April 1956 and subsequently amended as follows:

The first amendment on 25 January 1957; The second amendment on 1 September 1958; The third amendment on 27 March 1960; The fourth amendment on 31 March 1962; The fifth amendment on 14 July 1962; The sixth amendment on 25 April 1964; The seventh amendment on 26 March 1966; The eighth amendment on 27 May 1966; The ninth amendment on 15 April 1967; The tenth amendment on 23 March 1968; The eleventh amendment on 30 May 1969; The twelfth amendment on 24 October 1969; The thirteenth amendment on 20 February 1971; The fourteenth amendment on 10 May 1971; The fifteenth amendment on 12 May 1972; The sixteenth amendment on 16 April 1973; The seventeenth amendment on 2 June 1973; The eighteenth amendment on 14 April 1974; The nineteenth amendment on 18 April 1975; The twentieth amendment on 26 March 1976; The twenty-first amendment on 16 April 1977; The twenty-second amendment on 21 April 1978; The twenty-third amendment on 20 October 1978; The twenty-fourth amendment on 19 April 1979; The twenty-fifth amendment on 28 March 1980; The twenty-sixth amendment on 18 April 1981; The twenty-seventh amendment on 27 March 1982; The twenty-eighth amendment on 28 March 1983; The twenty-ninth amendment on 28 March 1984; The thirtieth amendment on 28 March 1985; The thirty-first amendment on 28 March 1986; The thirty-second amendment on 28 March 1987; The thirty-third amendment on 28 March 1988; The thirty-fourth amendment on 28 March 1989; The thirty-fifth amendment on 28 March 1999; The thirty-sixth amendment on 7 May 1991; The thirty-seventh amendment on 8 May 1992; The thirty-eighth amendment on 7 May 1993; The thirty-ninth amendment on 28 April 1994; The fortieth amendment on 6 May 1995; The forty-first amendment on 11 May 1996; The forth-second amendment on 24 May 1997; The forty-third amendment on 15 May 1998; The forty-fourth amendment on 21 April 2000; The forty-fifth amendment on 15 May 2001; The forty-sixth amendment on 31 May 2002;

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The forty-seventh amendment on 6 June 2003; The forty-eighth amendment on 11 June 2004; The forty-ninth amendment on 27 May 2005; The fiftieth amendment on 15 June 2006; The fifty-first amendment on 13 June 2008; The fifty-second amendment on June 19, 2009; The fifty-third amendment on June 10, 2011, The fifty-fourth amendment was on June 15, 2012, and The fifty-fifth amendment was on June 23, 2014 The fifty-sixth amendment was on June 16, 2016 It took effect after the approval of shareholders’ meeting.

~78~

TECO Electric & Machinery Co., Ltd. Rules Governing Shareholders’ Meetings

Article 1

Except as otherwise provided by law or the Articles of Incorporation of the Company, the Shareholders’ Meetings of the Company shall be governed by these Rules.

Article 2

The shareholder shall register his/her attendance by handing in his/her signed attendance card.

The number of shares present at the meeting will be counted according to the signed attendance cards received, plus the shares for the exercise of voting right via written or electronic method.

Article 3

The quorum and ballots at the Shareholders’ Meeting will be counted according to the number of shares represented at the meeting.

Article 4

The shareholders meeting shall be convened at the place where the Company is located or any other appropriate place convenient for the shareholders to attend and shall be called to order no earlier than 9:00AM and no later than 3:00PM on the meeting date.

Article 5

Where the shareholders meeting is convened by the Board of Directors, the meeting shall be presided by the Chairman of the Board of Directors. If the Chairman is for any reason unable to perform his/her functions at the meeting, the Vice-Chairman shall act on his/her behalf. If the Vice-Chairman is for any reason unable to perform the function at the meeting as well, the Chairman shall appoint a Managing Director to act on his/her behalf at the meeting. In the absence of such appointment, the Managing Directors shall elect one from among themselves to preside the meeting. Where the Shareholders’ Meeting is convened by any person legally authorized to do so other than the Board of Directors, the meeting shall be presided by such person. Where there are two or more conveners, they shall elect one from among themselves to preside the meeting.

Article 6

The Company may appoint legal counsel, certified public accountant or relevant personnel to attend the Shareholders’ Meeting without the right to vote.

Personnel administering affairs at the Shareholders’ Meeting shall each wear a tag or badge bearing their designation.

Article 7

The whole proceeding of the Shareholders’ Meeting shall be video- or tape-recorded and such recording shall be kept for at least one year.

Article 8

The chairperson shall call the meeting to order as scheduled, provided that where the number of shares represented at the meeting is less than the majority of the total issued shares, the chairperson may announce to postpone calling the meeting to order twice and only twice for not more than one hour in total. If the quorum is still not met after the postponement duration has expired with the number of shares represented at the meeting exceeding one third of the

~79~

total issued shares, temporary resolutions may be adopted in accordance with the first paragraph of Article 175 of the Company Act.

If the number of shares represented at the meeting represents the majority of the total issued shares before the meeting is adjourned, the chairperson shall present the temporary resolutions made for voting pursuant to Article 174 of the Company Act.

Article 9

Where the Shareholders’ Meeting is convened by the Board of Directors, the agenda shall be determined by the Board of Directors and the meeting shall proceed according to the agenda except otherwise changed by the resolution adopted by the Shareholders’ Meeting.

Where the Shareholders’ Meeting is convened by any person legally authorized to do so other than the Board of Director, the preceding paragraph shall operate with appropriate and necessary alteration.

The chairperson shall not forthwith announce to adjourn the meeting before the agenda provided in the two preceding paragraphs (including extempore motions) is duly completed, except on the resolution adopted by the Shareholders’ Meeting for him/her to do so.

No shareholders shall elect a chairperson to continue the meeting at the same place or elsewhere after the meeting is duly pronounced adjourned.

Article 10

The shareholder shall fill out the request for taking the floor before making statement at the meeting and he/she will indicate the gist of his/her statement to make, shareholder account number (or attendance card number) and shareholder name. The chairperson will decide the order for the shareholders to make their statement. The statement made by any shareholder acting in breach of the above shall be disregarded. The shareholder who has only filled out the request for taking the floor without actually doing so shall be deemed not having made any statement. In case of any discrepancy between the gist of statement indicated in the shareholder’s request for taking the floor and the record of his/her statement made, the record shall govern.

No shareholder may interrupt the statement being made by the shareholder taking the floor without the consent of both the chairperson and the shareholder taking the floor. The chairperson shall restrain any shareholder acting in breach of the above and the statement made by such shareholder shall be disregarded.

Article 11

Each shareholder may make statement on the same issue not more than twice and not more than five minutes unless the chairperson consents otherwise.

The statements made by any shareholder acting in breach of the preceding paragraph or irrelevant to the issues will be disregarded and the chairperson may prevent him or her from making statement.

Article 12

An institutional entity who is to attend the Shareholders’ Meeting in proxy may appoint one and only one representative to attend the meeting

Institutional shareholder who has appointed two more or representatives to attend the Shareholders’ Meeting will have its statement (if any) on the same issue by only one of its appointed representatives.

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Article 13

The chairperson may personally respond to the statement made by the shareholder or appoint the relevant personnel to do so.

Article 14

The chairperson may announce to conclude the discussion on a proposal as he/she sees fit and submit the proposal to voting for resolution.

Article 15

The personnel supervising the voting and counting the ballots of voting shall be appointed by the chairperson, provided that the personnel supervising the voting must be appointed from among the shareholders. The outcome of the voting shall be announced on the spot and taken down in the minutes.

