SINBON ELECTRONICS CO., LTD

Transcription

1 Stock Code: 3023 SINBON ELECTRONICS CO., LTD Handbook for the 2018 Annual Meeting of Shareholders MEETING DATE: JUNE 8, 2018 PLACE: 582 KUOHWA ROAD, MIAOLI 360, TAIWAN

2 Table of Contents I. Meeting Procedure... P01 II. Meeting Agenda... P02 1. Company Reports P04 2. Proposals P05 3. Discussion... P07 4. Election Matters... P09 5. Other Matters P11 6. Questions and Motions P11 III. Appendices 1. The 2017 Business Report P12 2. Supervisor s Review Report on the 2017 Financial Statements.. P Financial Statements. P17 4. Amendment to Articles of Incorporation. P29 5. Amendment to Procedures of Election of Directors and Supervisors. P32 6. Amendment to Rules of Procedure for Shareholder Meeting. P34 7. Amendment to the Operational procedures for Acquisition and Disposal of Assets. P35 8. Amendment to Procedures for Endorsement & Guarantee. P38 9. Amendment to Procedures for Lending Funds to Others. P Shareholding of Directors and Supervisors. P42

3 SINBON ELECTRONICS CO., LTD. Procedure for the 2018 Annual Meeting of Shareholders Call the Meeting to Order Chairperson Takes Chair Chairperson Remarks Company Reports Proposals Discussion Election Matters Other Matters Questions and Motions Adjournment 1

4 SINBON ELECTRONICS CO., LTD. Year 2018 Agenda of Annual Meeting of Shareholders Time: 9:00 a.m. on Friday, Jun. 8, Place: 582 KUOHWA ROAD, MIAOLI 360, TAIWAN. Call the Meeting to Order Chairperson Remarks Reports on Company Affairs: Business Report 2. Supervisor s Review Report on the 2017 Financial Statements 3. The Status of Domestic Unsecured Convertible Bonds VI 4. Remuneration to Employees, Directors and Supervisors 5. Amendment to the Ethical Corporate Management Best Practice Principles, Procedures for Ethical Management and Guidelines for Conduct, and Guidelines for the Adoption of Codes of Ethical Conduct Proposals: 1. Adoption of the 2017 Business Report and Financial Statements 2. Adoption of the Proposal for Distribution of 2017 Profits Discussion: 1. Amendment to Articles of Incorporation 2. Amendment to Procedures of Election of Directors and Supervisors 3. Amendment to Rules of Procedure for Shareholder Meeting 4. Amendment to Procedures for the Acquisition and Disposal of Assets 5. Amendment to Procedures for Endorsement & Guarantee 6. Amendment to Procedures for Lending Funds to Others 7. Abolishing Rules Governing the Scope of Powers of Supervisors 2

5 Election Matters: 1. Re-election of All Directors Other Matters: 1. Dismissing the Restrictions in Competition on New Directors and Their Representatives Questions and Motions Adjournment 3

6 Reports on Company Affairs Report No Business Reports Explanation: The 2017 Business Report is attached as page 12, Appendix 1. Report No. 2 Supervisor s Review Report on the 2017 Financial Statements Explanation: The 2017 Supervisor s Review Report is attached as page 16, Appendix 2. Report No. 3 The Status of Domestic Unsecured Convertible Bonds VI Explanation: In order to save interest expenditures, the board had proceeded the issue of domestic unsecured convertible bonds VI for $500 million NTD (5,000 units) according to 2017 first BOD meeting resolution. Current convert price is $72.60 and 0 unit had been transferred to common stocks. Report No. 4 Remuneration to Employees, Directors and Supervisors Explanation: According to the pre-amend Articles of Incorporation, the company had booked $16 million NTD for employees remuneration and $11 million NTD for Directors and Supervisors remuneration in 2017 and there is no discrepancy between the actual and booking amount on 2017 financial report. Report No. 5 Amendment to the Ethical Corporate Management Best Practice Principles, Procedures for Ethical Management and Guidelines for Conduct, and Guidelines for the Adoption of Codes of Ethical Conduct Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to amend the Ethical Corporate Management Best Practice Principles, Procedures for Ethical Management and Guidelines for Conduct, and Guidelines for the Adoption of Codes of Ethical Conduct. 4