Article 16

The chairperson may call the meeting to a break as he/she sees fit.

Article 17

Except as otherwise provided by the Company Law or the Articles of Incorporation of the Company, a resolution shall be adopted by more than half of the votes represented by the shareholders present at the Meeting. If shareholders exercising voting right in written or electronic method don’t express objection and the chairperson doesn’t receive objection from attending shareholders, the proposal will be regarded as receiving approval in entirety. On the day after the holding of shareholders’ meeting, post the result of agreement, objection, or no opinion on the Market Observation Post System.

Article 18

The chairperson shall combine the revision or substitute proposal (if any) on a proposal with that proposal for the purpose of determining their order of voting. If one of the proposals is adopted, the other proposals shall be deemed vetoed and no voting on them will be necessary.

Article 19

The chairperson may direct the order-maintaining personnel (or security guard) to maintain the order of the meeting. Each order-maintaining personnel (or security guard) shall wear a badge bearing their designation when performing their function at the meeting.

Article 20

These Rules are amended pursuant to the Company Law and related law/regulation with implemented after being approved by the Shareholders’ Meeting. Procedure for revision is the same.

Article 21

These Rules were adopted by the extraordinary Shareholders’ Meeting on June 2, 1973. The first amendment to these Rules was adopted by the General Shareholders’ Meeting on May 11, 1996.

The second amendment to these Rules was adopted by the General Shareholders’ Meeting on May 15, 1998.

The third amendment to these Rules was adopted by the General Shareholders’ Meeting on May 31, 2002.

The fourth amendment to these Rules was adopted by the General Shareholders’ Meeting on June 15, 2012.

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TECO Electric & Machinery Co., Ltd. Procedure for Acquisition or Disposal of Assets

Article 1 Purpose

This Procedure is established for the purpose of protecting the rights and interests of shareholders and the interests of investors.

Article 2 Legal authority

This Procedure is established pursuant to Article 36-1 of the Securities And Exchange Act and the relevant provision and subsequent revision there of the “Regulations Governing the Acquisition or Disposal of Assets by Public Companies” established by the Financial Supervisory Commission, Executive Yuan (hereinafter “FSC”).

Article 3 Scope of assets

  1. The term marketable securities include investments in stocks, government bond, corporate bond, financial debenture, mutual fund securities, depository receipts, share warrant certificates, beneficiary securities, asset-back securities and so on.

  2. Real property (including land, house & construction, investment real assets, land utilization right and inventory of construction business) and equipment.

  3. Membership.

  4. Intangible assets, including, patent, copyright, trademark, franchise and so on.

  5. Credit claims in financial institutions (including accounts receivable, foreign exchange discount, lending, overdue receivables).

  6. Derivatives.

  7. Assets acquired or disposed of as a result of legal merger, spin-off, acquisition or assignment of shares.

  8. Other important assets.

Article 4 Definition

  1. Derivatives means the forward contracts, options contracts, futures contracts, hedge margin contracts, swaps contracts, and compound contracts of the combination of the above the value of which is derived from assets, interest rates, exchange rate, indices or other interests. Forward contracts do not include insurance contracts, performance guaranty contracts, after-sale service contracts, long-term leases and long-term purchase (sale) contracts.

  2. Assets acquired or disposed of as a result of legal merger, spin-off, acquisition or assignment of shares means the assets acquired from or disposed of as a result of a merger, spin-off or acquisition conducted in accordance with the Business Merger and Acquisition Act, Financial Holding Company Act, Financial Institutions Merger Act or other laws, or the stocks of another company acquired by issuing new shares pursuant to the eighth paragraph of Article 156 of the Company Act.

  3. A related party & subsidiary means the party defined in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers.

  4. A professional appraiser means real property appraisers or any other service which is legally authorized to appraise real property and equipment for business.

  5. Date of occurrence means the transaction contracting date, payment date, the entrusted transaction closing date, transfer date, board resolution date or other date on which the transaction counterpart and the transaction value may be sufficiently ascertained, whichever is earlier. Notwithstanding, where the investment must be approved by the competent authority in advance, the date of occurrence shall mean the earlier of the above date applicable and the date of approval by the competent authority.

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  1. PRC investment means the investment made in the People’s Republic of China in accordance with the Regulations Governing Approval of Investments or Technical Cooperation Conducted in the People’s Republic of China prescribed by the Investment Commission, Ministry of Economic Affairs.

  2. Within one year means the year counted backward from the date of acquisition of disposal of the asset in issue, excluding the items which have been publicly disclosed.

  3. The most recent certified financial statements means the latest financial statements certified or audited by a certified public accountant and duly published immediately before the acquisition or disposal of assets in issue.

Article 5

Limit on investment in non-business purpose real property and marketable securities. The limits on the above assets acquired by the Company are as follows:

  1. Non-business purpose real property: The total investment amount shall not exceed 30% of the amount of shareholders’ equity represented in the most recent certified financial statements. The total amount of investment in any specific short-term securities shall not exceed 5% of the amount of the above shareholders’ equity.

  2. Long- and short-term securities: The total investment amount (means the original investment amount) shall not exceed the amount of shareholders’ equity represented in the most recent certified financial statements.

  3. The total amount of investment in any specific marketable securities (means the original investment amount) shall not exceed 30% of the amount of shareholders’ equity represented in the most recent certified financial statements.

The limits on the total amount of the above asset acquired by a subsidiary of the Company are as follows:

  1. Non-business purpose real property: The total amount shall not exceed 20% of the amount of shareholders’ equity represented in the most recent certified financial statements of the subsidiary concerned. The total amount of investment in any specific short-term securities shall not exceed 5% of the amount of the above shareholders’ equity.

  2. Long- and short-term securities: The total investment amount (means the original investment amount) shall not exceed the amount of shareholders’ equity represented in the most recent certified financial statements of the subsidiary concerned.

  3. The total amount of investment in any specific marketable securities (means the original investment amount) shall not exceed 30% of the amount of shareholders’ equity represented in the most recent certified financial statements of the subsidiary concerned.

Article 6

No appraiser, certified public account, legal counsel or securities underwriter who has provided the Company with the appraisal report or opinion may involve in the transaction in issue as a related party. Nor shall the transaction counterpart be a related party in the transaction.

Article 7 Procedure for acquisition or disposal of real property or equipment

  1. Evaluation and procedure of operation

  2. Acquisition or disposal of real property and equipment by the Company shall be in accordance with the Company’s internal control policy pertaining to the revolving of fixed assets.

  3. Procedure for determining the terms of transaction and approval of transaction

  4. 2.1 The terms and transaction price of the acquisition or disposal of real property shall be determined by reference to, among others, the posted current value, appraised value, and the actual transaction price of other real property located nearby. Transactions

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with a value of less than TWD50 million may precede with the approval of the President. Transactions with a value of between TWD50 million and TWD100 million each may proceed with the approval of the Chairman of the Board of Directors and shall be reported to the immediately subsequent meeting of the Board of Directors. Transactions with a value of over TWD100 million must be approved by the Board of Directors in advance.

  • 2.2 Acquisition or disposal of equipment shall be conducted by way of issuing request for proposal, price competition under restricted tendering, and price negotiation under single tendering or bidding. The approval thereof shall be in accordance with the Schedule of Functions and Authority compiled pursuant to the relevant bylaws of the Company.