7 Proposals 1. Proposed by the Board Proposal: Adoption of the 2017 Business Report and Financial Statements Explanation: (1) The Company s Financial Statements, including the balance sheet, income statement, statement of changes in shareholders equity, and statement of cash flows, were audited by independent auditors, Huang, Tzu-Ping and Lin, Hong-Kuang of Ernst & Young CPA Firm. Also Business Report and Financial Statements have been approved by the Board and examined by the supervisors. (2) The 2017 Business Report, independent auditors audit report, and the above-mentioned Financial Statements are attached on page 12 and 17, Appendix 1 and 3. Resolution: 2. Proposed by the Board Proposal: Adoption of the Proposal for Distribution of 2017 Profits Explanation: (1) The Board has adopted a Proposal for Distribution of 2017 Profits in accordance with the Company Act and Articles of Incorporation. Please refer to the 2017 PROFIT DISTRIBUTION TABLE below. (2) Upon the approval of the Annual Meeting of Shareholders, it is proposed that the Board of Directors be authorized to resolve the ex-dividend date, distribution date, and other relevant issues. (3) In the event that, before the distribution record date, the proposed profit distribution is affected by an amendment to relevant laws or regulations, a request by the competent authorities, or a buyback of shares or issuance of new shares for transferring treasury shares to employees or for equity conversion in connection with domestic or overseas convertible corporate bonds or other convertible securities or employee stock options, it is proposed that the Board of Directors be authorized to adjust the cash to be distributed to each share based on the number of actual shares outstanding on the record date for distribution. (4) Please refer to the Profit Distribution Table as follows: 5

8 Resolution: SINBON ELECTRONICS CO., LTD. PROFIT DISTRIBUTION TABLE Year 2017 (Unit: NTD) Items Total Beginning retained earnings $986,997,191 Less: Other comprehensive profit(defined benefit plan actuarial profits in 2017) (4,995,849) Add: net profit after tax 1,226,471,413 Less: 10% legal reserve (122,647,141) Special surplus reserve (52,417,258) Distributable net profit 2,033,408,356 Distributable items: Cash Dividend to shareholders(nt$4/share) (901,664,548) Unappropriated retained earnings $1,131,743,808 6

9 Discussion 1. Proposed by the Board Proposal: Amendment to Articles of Incorporation, please proceed to discuss. Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to amend the Articles of Incorporation. Please refer to page 29 ( Appendix 4) for details. Resolution: 2. Proposed by the Board Proposal: Amendment to Procedures of Election of Directors and Supervisors, please proceed to discuss. Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to amend the Procedures of Election of Directors and Supervisors. Please refer to page 32 ( Appendix 5) for details. Resolution: 3. Proposed by the Board Proposal: Amendment to Rules of Procedure for Shareholder Meeting, please proceed to discuss. Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to amend the Rules of Procedure for Shareholder Meeting. Please refer to page 34 ( Appendix 6) for details. Resolution: 4. Proposed by the Board Proposal: Amendment to the Operational procedures for Acquisition and Disposal of Assets, please proceed to discuss. Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to amend the Operational procedures for Acquisition 7

10 and Disposal of Assets. Please refer to page 35 ( Appendix 7) for details. Resolution: 5. Proposed by the Board Proposal: Amendment to Procedures for Endorsement & Guarantee, please proceed to discuss. Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to amend the Procedures for Endorsement & Guarantee. Please refer to page 38 ( Appendix 8) for details. Resolution: 6. Proposed by the Board Proposal: Amendment to Procedures for Lending Funds to Others, please proceed to discuss. Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to amend the Procedures for Lending Funds to Others. Please refer to page 40 ( Appendix 9) for details. Resolution: 7. Proposed by the Board Proposal: Abolishing Rules Governing the Scope of Powers of Supervisors, please proceed to discuss. Explanation: In order to conform to the needs of commercial practice, the company hereby proposes to abolish Rules Governing the Scope of Powers of Supervisors. Resolution: 8

11 Election Matters 1. Proposed by the Board Proposal: Re-election of All Directors The company is responsible for identifying and evaluating nominees for director and independent director seats, and recommending to the Board a slate of nominees for 2018 Directors election. Explanation: (1) The three-year term of 7 directors and 3 supervisors of the Board will be end on June 10, Accordingly, the company proposes to duly elect new Board members at this year's Annual Meeting of Shareholders. (2) The Board election proposal has been approved by the 1th meeting of the Board of the company. (3) The shareholders meeting shall elect 6 directors and 3 independent directors. Their three-year term will start from June 8, 2018 and conclude on June 7, (4) According to Article 21 and 21-1 of the amended Articles of Incorporation, all directors and independent directors shall be elected from the nomination list prepared by the company. The qualification of the 6 nominated directors and 3 nominated independent directors have been reviewed by the Board meeting on April 20, Personal information of the 9 nominees is as follows: Candidates for the Election of Directors: Shareholder s Account/ ID 1 Name Wang, Shaw-Shing Education MBA Fudan University Current Position SINBON Chairman & CEO Relevant Experience SINBON Founder 7 Yeh, Hsin-Chih MBA Fudan University SINBON Director SINBON Director & President in China 132 Agrocy Research Inc. N/A N/A N/A 9

12 Shareholder s Account/ ID Name Education Current Position Relevant Experience 133 Liang, Wei-Ming IE & MBA University of Iowa SINBON President SINBON Vice President Tai-Yi Investment Co., Ltd. N/A N/A N/A Kuo-Shian Investment Co., Ltd. N/A N/A N/A Candidates for the Election of Independent Directors: Shareholder s Account/ ID J10019**** A22358**** Name Wea, Chi-Lin Chen, Shi-Kuan Education PHD of Economics, University of Paris, France PHD of Economics, Yale University, USA Current Position Chairman of WATERLAND Financial Holdings Professor of Business school in Taiwan University Relevant Experience Professor of Taiwan University Associate Dean of Business school, Taiwan University R10061**** Chang, Zheng-Yan National Defense Medical College Chief Consultant, Tzu Chi Medical Imaging Department Director of Radiology Department, Taipei Veterans General Hospital Voting Results: 10

13 Other Matters 1. Proposed by the Board Proposal: Proposal for Dismissing the Restrictions in Competition on New Directors and Their Representatives. Please proceed to discuss. Explanation: Proposal for release the prohibition on directors from participation in competitive business. Resolution: Questions and Motions Adjournment 11

14 Appendix 1 The 2017 Business Report Business Report Dear Shareholders, First of all, I would like to thank you for your continuing support throughout the year. SINBON has responded to the changing business climate by adopting an aggressive stance in strengthening our competitiveness. Total consolidated revenue for 2017 was NT$13,061,439 thousand, a 1.05% increase compared with NT$12,925,843 thousand in Net income increased 5.37% to NT$1,224,088 thousand, compared with 2016 net income of NT$1,161,735 thousand. Meanwhile, basic earnings per share increased 5.63% to NT$5.44, compared with NT$5.15 a year earlier. Operating policies and strategies, the operation result in 2017, budget implement, profitability, and research and development (R&D) status are illustrated as follows: I. Operation Policies and Strategies : A. Policies: a. To develop a variety of component products and joint design and provide manufacturing integration Service: SINBON is providing one-stop shop services for clients in components designing and manufacturing. In order to reach the target, SINBON is continuously enhancing the R&D team abilities in the development of niche products and actively expanding vertical integration for supplying products to new segment markets, developing new products and serving for new customers. b. To extend agency products: Diversification strategy is using for the agency departments by investment or strategic alliances to seek cooperation opportunity through SINBON marketing channels. c. Growth via alliance, merge, and acquisition: In order to continuous growth in the future, the Company will seek any opportunities to invest or buy a company, which is in component industry. 12

15 B. Strategies: a. Alliance, merge, and acquisition : In order to catch component industry high speed changes, we are looking for alliance opportunities with other companies for expanding our scope and enhance ourselves capabilities. b. Performance Improvement:Headquarter office has set up a full multi-functional department to evaluate and trace the performance of every individual business unit and assist everyone to upgrade and improve. c. Niche Markets Focus : Continuously focusing on niche markets and high gross profit fields. Medical, Auto, Green, Industrial, and Communication industries had been picked and they will be SINBON target markets. II. The Operation Result in 2017 : (Consolidated) Unit: NT$ thousands percent change Net Sales $13,061, % $12,925, % 1.05% Gross Profit 3,280,351 25% 3,209,102 25% 2.22% Operating Income 1,393,146 11% 1,418,204 11% -1.77% Pre-tax Income 1,619,544 12% 1,597,044 12% 1.41% Net Income 1,224,088 9% 1,161,735 9% 5.37% III. Budget implement: The Company is not required to make public Company's 2017 financial forecast information; however, overall business revenue and net income reached 93% and 106% respectively of the internal business targets in IV. Profitability: (Consolidated) Items Return Of Aessts(%) Return Of Equites(%) Profit before tax to capital (%) Net Profit Rate(%) Basic EPS(NT$ Dollar) V. Research and development (R&D) status: (Consolidated) 13