  • 2.3 Where the acquisition or disposal of assets by the Company in accordance with the relevant procedure or other laws must be approved by the Board of Directors in advance, the opposition expressed by the Director with written record thereof taken or in writing shall be submitted to Audit Committee. On the acquisition or disposal of assets duly proposed to the Board of Directors for approval, opinion expressed by the Independent Director shall be sufficiently considered with their concurrence or dissent expressed and the reason therefore duly recorded in the meeting minutes.

  • Unit in charge of execution of transaction Upon approval of the proposed acquisition or disposal of real property or equipment pursuant to the preceding paragraph, the responsible department and the Corporate Finance & Management Division shall take charge of the execution thereof.

  • Appraisal report on real property or other fixed asset Where the transaction value of the acquisition or disposal of real property or equipment amounts to 20% or more of the paid-in capital of the Company or TWD300 million or more, an appraisal report produced by a professional appraiser must be obtained before the date the fact happens in accordance with the following, except in cases where the transaction counterpart is a government agencies, or the transaction is an entrusted construction project on a self-owned land or a leased land, or the objects to be acquired or disposed of is equipment for business purpose.

  • 4.1 Where the transaction price shall be determined by reference to any restricted, designated price or special price for whatever special reason, the transaction and all subsequent changes to the terms thereof (if any) must be submitted to the Board of Directors for approval in advance.

  • 4.2 Where the transaction value amounts to TWD1 billion or more, the appraisal shall be conducted by two or more professional appraisers.

  • 4.3 If the appraisal conducted by the professional appraiser runs into either of the following conditions, except the appraisal value of the acquired assets is higher than the trading value or the appraisal value of the disposed assets is lower than the trading value, subsequent handling by certified public accountant in accordance with the No. 20 Statement of Financial Accounting Standards published by Accounting Research and Development Foundation (ARD Foundation) should be sought for as well as its opinion with respect to the reasons accounting for the price difference and the acceptability of the transaction price:

    • 4.3.1 The amount difference between the appraised value and the transaction value amounts to 20% of the transaction value.

    • 4.3.2 The amount difference among the appraised values as a result of the appraisals conducted by two or more professional appraiser’s amounts to 10% or more of the transaction value.

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  • 4.4 The appraisal report date and the date of creation of the transaction contract conducted by professional appraiser must not be apart for more than 3 months. Notwithstanding, if the same posted present value has been adopted to calculate the value and the above two dates are less than 6 months apart, the written opinion of the original professional appraiser may be sought.

  • 4.5 Where the Company has acquired or disposed of the asset by auction by the court, the relevant written evidence document issued by the court may operate in place of the appraisal report or certified public accountant’s opinion.

  • The aforementioned trading value should be calculated according to Article 15.1.5. The period is the one year before the occurrence of the trading. The obtaining of appraisal report or CPA’s opinions can not be included.

Article 8

Procedure for acquisition or disposal of marketable securities

  1. Evaluation and procedure of operation

  2. Trading of long- or short-term securities by the Company shall be in accordance with the Company’s internal control policy pertaining to the revolving of investments. Acquisition or disposal of long-term securities mentioned in the procedure refers to the holding of over 20% stake or long-term equity investment. Acquisition or disposal of long-term securities mentioned in the procedure refers to the holding of over 20% stake or long-term equity investment in a company.

  3. Procedure for determining the terms of transaction and approval of transaction

  4. 2.1 For acquisition and disposal of long-term securities, the execution unit should evaluate transaction conditions and authorized quota before submitting its proposal to the board of directors for approval.

  5. 2.2 For acquisition and disposal of short-term securities, the execution unit should evaluate the transaction conditions and authorization quota before carrying out the move according to “Measures for the Management of Short-term Investment.”

    • 2.2.1 Purchasing and selling short-term marketable securities traded on the stock exchange or over-the-counter market shall be judged and determined by the responsible financial unit according to the market. The limits on the total investment amount and the amount of investment in any specific securities are as follows:

as follows:
Securities Limit Limit
on
specific
securities
Domestic finance bills Foreign
finance bills		 TWD600 million
TWD600 million
Negotiable certificates of deposit
Time deposit		 TWD600 million
TWD600 million
Open-end bonds funds TWD2 billion TWD500 million
Mutual funds (excluding open-end
bonds mutual funds)		 TWD1 billion TWD100 million
Stocks traded on stock exchanges,
over-the-counter
market
and
relevant securities		 TWD1 billion TWD100 million
Share warrant certificates TWD1 billion TWD5 million

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  - 2.2.2 For purchase or sale of short-term marketable securities not traded on the stock exchange or over-the-counter market, the most recent certified financial statements of the target company must be obtained for an as reference for evaluating the transaction price for an analysis on, among others, the per share net value, profitability and potentiality of the objective company. The above proposed purchase or sale proposed must be submitted transaction conditions and authorization quota to the board of directors for approval in advance.

  • 2.3 Where the acquisition or disposal of assets by the Company in accordance with the relevant procedure or other laws must be approved by the Board of Directors in advance, the opposition expressed by the Director with written record thereof taken or in writing shall be submitted to all Supervisors. On the acquisition or disposal of assets duly proposed to the Board of Directors for approval, opinion expressed by the Independent Director (if any) shall be sufficiently considered with their concurrence or dissent expressed and the reason therefore duly recorded in the meeting minutes.

  • Unit in charge of execution

  • Upon approval of the proposed acquisition or disposal of long- or short-term investment in securities by the Company pursuant to the preceding paragraph, the Corporate Finance & Management Division shall take charge of the execution thereof.

  • Expert opinion

  • 4.1 For acquisition or disposal of marketable securities, the company should obtain the audited or reviewed financial statement of the target companies as the reference for transaction price, the transaction value of which amounts to 20% of the paid-in capital of the Company or TWD300 million, certified public accountant’s opinion shall be sought for with respect to the acceptability of the transaction price before the date the fact happens. In case CPA needs to adopt the report of experts, auditing criteria No. 20 publicized by Accounting Research and Development Foundation should be followed, except in cases where there is an active public quote on the subject securities or where the subject securities belongs to any of the following:

    • 4.1.1 securities obtained on contribution of cash capital to the establishment of an entity by promoters or by placement.

    • 4.1.2 securities issued at par value on the legal capital increase of an invested company.

    • 4.1.3 securities issued on the cash capital increase of a 100%-owned invested company.

    • 4.1.4 securities traded on the stock exchange, Over-the-Counter Market or on the GreTai Securities Market.

    • 4.1.5 government bonds or bonds with re-purchase, re-sale agreements.

    • 4.1.6 domestic or offshore mutual funds

    • 4.1.7 corporate securities listed on the stock exchange or traded on the GreTai Securities Market to be acquired or disposed off pursuant to the Regulations Governing Purchase of Listed Securities by Tender Offer or by Auction of the Taiwan Stock Exchange Corporation or the GreTai Securities Market.

    • 4.1.8 stocks of public companies issued on cash capital increase but not under private placement

    • 4.1.9 the request for purchase of which was submitted prior to the establishment of the mutual fund as provided in the first paragraph of Article 11 of the Securities

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Investment Trust and Consulting Act and the Order of 1 November 2004 issued by the Financial Supervisory Commission (ref. Jin-Guan-Si-Tze No. 0930005249). 

  - 4.1.10 newly purchased or re-purchased domestic private equity, the scope of investment of which is identical with that of publicly raised mutual funds except the investment strategy with respect to securities credit trading and position of the un-covered products relating to the securities as indicated in the relevant trust agreement

  • 4.2 Where the subject asset is acquired or disposed of by auction in the court, the appraisal report or certified public accountant’s opinion may be replaced by the relevant certifying document issued by the court.

  • The aforementioned trading value should be calculated according to Article 15.1.5. The period is the one year before the occurrence of the trading. The obtaining of appraisal report or CPA’s opinions can be excluded.

Article 9 Transaction with related parties

  1. In addition to the procedure for acquisition or disposal of assets from a related party provided in Article 7-11, requirements with respect to the procedure of approval and evaluation of the acceptability of the terms of transaction. According the stipulations of article 7-11 of the handling procedure, when the trading value exceeds 10% of the company’s total assets, the appraisal report of professional appraisers or the opinions of CPA should be obtained. The substance of the relationship other than the formation as a legal matter must be considered when determining whether the transaction counterpart is a related party

  2. Evaluation and procedure of operation Acquisition or disposal of real property from a related party, or acquires r disposes nonproperty assets with related parties and the trading value exceeds 20% of the company’s paid-in capital, 10% of total assets, or NT$300 million, must be approved by the Board of Directors based on the materials on the following matters and ratified by the Audit Committee in advance to sign the transaction contract and make payment:

  3. 2.1 The purpose, necessity and anticipated efficacy of the proposed acquisition or disposal of assets.

  4. 2.2 The reason for selecting the related party in issue as the transaction counterpart.

  5. 2.3 Acquiring real property from related parties, the evaluation materials regarding the acceptability of the proposed terms of transaction produced pursuant to paragraphs .1 and 3.4 of this Article.

  6. 2.4 The acquisition date and the transaction price at which the related party acquired the subject real property and the related party’s transaction counterpart in that transaction and the relationship between them.

  7. 2.5 Forecast on the statement of receipts and disbursements of cash within one year from the month of the proposed contract signing date, and an evaluation of the necessity of the proposed transaction and the acceptability of the application of the relevant funds.

  8. 2.6 Obtain the appraisal report of professional appraisers or the opinions of CPA according to item 1 of the Article9.

  9. 2.7 The restrictions and other important arrangements on the transaction.

The aforementioned trading value should be calculated according to item 1-5 of Article 15. The one-year period refers to the one year before the date for the implementation of the trading. The trading which has been submitted to the board of directors for approval and the auditing committee for acknowledgement can be excluded.

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The opinion expressed by the Independent Directors each at the relevant meeting of the Board of Directors convened for discussing according to the previous two items, transaction proposed pursuant to the preceding paragraph shall be sufficiently considered. Opposition or qualified opinion expressed by the Independent Director shall be clearly indicated in the minutes of the relevant meeting of the Board of Directors.

The board of directors could authorize the chairperson to make decision for acquiring from, or disposing with, related parties equipment whose value falls within a certain scope.

  1. Evaluation of acceptability of the transaction cost

  2. 3.1 The acceptability of transaction cost of the proposed acquisition of real property by the Company from a related party shall be evaluated in accordance with the following: 3.1.1 The transaction cost shall be the sum of the proposed transaction price plus the necessary capital interest and the legal cost to be incurred by the buyer. Necessary capital interest shall be calculated according to the weighted average interest rate on loans extended to the Company in the year of the purchase of the real property, provided that the said interest rate shall not exceed the maximum non-financing borrowing interest rate announced by the Ministry of Finance.

    • 3.1.2 Where the related party has mortgaged the subject real property to any financial institution, the total value adopted by the financial institution to determine the line of credit shall be taken into account, provided that the accumulated amount of the actual advanced credit on the subject real property has amounted to 70% or more of the line of credit for over one year except in cases where the financial institution is a related party to the related party in issue or vice versa.

  3. 3.2 Where the subject real property comprises the land and the building thereon, the transaction cost of the land and the building may be evaluated separately according to any of the methods provided in the preceding paragraph

  4. 3.3 The cost of the real property to be acquired by the Company from a related party shall be evaluated in accordance with paragraph 3.1 and 3.2 of this Article and review and workable opinion by a certified public accountant on such evaluation should be sought for.

  5. 3.4 Where the values of the real property to be acquired by the Company from a related party in conclusion of the evaluation pursuant to paragraphs 3.1 and 3.2 of this Article respectively both are lower than the proposed transaction price, paragraph 3.5 of this Article shall apply except in the following cases where objective evidence has been produced and workable opinion has been sought for from the professional appraiser and a certified public on the acceptability of the transaction price:

    • 3.4.1 The related party has acquired or leased a vacant land to build the building and evidence has been produced to prove fulfillment of any of the following:

      • 3.4.1(1) The sum of the value of the vacant land appraised according to the method provided in the preceding Article and the value of the building appraised as the total of the construction cost incurred by the related party plus reasonable construction profit exceeds the actual transaction price. Reasonable construction profit shall be determined based on the average gross margin ratio of the construction department of the related party in the past three years or the gross margin ratio applicable to the construction industry published by the Ministry of Finance, whichever is lower.

      • 3.4.1(2) The terms of the proposed transaction are considered acceptable by reference to the successful transactions of the other floors of the same building or nearby buildings concluded by non-related parties, each of which is of similar square measure to that of the subject real property,

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and the term of such successful transactions are considered comparable to the relevant terms of the proposed transaction according to the common practice of real property transaction applicable to the

area. 

  - 3.4.1(3) The terms of the proposed transaction are considered acceptable by reference to the successful leases of the other floors of the same building or nearby buildings concluded by non-related parties within one year and the terms of such successful leases are considered comparable to the relevant terms of the proposed transaction according to the common practice of real property leases applicable to the area.

  • 3.4.2 The Company has produced evidence to prove the terms of the proposed purchase of real property from a related party are comparable to the terms of successful transactions of nearby real property of similar square measure which were concluded by non-related parties within one year. Successful transaction of nearby real property means the successful transaction of a real property which is located in the same block as the subject real property and within a radius of 500 meters from the subject real property or the posted present value of which is similar to that of the subject real property. Of similar square measure means, basically, the square measure of the real property in the successful transaction concluded by a non-related party being referred to is no less than 50% of the square measure of the subject real property. Within one year means within the year immediately preceding the date of occurrence of the proposed transaction.

  • 3.5 Where the values of the real property to be acquired by the Company from a related party appraised in conclusion of the evaluation pursuant to paragraphs 3.1 and 3.2 of this Article respectively both are lower than the proposed transaction price, the Company shall act in accordance with the following:

  • 3.5.1 The Company shall appropriate an amount equal to the difference between the transaction price and the appraised cost of the real property for special earnings reserve pursuant to the first paragraph of Article 41 of the Securities and Exchange Act, which shall be set aside from distribution or new issues of shares for capital increase. Investors who recognize their investment in the Company on equity method and who are public listed companies shall also appropriate an amount equal to the recognized value according to the shareholding percentage for special earnings reserve pursuant to the first paragraph of Article 41 of the Securities and Exchange Act.

  • 3.5.2 Audit Committee shall act in accordance Article 218 of the Company Act.

  • 3.5.3 The result of handling pursuant to paragraphs 3.5.1 and 3.5.2 of this Article shall be reported to the Shareholders Meeting and the particulars of the transaction shall be disclosed in the relevant annual report and the prospectus.

The special earnings reserve set aside pursuant to the above shall not be applied for use without the prior approval by the Financial Supervisory Commission until the loss from depreciation arising from the purchase of the asset by paying a high premium price is duly recognized, disposed of, appropriately made up, restored or there being no other evidence challenging the acceptability issue.