16 Year 14 Results of R&D 2009~ Deeply created more related products and engineering capacities in data capture field including Single & four slot Ethernet Cradle Vehicle cradle and Vehicle charger, which is used in industrial terminal devices. 2009~ For the development and application of GPS module & Zigbee module, using the development of embedded system, from hardware platform design, OS porting to implement software application, and had developed the technology of embedded system for commercial PDA and industrial terminal engineering prototype products. 2011~2012 Successfully developed HDMI, DDR3, DDR4, and USB connectors and deepened photovoltaic (PV) product development, and our junction box, PV connector, and PV cable have passed TÜ V and UL certification. 2013~2014 SINBON won a gold prize from if Design Award 2013 for our latest Brezze Nebulizer, a portable drug nebulizer developed by DigiO2 International Co., Ltd. (our re-invested enterprise) in collaboration with the NTUH Telehealth Center under the Telecare Service Project. 2015~ Tablet PC for Shun Feng logistics development to DVT stage. 2. Solar monitoring system developed to DVT stage. 3. Finished development EV charger charging gun and AC charging pile. 2017~Now 1. Wisdom medicine cabinet control lines, and adjustable window light control lines. 2. Robotic arm control lines, electronic fireplace, and smart grid assembly. In 2017, we invested a total of NT$466,737 thousand for R&D, with 9% higher than previous year. In the future, SINBON actively develop electronic parts and components for the Internet of Thing (IoT), robots, and smart home applications. To establish Radbon Avionics Inc. in 2015 developed aerospace component products. We will spend at least NT$300 million each year or over 3% of revenue on R&D in the future. Finally, management team appreciates for shareholders greatest support and encouragement, and hope that shareholders will continue

17 to provide us guidance and suggestions in the future. We will do our best to achieve higher profits and returns for all shareholders. Best Regards, Chairman and Chief Operation Officer Joseph Wang 15

18 Appendix 2 Supervisor s Review Report on the 2017 Financial Statements SUPERVISOR S REVIEW REPORT April 12, 2018 The Board of Directors has prepared the Company s 2017 Financial Statements. The CPA firm of Ernst & Young, by CPA Huang, Tzu-Ping and Lin, Hong-Kuan, was retained to audit the Company s Financial Statements and has issued an audited report relating to the Financial Statements. The Financial Statements, Business Report, and the Proposal for Distribution of 2017 Profits have been reviewed and determined to be correct and accurate by Supervisor. According to Article 219 of the Company Law, we hereby submit this report. Supervisor: Lin, Min-Cheng Chiu, Te-Chen Kuo-Shian Investment Co., Ltd. Representative: Wang, Kuo-Hong 16

19 Appendix Financial Statements Independent Auditors Report To Sinbon Electronics Co., Ltd. Opinion We have audited the accompanying consolidated balance sheets of SINBON Electronics Co., Ltd. and its subsidiaries (the Group ) as of 31 December 2017, and 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended 31 December 2017 and 2016, and notes to the consolidated financial statements, including the summary of significant accounting policies (together the consolidated financial statements ). In our opinion, based on our audits and the reports of other auditors (please refer to the Other Metter Making Reference to the Audits of Component Auditors section of our report), the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of 31 December 2017 and 2016, and its consolidated financial performance and cash flows for the years ended 31 December 2017 and 2016, in conformity with the requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Norm of Professional Ethics for Certified Public Accountant of the Republic of China (the Norm ), and we have fulfilled our other ethical responsibilities in accordance with the Norm. Based on our audits and the reports of other auditors, 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 2017 consolidated financial statements. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 17

20 1. Valuation for inventories As of 31 December 2017, the Group s net inventories amounted to NT$2,692,294 thousand. The amount of inventories was significant to the Group s financial statements. As the fluctuation in market demand and the fast-changing technology could cause losses of obsolete and slow-moving inventories, the assessment of the inventory write-downs require significant management judgement. We therefore determined this a key audit mater. Our audit procedures included, but not limited to, understanding and testing the adequacy of accounting policy around obsolete and slow-moving inventories, including historical analysis of loss ratio of scrapped inventories; evaluating stocktaking plan and selecting important storage locations to observe inventory counts to ensure inventory quantities and status; obtaining inventory aging schedule to test whether inbound and outbound records are accurate; re-calculating the unit cost of inventories; and evaluating and testing net realized value adopted by management. We also assessed the adequacy of disclosures of financial assets. Please refer to Notes 5 and 6 to the Group s consolidate financial statements. 2. Impairment of accounts receivable As of 31 December 2017, gross accounts receivable and allowance for bad debts by the Group amounted to NT$3,136,740 thousand and NT$51,620 thousand, respectively. Net accounts receivable represented 25% of consolidates total assets that could have significant impacts on consolidated statements. Since the collection of accounts receivable is the key factor in the working capital management of the Group, the provision for bad debts would reflect the credit risk of accounts receivable. As the adequacy of provision policy requires significant management judgement, we therefore determined this a key audit mater. Our audit procedures included, but not limited to, understanding and testing the design and operating effectiveness of internal controls around accounts receivable management; assessing the appropriateness of provision for bad debts; testing the correctness of the accounts receivable aging schedule, including selecting samples to check whether they were recorded in appropriate periods; analyzing the aging changes and assessing the reasonable of the accounts receivable long overdue; analyzing the trend of bad debt expense and accounts receivable turnover ratio; Selecting samples to perform the accounts receivable confirmation; and reviewing the collection of receivable in subsequent period to assess their recoverability. We also assessed the adequacy of disclosures of financial assets. Please refer to Notes 18

21 5 and 6 to the Group s consolidate financial statements. Other Matter Making Reference to the Audits of Component Auditors We did not audit the financial statements of certain consolidated subsidiaries, which statements reflected total assets of NT$1,924,399 thousand and NT$1,516,036 thousand, constituting 15% and 14% of consolidated total assets as of 31 December 2017 and 2016, respectively, and total operating revenues of NT$2,624,634 thousand and NT$2,606,702 thousand, both constituting 20% of consolidated operating revenues for the years ended 31 December 2017 and 2016, respectively. Those financial statements were audited by other auditors, whose reports thereon have been furnished to us, and our opinions expressed herein are based solely on the audit reports of the other auditors. We did not audit the financial statements of certain associates and joint ventures accounted for under the equity method whose statements are based solely on the reports of other auditors. These associates and joint ventures under equity method amounted to NT$326,568 thousand and NT$344,367 thousand, both representing 3% of consolidated total assets as of 31 December 2017 and 2016, respectively. The related shares of profits from the associates and joint ventures under the equity method amounted to NT$52,286 thousand and NT$49,003 thousand, both representing 3% of the consolidated net income before tax for the years ended 31 December 2017 and 2016, respectively, and the related shares of other comprehensive income from the associates and joint ventures under the equity method amounted to NT$13,964 thousand and NT$(7,099) thousand, representing (22)% and 2% of the consolidated other comprehensive income for the years ended 31 December 2017 and 2016, respectively. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China 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. 19

22 In preparing the consolidated financial statements, management is responsible for assessing the ability to continue as a going concern of the Group, 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 audit committee or supervisors, are responsible for overseeing the financial reporting process of the Group. 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 an auditor s 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 auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Group. 20

23 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 ability to continue as a going concern of the Group. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s 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 auditor s 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 accompanying notes, 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 control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of 2017 consolidated financial statements and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure 21

24 about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. We have also audited and expressed an unqualified opinion on the parent company only financial statements of the Company as of and for the years ended 31 December 2017 and /s/huang, Tzu Ping /s/lin, Hung Kang Ernst & Young, Taiwan 12 March 2018 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. 22

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31 Appendix 4 Chapter IV Directors and Audit Committee Article 21 The Board of Directors of the Company may have nine to eleven directors, who shall be elected by the shareholders meeting from among the persons with disposing capacity and in accordance with nominating candidates system and using cumulative voting by following the article 198 of the ROC Company Law. The Company shall adopt audit committee system in accordance with the Article 14-4 of the Securities and Exchange Law and the provisions of the Articles of Incorporation relating to supervisors shall be ceased to apply. Amendment to Articles of Incorporation After Before Explanation Chapter IV Directors and Supervisors Amendment to Article 21 some provisions of The Board of Directors of the Company Articles of may have seven to nine directors and Incorporation three supervisors, who shall be elected by because the the shareholders meeting from among the Company adopted persons with disposing capacity and in audit committee accordance with nominating candidates system, requested system and using cumulative voting by by government following the article 198 of the ROC regulations and Company Law. laws. The Company shall adopt audit committee system to replace supervisors in 2018 annual shareholders' election of directors in accordance with the Article 14-4 of the Securities and Exchange Law and the provisions of the Articles of Incorporation relating to supervisors shall be ceased to apply. Article 23 In case the number of vacancies in the Board of Directors equals to one third of the total number of directors, the Board of Directors shall call, within the time period prescribed in Article 201 of the Company Act, a special meeting of shareholders to elect succeeding directors to fill the vacancies for the unexposed term of office of the predecessor. Article 27 Powers and functions of audit committee are as follows: Article 28 Except for performing duties of supervisions in accordance with the provisions of laws and regulations, audit committee of a company may attend the meeting of the Board of Directors. Article 29 The transportation allowance of a director of the Company shall be paid on a monthly Article 23 In case the number of vacancies in the Board of Directors equals to one third of the total number of directors, or all supervisors are discharged, the Board of Directors shall call, within the time period prescribed in Article 201 or Article of the Company Act, a special meeting of shareholders to elect succeeding directors to fill the vacancies for the unexposed term of office of the predecessor. Article 27 Powers and functions of supervisors are as follows: Article 28 Except for performing duties of supervisions in accordance with the provisions of laws and regulations, supervisors of a company may attend the meeting of the Board of Directors to express opinions with no right to vote. Article 29 The transportation allowance of a director or supervisor of the Company shall be paid 29