  • 3.6 Acquisition of real property by the Company from a related party will be forthwith handled in accordance with paragraphs 1 and 2 of this Article in any of the following cases, in which case paragraphs 3.1, 3.2 and 3.3 of this Article regarding evaluation of acceptability of the transaction cost shall not operate:

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  • 3.6.1 The related party has acquired the subject real property by inheritance or as a gift.

  • 3.6.2 Over five years has lapsed since the related party signed the contract on acquisition of the subject real property.

  • 3.6.3 The related party acquired the subject real property under a signed joint construction contract with its related party or entrustment of related parties for realty constructions, either on own land or leased land.

  • 3.7 In case there is any evidence proving any irregularity of the proposed transaction for the Company to acquire the subject real property from a related party, the Company shall still act in accordance with paragraph 3.5 of this Article.

Article 10 Procedure for acquisition or disposal of membership

The Company will, in principle, not conduct acquisition or disposal of memberships. Should any such transaction be proposed in the future, the Company shall submit the proposal to the meeting of the Board of Directors for approval and, thereafter, lay down the procedure for the evaluation and operation thereof.

Article 11 Procedure for acquisition or disposal of intangible assets

  1. Evaluation and procedure for operation

  2. The acquisition or disposal of intangible assets by the Company shall be conducted in accordance with the Company’s internal control policy pertaining to the revolving of fixed assets.

  3. Terms of transaction and procedure for approval of transaction

  4. 2.1 The terms and transaction price of the proposed acquisition or disposal of intangible assets shall be determined by reference to the evaluation report produced by an expert or the fair market value. Transactions with a transaction value of less than TWD30 million each may proceed with the approval of the President. Transactions with a value of between TWD30 million and TWD60 million may proceed with the approval of the Chairman and shall be reported to the immediate subsequent meeting of the Board of Directors. Transactions with a value of over TWD60 million each must be approved by the Board of Directors in advance.

  5. 2.2 Where the acquisition or disposal of assets by the Company in accordance with the relevant procedure or other laws must be approved by the Board of Directors in advance, the opposition expressed by the Director with written record thereof taken or in writing shall be submitted to Audit Committee. On the acquisition or disposal of assets duly proposed to the Board of Directors for approval, opinion expressed by the Independent Director shall be sufficiently considered with their concurrence or dissent expressed and the reason therefore duly recorded in the meeting minutes.

  6. Unit in charge of execution of transaction

  7. Upon approval of the proposed acquisition or disposal of membership or intangible assets or other fixed assets pursuant to the preceding paragraph, the responsible department and the Corporate Finance & Management Division shall take charge of the execution thereof.

  8. Expert evaluation report on membership or intangible assets Except the transaction with government agencies, where the transaction value of the acquisition or disposal of membership or intangible asset by the Company amounts to 20% of the paid-in capital of the Company or TWD300 million, the opinion of a certified public accountant on the acceptability of the proposed transaction price should be sought for

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before the date the fact happens, who shall act in accordance with the No. 20 Statement of Auditing Standards published by the ARD Foundation.

  1. The aforementioned trading value should be calculated according to Article 15.1.5. The period is the one year before the occurrence of the trading. The obtaining of appraisal report or CPA’s opinions can be excluded.

Article 12 Procedure for acquisition or disposal of credit claims in financial institutions

The Company will, basically, not conduct the transaction of acquiring or disposing of credit claims in financial institutions. Should any such transaction be proposed in the future, the Company shall submit the proposal to the meeting of the Board of Directors for approval and, thereafter, lay down the procedure for the evaluation and operation thereof.

Article 13 Procedure for acquisition or disposal of financial derivatives

  1. Principle and policy of transaction

  2. All derivatives transactions by the Company shall basically be conducted with a view to prevent possible risks arising from business operation of the Company. The responsible personnel of a derivatives transaction shall conduct a detailed analysis of the possible risks in advance, conduct the hedge transaction with care, and get hold of all possible risks that may arise from the transaction.

  3. 1.1 Derivatives transactions:

    • Derivatives means the transaction contracts the value of which is derived from assets, interest rates, exchange rates, indices or the interests in any of the above (such as forward contracts, options contracts, futures, swap and compound contracts of a combination of the above). For purposes of this Procedure, forward contracts exclude insurance contracts, performance guaranty, after-sale services warranty, long-term leases and long-term purchase (sale) contracts.

  4. 1.2 Operational or hedging strategy:

    • The Company’s demand for foreign currency to meet the calls for purchases of imported materials and equipment shall be hedged by buying forward foreign exchange and receipts of foreign currency from exports shall be hedged by selling forward foreign exchange.

  5. 1.3 Division of powers and duties:

    • 1.3.1 Only the personnel approved by the Chairman authorized to do so by the relevant meeting of the Board of Directors may conduct foreign exchange transactions. Necessary increase or reduction in the staff of such personnel, if any, must also be approved by the Chairman.

    • 1.3.2 The accounting department shall be responsible for administering foreign exchange transactions.

    • 1.3.3 The relevant financial managerial office shall act as the supervisor of the foreign exchange transaction within the scope of their power of authority with respect to the transaction amount.

  6. 1.4 Key points of performance evaluation:

    • 1.4.1 Transaction part shall be evaluated according to the accumulated realized amount of net foreign exchange gain (loss) of the year.

    • 1.4.2 Non-transaction part shall be evaluated according to their compliance with the relevant policy and rules for operation of forward foreign exchange of the Company.

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  • 1.5 Total contractual transaction amount

  • Total contractual transaction amount shall be the Company’s total authorized transaction amount on forward foreign exchange contracts.

  • 1.5.1 Limit of hedging transactions: The total hedging transaction amount of the Company as a whole shall basically be determined according to the Company’s call for imports and exports both for a term of six month of the year. Any position call beyond the 6-month term must be approved by the Chairman authorized to do so by the relevant meeting of the Board of Directors.

  • 1.5.2 Limit of non-hedging transactions: The total non-hedging transaction amount of the Company as a whole shall be within the range of the amount equal to 15% of the Company’s call for imports and exports both for a term of six month of the year.

  • 1.5.3 The maximum uncovered position of the Company as a whole shall not exceed 150% of the Company’s call for imports and exports both for a term of six month of the year and the sum of the position of hedging transactions and that of nonhedging transactions combined shall not exceed the maximum uncovered position of the Company.

  • 1.6 Limits on total loss from all transaction contracts and the loss from each individual transaction contract

  • The uncovered position of derivative transactions by the Company as a whole shall be calculated according to the closing price of TWD at the current day on and that of the New York foreign exchange market of the previous day. When the loss incurred amounts to TWD2.5 million, 25% thereof shall be covered and the trader shall be instructed to suspend all transactions. When the loss incurred amounts to TWD5 million, 50% of the uncovered position must be covered with a relevant report submitted to the President. If the loss incurred amounts to TWD10 million, all positions shall be closed with a relevant report submitted to the President and the Chairman.

Please see the Trader Authorization and Stop-Loss Points Schedule attached hereto (1, 2) for the stop-loss point applicable to foreign exchange transactions. Each trader shall act according to the stop-loss point for each individual transaction and for accumulated loss respectively which are fixed according to the limit on his/her authorization and the foreign currency traded. The trader will be suspended from conducting transactions for a term of three months on his/her initial breach in conducting closing of position at the relevant stop-loss point and he/she will be disqualified on a second non-compliance, in which case, he/she will be reported to the President for determining the disciplinary action against him/her.

  1. Risk management

  2. 2.1 Credit risk management:

In consideration of the changing market, risks management in connection with the operation of derivatives transactions shall be administered in accordance with the following principles:

The transaction counterparts shall mainly be well known local or foreign financial institutions.