32 After Before Explanation on a monthly basis regardless of the profits or losses of the Company and the amount thereof shall be determined by a meeting of shareholders. basis regardless of the profits or losses of the Company and the amount thereof shall be determined by a meeting of shareholders. Article 29-1 The remuneration of all directors of the Company shall be effected by a resolution to be adopted by the Board of Directors as authorized in accordance with common industry standards. Article 32 Upon the general final accounting of each fiscal year, the Board of Directors of the Company shall prepare the following statements and records and forward the same to audit committee for their auditing not later than the 30th day prior to the meeting date of a general meeting of shareholders, and shall submit along with the report made by the supervisors to the general meeting of shareholders for its ratification: Article 33 The Company, when the general final accounting of the fiscal year shows a profit, shall be allocated as per the following percentages: (1) 1% to 15% as employee bonus; and (2) not more than 3% as remuneration to directors; Prior years operation losses shall be reserved first. Employees compensation including subsidiaries employees may be distributed through issuance of new shares of the Company or cash Article 33-1 The Company shall, when the general final accounting of the fiscal year shows a earning, after having paid all taxes and dues and made adjustments in accordance with the Financial Accounting Standards, first have its losses been covered. At the time of allocating surplus profits, first set aside ten percent of such profits as a legal Article 29-1 The remuneration of all directors and supervisors of the Company shall be effected by a resolution to be adopted by the Board of Directors as authorized in accordance with common industry standards. Article 32 Upon the general final accounting of each fiscal year, the Board of Directors of the Company shall prepare the following statements and records and forward the same to supervisors for their auditing not later than the 30th day prior to the meeting date of a general meeting of shareholders, and shall submit along with the report made by the supervisors to the general meeting of shareholders for its ratification: Article 33 The Company, when the general final accounting of the fiscal year shows a profit, shall be allocated as per the following percentages: (1) 1% to 15% as employee bonus; and (2) not more than 3% as remuneration to directors and supervisors; Prior years operation losses shall be reserved first. Employees compensation including subsidiaries employees may be distributed through issuance of new shares of the Company or cash Article 33-1 The Company shall, when the general final accounting of the fiscal year shows a earning, after having paid all taxes and dues and made adjustments in accordance with the Financial Accounting Standards, first have its losses been covered. At the time of allocating surplus profits, first set aside ten percent of such profits as a legal 30 Set specific dividend policies to meet corporate governance requirements.

33 After Before Explanation reserve. However, when the legal reserve amounts to the authorized capital, this shall not apply. It shall set aside or reverse another sum as special reserve in accordance with the regulation. The remaining balance, if any, plus the accumulated retained earnings of prior years as accumulated distributable earnings, except for retaining part or all of the amount depending on business conditions, and resolved in the shareholders meeting for shareholders dividends. reserve. However, when the legal reserve amounts to the authorized capital, this shall not apply. It shall set aside or reverse another sum as special reserve in accordance with the regulation. The remaining balance, if any, plus the accumulated retained earnings of prior years as accumulated distributable earnings, except for retaining part or all of the amount depending on business conditions, at least 50% of the current year s net income should be distributed. Article 36 These Articles of Incorporation are agreed to and signed on November 23, 1989 by all the promoters of the Corporation. The first Amendment was approved by the shareholders meeting on May 29, Article 36 These Articles of Incorporation are agreed to and signed on November 23, 1989 by all the promoters of the Corporation. The first Amendment was approved by the shareholders meeting on May 29, The twenty-third Amendment on June 17, The twenty-third Amendment on June 17, The twenty-fourth Amendment on June 8, According to the amendment day to amend. 31