The commodity transacted shall be among those offered by local or foreign financial institutions.

The total uncovered transaction amount with respect to the same transaction counterpart shall not exceed 10% of the total authorized amount except as otherwise approved by the President.

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  • 2.2 Market risk management: The operation shall focus on the public foreign exchange transaction provided by banks without regard to the futures market.

  • 2.3 Liquidity risk management: In consideration of liquidity, the derivative commodities transacted by the Company shall be selected from among those with high liquidity (i.e. those which may be covered at any time on the market). The financial institution entrusted to conduct the transaction must be able to get hold of the relevant information and is able to conduct transactions on any market at any time.

  • 2.4 Cash flow risk management: In consideration of stable working capital, the Company shall basically conduct derivatives transactions by using self-owned fund and take into account the capital calls forecast for the next three months when deciding the amount to be applied to conduct derivatives transactions.

  • 2.5 Operational risk management The transactions shall be conducted within the relevant authorized amount in full compliance with the procedure for operation and put under internal control to prevent operational risks. The personnel conducting derivatives must not act concurrently as the personnel responsible for making the relevant verification and delivery and vice versa.

The personnel responsible for weighing, monitoring and controlling the risks and the personnel provided in the preceding subparagraph must be serving in different departments of the Company and they must report to the Board of Directors or a highranking managerial officer who is not in charge of the transaction or decision-making on the positions to be taken.

The positions taken by derivatives transaction shall be evaluated at least once a week except hedging transactions which have been conducted to meet business needs and which shall be evaluated twice a month. The evaluation report shall be submitted to the relevant high-ranking managerial officer authorized to do so by the Board of Directors.

  • 2.6 Commodities risk management Internal trading personnel must have complete and accurate special knowledge with respect to derivatives and shall request the bank for full disclosure of risks in order to prevent the risk of utilizing inappropriate commodities.

  • 2.7 Legal risk management

  • In consideration of prevention of possible legal risks, documents to be entered into by and between the Company and financial institutions must be examined in advance by personnel with special knowledge in foreign exchange and the legal compliance personnel or by the legal counsel.

3. Internal audit policy

  • 3.1 Internal audit personnel must conduct periodical audit of the acceptability of the internal control with respect to derivatives transactions and, on a monthly basis, audit the compliance with the procedure for derivatives transactions by the departments responsible for the transactions and evaluate the transaction cycle, produce the relevant internal reports, and give a written notice of any material breach to the Audit Committee.

  • 3.2 The internal audit personnel shall, by the end of February the following year, submit the internal audit report and the annual internal audit inspection report to the Financial Supervisory Commission and report the correction of irregularities (if any) to the Financial Supervisory Commission by the end of May the following year.

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  1. Periodical evaluation

  2. 4.1 The Board of Directors shall authorize high-ranking managerial officers to supervise and evaluate, on a regular basis, the compliance of the procedure for derivatives transactions and the acceptability limits on risks, as well as report to the Board of Directors upon finding of any irregularity in the market value evaluation report (e.g. a position taken having exceeded the limit of loss), and take proper measures in response.

  3. 4.2 The positions taken by derivatives transaction shall be evaluated at least once a week except hedging transactions which have been conducted to meet business needs and which shall be evaluated twice a month. The evaluation report shall be submitted to the relevant high-ranking managerial officer authorized by the Board of Directors.

  4. Principles of supervision and control of derivatives transactions by the Board of Directors

  5. 5.1 The Board of Directors shall appoint high-ranking managerial officers to oversee and control the risks from derivatives transactions from time to time according to the following principles:

    • 5.1.1 Suitability of the current risk management measures and the compliance of the Company’s procedure for derivatives transactions should be evaluated on a regular basis.

    • 5.1.2 Necessary measures shall be taken upon finding of any irregularity with respect to the transaction and profit (loss) from the transaction. Such finding must be reported to the Board of Directors immediately and the relevant opinion expressed by the Independent Director shall be heard at the relevant meeting.

  6. 5.2 Performance consistency of derivatives transactions with the relevant operation policy and the acceptability limit of risks must be evaluated on a regular basis.

  7. 5.3 Where the relevant personnel have been authorized pursuant to the procedure for derivatives transactions to handle the transaction, the transaction shall be reported to the Board of Directors up to date after the transaction.

  8. 5.4 The Company shall maintain a derivatives transactions record book in which the type, value, date of the relevant resolution adopted by the meeting of the Board of Directors, and the matters subject to evaluation provided in paragraphs 4.2, 5.1 and 5.2 of this Article of each transaction shall be indicated in detail for reference.

Article 14 Procedure for handling merger, spin-off, acquisition or assignment of shares

  1. Evaluation and procedure of operation

  2. 1.1 The Company shall, for the purpose of a merger, spin-off, acquisition or assignment of shares, call a meeting of the legal counsel, certified public accountant and underwriter for joint discussion to determine the timetable of the legal proceeding and organize a special group to execute the legal proceeding. The Company shall also seek the opinion of the certified public accountant, legal counsel or underwriter with respect to the acceptability of the proposed swap ratio, acquisition price or, cash or other property to be distributed to the shareholders and submit the same to the meeting of the Board of Directors for approval. The company need not obtain reasonable opinions from experts, as mentioned above, for acquiring subsidies 100% owned, in terms of issued shares or paid-in capital, by the company directly or indirectly or merger of subsidiaries 100% owned, in terms of issued shares or paid-in capital, by the company directly.

  3. 1.2 The Company shall, prior to the convention of the relevant Shareholders Meeting, produce the document on disclosure of the material agreement and relevant matters on the proposed merge, spin-off or acquisition and submit such document to all shareholders together with the expert opinion provided in paragraph 1.1 of this Article and the meeting minutes as reference for the shareholders to determine to or not to approve the proposed merger, spin-off or acquisition, except in case where a relevant

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resolution adopted by the Shareholders Meeting is not legally required. If any of the participant companies is unable to convene the meeting, or to obtain the resolution of its shareholders meeting on the proposed merger, spin-off or acquisition because the number of shares represented at the meeting fell short of the quorum for the meeting or the proposal is denied by the meeting, the participant companies shall promptly give a public explanation of the cause, the subsequent handling and reschedule a date for convening the shareholders meeting.

  1. Other matters for attention

  2. 2.1 Date of convention of the relevant meeting of the Board of Directors: Except as otherwise provided by law or there being any special factor which has been approved by the FSC, companies participating in the merger, spin-off or acquisition shall convene the meeting of the board of directors and the shareholders meeting on the same day to adopt the resolution on the matters in connection with the proposed merger, spin-off or acquisition. Except as otherwise provided by law or there being any special factor which has been approved by the Financial Supervisory Commission, companies participating in the assignment of shares shall convene the meeting of the board of directors on the same day.

Companies participating in the merger, spin-off, acquisition or assignment of shares whose stocks are traded on the stock exchange or the over-the-counter market shall maintain complete written record on the following materials and keep the same for a term of five years.

  • 2.1.1 Basic personal information: including all personnel who participate in the execution of the merger, spin-off, acquisition or assignment of shares before the relevant information was publicly released, including their titles, names, and identification card (or passport) number.

  • 2.1.2 Dates of important matters including, among others, execution of the relevant memorandum of intent (MOI) or memorandum of understanding (MOU), engagement of financial or legal counsel, execution of the relevant contract(s) and the date of the relevant meeting of the Board of Directors.