34 Appendix 5 Procedures of Election of Directors Article 1 Elections of directors shall be conducted in accordance with the Procedures. Amendment to Procedures of Election of Directors and Supervisors After Before Explanation Procedures of Election of Directors and Supervisors Article 1 Elections of directors and supervisors shall be conducted in accordance with the Procedures. Article 2 Except as otherwise provided by the Articles of Incorporation, the cumulative voting method shall be used for election of the directors at the Company. Each share will have voting rights in number equal to the directors or supervisors to be elected, and may be cast for a single candidate or split among multiple candidates. More than half of the directors shall be persons who have neither a spousal relationship nor a relationship within the second degree of kinship with any other director. Article 3 The board of directors shall prepare separate ballots for directors in numbers corresponding to the directors to be elected. The number of voting rights associated with each ballot shall be specified on the ballots, which shall then be distributed to the attending shareholders at the shareholders meeting. Article 5 In the election of directors, the board of directors shall set up the ballot box and the polling officers shall make sure the ballot box empty before polling. Article 8 Article 8 Article 2 Except as otherwise provided by the Articles of Incorporation, the cumulative voting method shall be used for election of the directors and supervisors at the Company. Each share will have voting rights in number equal to the directors or supervisors to be elected, and may be cast for a single candidate or split among multiple candidates. More than half of the directors shall be persons who have neither a spousal relationship nor a relationship within the second degree of kinship with any other director. At least one supervisor position must be held by a person having neither a spousal relationship nor a relationship within the second degree of kinship with any other supervisor or with any director. Article 3 The board of directors shall prepare separate ballots for directors and supervisors in numbers corresponding to the directors or supervisors to be elected. The number of voting rights associated with each ballot shall be specified on the ballots, which shall then be distributed to the attending shareholders at the shareholders meeting. Article 5 In the election of directors and supervisors, the board of directors shall set up the ballot box and the polling officers shall make sure the ballot box empty before polling. 32 Amendment to some provisions of Procedures of Election of Directors and Supervisors because the Company adopted audit committee system, requested by government regulations and laws.

35 After Before Explanation The directors of the Company shall be The directors and supervisors of the elected by the person who is competent Company shall be elected by the person person from the shareholders' meeting. In who is competent person from the accordance with the quotas in the shareholders' meeting. In accordance with Company's Articles of Incorporation, the the quotas in the Company's Articles of person who obtained the majority of Incorporation, the person who obtained election ballots shall be elected as the the majority of election ballots shall be director respectively. elected as the director or the supervisor At the same time, if the person is elected respectively. as a director and supervisor, the person At the same time, if the person is elected shall decide to act as a director. If the as a director and supervisor, the person elected directors have been verified that shall decide to act as a director or their personal information is inconsistent supervisor. If the elected directors or or ineligible according to relevant laws and supervisors have been verified that their regulations, their shortfalls will be filled by personal information is inconsistent or the majority of the original elected ineligible according to relevant laws and candidates. regulations, their shortfalls will be filled by When the elected directors violated the the majority of the original elected Article 2, the lower election ballots candidates. director or supervisor should be lost When the elected directors or supervisors his/her effectiveness. violated the Article 2, the lower election ballots director or supervisor should be lost his/her effectiveness. Article 10 Article 10 The board of directors of the Company The board of directors of the Company shall issue notifications to the persons shall issue notifications to the persons elected as directors. elected as directors or supervisors. 33

36 Appendix 6 Article 1 Unless otherwise provided by law or regulation, this Corporation's shareholders meetings shall be convened by the board of directors. Thirty days before a company convenes a regular shareholders meeting or 15 days before a special shareholders meeting, the company shall prepare electronic files of the meeting announcement, proxy form, explanatory materials relating to proposals for ratification, matters for deliberation, election or dismissal of directors, and other matters on the shareholders meeting agenda, and upload them to the Market Observation Post System. Amendment to Rules of Procedure for Shareholder Meeting After Before Explanation Article 1 Amendment to Unless otherwise provided by law or some provisions of regulation, this Corporation's shareholders Procedures of meetings shall be convened by the board Election of Directors of directors. and Supervisors Thirty days before a company convenes a because the regular shareholders meeting or 15 days Company adopted before a special shareholders meeting, the audit committee company shall prepare electronic files of system, requested the meeting announcement, proxy form, by government explanatory materials relating to proposals regulations and for ratification, matters for deliberation, laws. Article 15 Personnel monitoring and counting voting for a proposal shall be appointed by the chair, provided that all the monitoring personnel are shareholders of this Company. The election of directors at a shareholders meeting shall be held in accordance with the Measures for election of directors adopted by the Company, and the voting results shall be announced on-site immediately, including the names of those elected as directors and the numbers of votes with which they were elected. election or dismissal of directors or supervisors, and other matters on the shareholders meeting agenda, and upload them to the Market Observation Post System. Article 15 Personnel monitoring and counting voting for a proposal shall be appointed by the chair, provided that all the monitoring personnel are shareholders of this Company. The election of directors or supervisors at a shareholders meeting shall be held in accordance with the Measures for election of directors and supervisors adopted by the Company, and the voting results shall be announced on-site immediately, including the names of those elected as directors and supervisors and the numbers of votes with which they were elected. 34