  • 2.1.3 Important documents and meeting records on, among others, the proposed merger, spin-off, acquisition or assignment of shares, and the relevant MOI or MOU, important contract(s) and minutes of the relevant meeting of the Board of Directors.

Companies participating in the merger, spin-off, acquisition or assignment of shares, whose stocks are traded on the stock exchange or the over-the-counter market shall each, within two days from the date following the adoption of the relevant resolution by the meeting of their Board of Directors, make a report online of the information provided in subparagraphs 1 and 2 of the preceding paragraph in the required form and substance to the Financial Supervisory Commission.

Companies participating in the merger, spin-off, acquisition or assignment of shares, whose stocks are traded on the stock exchange or the over-the-counter market shall enter into the relevant agreement with companies participating in the merger, spin-off, acquisition or assignment of shares, whose stocks are not traded on the stock exchange or the over-thecounter market (if any) and make the report provided in the two preceding paragraphs.

  • 2.2 Prior non-disclosure agreement:

  • All persons who participate in or have knowledge about the Company’s project of merger, spin-off, acquisition or assignment of shares shall each sign a non-disclosure agreement to undertake that they will not externally disclose the project before the

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Company makes the relevant public disclosure and that they will not buy or sell any stocks or equity securities of any company involved in the proposed merger, spin-off, acquisition or assignment of shares, either in their own name or using any other person’s name to do so.

  • 2.3 Determination and change of the proposed swap ratio or acquisition price: Each participant company shall seek the opinion of the certified public accountant, legal counsel or underwriter with respect to the acceptability of the proposed swap ratio, acquisition price, or cash or other property to be distributed to shareholders before the meetings of Board of Directors, then submit the same to the Shareholders Meeting. Basically, neither the swap ratio nor the acquisition price shall be changed except in case of the conditions for a change provided in the contract (if any) and such conditions have been publicly disclosed. The swap ratio or acquisition price may be changed in the event of any of the following:

  • 2.3.1 The subject securities are issued for capital increase, issuance of convertible bonds, stock grant, and issuance of corporate bond with stock option, issuance of preferred shares with stock option, issuance of share warrant certificates or other equity securities.

  • 2.3.2 Any of the participant companies has done any act that may affect the financial operation of the company such as disposal of its material assets.

  • 2.3.3 The shareholders’ equity or securities price of any of the participant companies has been affected by, among others, a major disaster or material technical change.

  • 2.3.4 Any of the participant companies has adjusted legal buy-back of treasury stocks. 2.3.5 The principal participant companies or the number of participant companies has changed.

  • 2.3.6 The contract has provided the other conditions for changes and such conditions have been publicly disclosed.

2.4 Provision of the contract:

The contract on the proposed merger, spin-off, acquisition or assignment of shares shall provide the matters set forth below, except those in accordance with the provision of Article 317-1 of the Company Act and Article 22 of the Business Merger Act:

2.4.1 Handling of defaults.

  • 2.4.2 The procedure for issuance of equity securities or buy-back of treasury shares adopted by the company to extinct as a result of the proposed merger or to spin off.

  • 2.4.3 The amount of treasury stocks the participant company may legally buy back after the swap ratio record date and such company’s procedure therefore.

  • 2.4.4 Ways to handle matters arising from a change of the principal participant company or the number of participant companies.

  • 2.4.5 The schedule for executing the project and the scheduled date of completion.

  • 2.4.6 Procedure for handling relevant matters and the date to duly convene the relevant Shareholders Meeting in case the project is not completed as scheduled.

  • 2.5 Change of the participant companies: Where, after any of the companies participating in the proposed merger, spin-off, acquisition or assignment of shares has publicly disclosed the information, there is another company to participate in the proposed merger, spin-off, acquisition or assignment of shares, the original participant companies each shall re-new all relevant proceedings or legal acts except in the case of there being reduction in the number of the original participant companies and the Board of Directors is authorized to act accordingly by the resolution of the Shareholders Meeting.

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  • 2.6 The Company shall enter into an agreement with the participant company which is not a public company and set the date to convene the relevant meeting of the Board of Directors, execute the prior non-disclosure agreement, and act accordingly in consideration of the change of the participant companies in accordance with paragraphs 2.1, 2.2 and 2.5 of this Article.

Article 15 Procedure for public disclosure reports

  1. Matters which should be reported for public disclosure and the relevant standards

  2. 1.1 Acquisition of real property, or disposal of properties with, related parties, or acquisition of non-property assets from, or disposal of non-property assets with, related parties with the trading value exceeding 20% of the company’s paid-in capital or 10% of total assets, or NT$300 million. However, trading in government bonds or bonds with repurchase and resale agreements, or subscription or repurchase of money market funds by domestic securities investment trust enterprises and subscription or redemption of domestic money-market funds issued by Securities Investment Trust Enterprises are not included.

  3. 1.2 Merger, spin-off, acquisition or assignment of shares.

  4. 1.3 The amount of loss incurred from the derivatives transaction exceeds the limit on loss from all contracts or the relevant individual contract provided in the relevant handling procedure.

  5. 1.4 The subject asset to be acquired or disposed of is equipment for business use and the transaction counterpart is a non-related party and the transaction value is above TWD 1 billion.

  6. 1.5 The subject real property is to be acquired or disposed of by the construction business division of the Company for construction use and the transaction counterpart is a nonrelated party and the transaction value is above TWD500 million.

  7. 1.6 The subject real property to be acquired is a building is to be constructed on a selfowned land, leased land, jointly constructed and shared by units, jointly constructed and shared by percentage, jointly constructed and sold by units and the anticipated transaction value is above TWD500 million.

  8. 1.7 Assets transactions or disposals of credit claims in financial institutions or investment in PRC other than those provided in the preceding six subparagraphs, the transaction value of which amounts to 20% of the paid-in capital of the Company or TWD300 million each, except for these transactions:

    • 1.7.1 The transaction is the purchase or sale of government bonds.

    • 1.7.2 Professional investors, who trade in securities at domestic or overseas stock exchanges or business outlets of securities firms, or subscribe to common corporate bonds and common financial bonds without stock right on the domestic primary market, security brokers who subscribe to securities out of the need for underwriting business or in the capacity as a assisting or recommending security firm for share listing on the Emerging Stock Market, according to the regulations of the ROC Gretai Market (over-the-counter market)

    • 1.7.3 The subject asset to be acquired or disposed of is bond with re-purchase, resale agreements. Subscription to and redemption of domestic money-market funds issued by Securities Investment Trust Enterprises.

  9. 1.8 The transaction value provided in previous paragraph 1.8 above shall be calculated as follows, where within one year means within the year immediately preceding the date of occurrence of the proposed transaction, excluding the items which have been publicly disclosed.

    • 1.8.1 The value of each transaction.

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  - 1.8.2 The total value of the property of the same nature acquired from or transferred to the same transaction counterpart within one year.

  - 1.8.3 The total value of the real property under the same development project acquired or disposed of within one year (the sum acquired and the sum disposed of shall be calculated separately).

  - 1.8.4 The total value of the same specific securities acquired or disposed of within one year (the sum acquired and the sum disposed of shall be calculated separately).

  • 1.9 The calculation for 10% of total assets, as referred in the handling procedure, is based on the sum of assets included in recent alone-basis financial reports, formulated according to the “Regulations Governing the Preparation of Financial. For stocks without par value or with par value other than NT$10, the calculation of 20% of paidin capital for transaction value, as referred in the procedure, is based on 10% of the owner’s equity of the parent firm.

  • Time period for making public disclosure

  • If the acquisition or disposal of assets involves any item which should be published pursuant to paragraph 1 of this Article and the transaction value meets the public disclosure standards provided in this Article, the Company shall make a public disclosure on such acquisition or disposal of assets within two days following the date of occurrence of such transaction.

  • Procedure for making public disclosure

  • 3.1 The Company shall cause the relevant information publicly disclosed on the website designated by the Financial Supervisory Commission.

  • 3.2 The Company shall on a monthly basis make a report on the derivatives transactions conducted in the month by itself and its local subsidiaries which are not public companies on the website designated by the FSC in the form and substance required by the tenth day the following month.

  • 3.3 The Company shall renew the entire public disclosure report in case the public disclosure report made contains any error or omission within 2 days counting inclusively from the date of occurrence of the event.

  • 3.4 The Company shall keep all agreements, meeting minutes, reference record book, appraisal report, opinions of the certified public account, legal counsel or underwriter in the Company relating to the acquisition or disposal of any asset for a term of at least five years except as otherwise provided by law.

  • 3.5 In the event of any of the following after submitting the public disclosure report in accordance with the preceding paragraph, the Company shall, within two days following the occurrence of such event, publicly disclose the relevant information on the website designated by the Financial Supervisory Commission:

    • 3.5.1 There is change to the relevant original signed agreement(s) or the original signed agreement(s) is terminated or rescinded.

    • 3.5.2 The proposed merger, spin-off, acquisition or assignment of shares is not completed as scheduled under the relevant agreement.

    • 3.5.3 There are changes for the original reporting.

Article 16 The Company shall cause all subsidiaries to act in accordance with the following:

  1. The subsidiaries of the Company each shall prescribe their own rules for acquisition or disposal of assets pursuant to the Regulations Governing the Acquisition or Disposal of Assets by Public Companies.

  2. For a subsidiary of the Company which is not a public company, if the acquisition or disposal of asset by such subsidiary meets the public disclosure standards provided in the

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paragraph 1 of Article 15, the Company shall make the relevant public disclosure report for such subsidiary.

  1. The “amounts to 20% of the paid-in capital of the company or 10% of the total assets” provided in the public disclosure standards applicable to the subsidiaries of the Company means the paid-in capital of the Company.

Article 17 Penalty

Any employee of the Company who has handled acquisition or disposal of asset for the Company in breach of these Rules shall be subject to periodical evaluation according to the personnel administration rules and employees handbook and punished according to the degree of severity of the breach.

Article 18 Implementation and amendment

Subject to the approval by the meeting of the Board of Directors, the Board of Directors shall submit the Procedure for Acquisition or Disposal of Assets and all subsequent amendment thereto to Audit Committee and to the Shareholders Meeting for approval. Opposition expressed by the Director with written record thereof taken or in writing shall be submitted to Audit Committee. Opinion expressed by the Independent Director (if any) at the relevant meeting of the Board of Directors on the Procedure for Acquisition or Disposal of Assets shall be sufficiently considered. Opposition or qualified opinion expressed by Independent Directors shall be clearly indicated in the minutes of the Board of Directors.

Article 19

This Procedure was established on 11 August 1989 and subsequently amended as follows: the first amendment on 30 September 1991; the second amendment on 26 June 1995; the third amendment on 28 April 1997; the fourth amendment on 28 October 1999; the fifth amendment on 6 June 2003; the sixth amendment on 13 June 2007; the seventh amendment on 15 June 2012. the eighth amendment on 21 June 2013. the ninth amendment on 23 June 2014. and the tenth amendment on 16 June 2017.

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TECO Electric & Machinery Co., Ltd. Shareholding of All Directors

  1. Types and number of issued shares: common stocks, 2,002,692,886 shares in total.

  2. Minimum required shareholding by all Directors: 48,064,629 shares (Note)

  3. Minimum required shareholding by all Supervisors: Not Applicable (Already set up Audit Committee)

  4. The total shareholding of all Directors meets the minimum shareholding requirement.

Period of suspension of share transfer: April 16 2019 ~ June 14 2019

Title Name Date elected
(yy.mm.dd)		 Term of
office		 Shareholding when
elected		 Shareholding when
elected		 Number of shares held
recorded in the
shareholders roster as of
the date of suspension of
share transfer		 Number of shares held
recorded in the
shareholders roster as of
the date of suspension of
share transfer
Number of
sharesheld		 % Number of
sharesheld		 %
Chairman Tung Kuang Investment Co., Ltd.
Representative: Chwen-Jy, Chiu		 20180615 3yrs 30,341,364 1.52% 30,341,364 1.52%
Managing Director Tong Ho Gloabl Investment Co., Ltd
Representative: Chao-Kai, Liu		 20180615 3yrs 2,240,262 0.11% 2,240,262 0.11%
Managing Director Cheng-Tsung, Huang 20180615 3yrs 15,279,849 0.76% 15,279,849 0.76%
Managing Director Creative Sensor Inc.
Representative: Yu-Ren, Huang		 20180615 3yrs 10,000,000 0.50% 10,000,000 0.50%
Managing &
Independent
Director		 Wei-Chi, Liu 20180615 3yrs 0 0 0 0
Independent
Director		 Jin-Fu, Chang 20180615 3yrs 0 0 0 0
Independent
Director		 Ting-Wong, Cheng 20180615 3yrs 0 0 0 0
Director Mao-Hsiung, Huang 20180615 3yrs 18,486,633 0.92% 18,486,633 0.92%
Director Yinge Int. Inv. Co.,Ltd
Representative: Po-chih,Huang		 20180615 3yrs 10,079,600 0.50% 14,454,698 0.72%
Director Hung Shun Investment Co., Ltd
Representative: Tzu-Yi, Kuo		 20180615 3yrs 304,000 0.02% 604,000 0.03%
Director Tong-An Investment Co., Ltd
Representative: Shang-Wei, Kao		 20180615 3yrs 19,540,052 0.98% 19,540,052 0.98%
Director Kuang Yuan Industrial Co., Ltd.
Representative: Shih-Chien, Yang		 20180615 3yrs 22,033,919 1.10% 22,033,919 1.10%
Director Tong Kuang Investment Co., Ltd.
Representative: Hong-Hsiang, Lin		 20180615 3yrs 30,341,364 1.52% 30,341,364 1.52%
Director Yubantec Co., Ltd.
Representative: Tung-Hai, Kao		 20180615 3yrs 13,200,000 0.66% 13,200,000 0.66%
Director Yung-Hsiang, Chang 20180615 3yrs 0 0.00% 600,000 0.03%
Total number of shares held by all Directors() 141,505,679 7.07% 146,780,777 7.33%

Note: According to Article 2 of “Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies”, if there are two or more independent directors elected, the minimum shareholding of all directors and supervisors, excluding independent directors, could drop to 80% of original requirement.

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TECO Electric & Machinery Co., Ltd.

Notes

  1. Impact on Company’s business performance, EPS and ROI from the stock grant proposed by Shareholders Meeting: Not applicable.

  2. Information on proposals submitted to the shareholders’ meeting

  3. a. According to article 172-1 of the Company Law, shareholders with over 1% holding of total shares issued can submit only one written proposal, containing up to 300 words, to shareholders’ meeting.

  4. b. Shareholders can put forth proposals to the shareholders’ meeting during April 8-17, 2019, which had been posted on the Market Observation Post System of the Taiwan Stock Exchange, according to law.

  5. c. The company didn’t receive any proposal from shareholders during the period

  6. Information on nomination submitted to the shareholders’ meeting: Not applicable.

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