37 Appendix 7 Amendment to the Operational procedures for Acquisition and Disposal of Assets After Before Explanation Article 9 Disposition procedures for Article 9 Disposition procedures for Amendment to acquisition or disposal of real property acquisition or disposal of real property some provisions of from or to a related party from or to a related party Procedures of Election of Directors 2. Appraisal and operating procedures 2. Appraisal and operating procedures and Supervisors When the Company intends to acquire or When the Company intends to acquire or because the dispose of real property from or to a dispose of real property from or to a Company adopted related party, or when it intends to acquire related party, or when it intends to acquire audit committee or dispose of assets other than real or dispose of assets other than real system, requested property from or to a related party and the property from or to a related party and the by government transaction amount reaches 20 percent or transaction amount reaches 20 percent or regulations and more of paid-in capital, 10 percent or more more of paid-in capital, 10 percent or more laws. of the Company s total assets, or NT$300 of the Company s total assets, or NT$300 million or more, except in trading of million or more, except in trading of government bonds or bonds under government bonds or bonds under repurchase and resale agreements, or repurchase and resale agreements, or subscription or buyback of domestic subscription or buyback of domestic money market funds, which issued by money market funds, which issued by securities trust companies, the company securities trust companies, the company may not proceed to enter into a may not proceed to enter into a transaction contract or make a payment transaction contract or make a payment until the following matters have been until the following matters have been approved by the Board of Directors and approved by the Board of Directors and recognized by the audit committee: recognized by the supervisors: 3. Evaluation on the reasonableness of the 3. Evaluation on the reasonableness of the transaction costs transaction costs (5) Where the Company acquires real (5) Where the Company acquires real property from a related party and the property from a related party and the results of appraisals conducted in results of appraisals conducted in accordance with this Article, Paragraph 3, accordance with this Article, Paragraph 3, Subparagraph 1 and 2 are uniformly lower Subparagraph 1 and 2 are uniformly lower than the transaction price, the following than the transaction price, the following steps shall be taken. Where the Company steps shall be taken. Where the Company and a public company uses the equity and a public company uses the equity method to account for their investments in method to account for their investments in the Company, and have set aside a special the Company, and have set aside a special reserve under the above provisions may reserve under the above provisions may not utilize the special reserve until it has not utilize the special reserve until it has recognized a loss on decline in market recognized a loss on decline in market value of the assets it purchased at a value of the assets it purchased at a premium, or they have been disposed of, premium, or they have been disposed of, or adequate compensation has been or adequate compensation has been 35

38 After Before Explanation made, or the status quo ante has been restored, or there is other evidence confirming that there was nothing unreasonable about the transaction, and the Financial Supervisory Commission, Executive Yuan has given its consent. A. A special reserve shall be set aside in accordance with Article 41, Paragraph 1 of the Securities and Exchange Act against the difference between the real property transaction price and the appraised cost, and may not be distributed or used for capital increase or issuance of bonus shares. Where a public company uses the equity method to account for its investment in the Company, then the special reserve called for under Article 41, Paragraph 1 of the Securities and Exchange Act shall be set aside pro rata in a proportion consistent with the share of public company s equity stake in the other company. B. Supervisors shall comply with Article 218 of the Company Act. C. Actions taken pursuant to this Article, Paragraph 3, Subparagraph 5, Item 1 and Item 2 shall be reported to a shareholders meeting, and the details of the transaction shall be disclosed in the annual report and any investment prospectus. made, or the status quo ante has been restored, or there is other evidence confirming that there was nothing unreasonable about the transaction, and the Financial Supervisory Commission, Executive Yuan has given its consent. A. A special reserve shall be set aside in accordance with Article 41, Paragraph 1 of the Securities and Exchange Act against the difference between the real property transaction price and the appraised cost, and may not be distributed or used for capital increase or issuance of bonus shares. Where a public company uses the equity method to account for its investment in the Company, then the special reserve called for under Article 41, Paragraph 1 of the Securities and Exchange Act shall be set aside pro rata in a proportion consistent with the share of public company s equity stake in the other company. B. Audit committee shall comply with Article 218 of the Company Act. C. Actions taken pursuant to this Article, Paragraph 3, Subparagraph 5, Item 1 and Item 2 shall be reported to a shareholders meeting, and the details of the transaction shall be disclosed in the annual report and any investment prospectus. Article 12 Disposition procedures for acquisition or disposal of derivatives 3. Internal audit system (1) The internal audit personnel shall regularly understand the suitability of internal controls on derivatives and monthly audit how faithfully derivatives trading by the trading department adheres to the procedures for engaging in derivatives trading, analyze trading cycle, and prepare an audit report. If any material violation is discovered, audit committee shall be notified in writing. Article 12 Disposition procedures for acquisition or disposal of derivatives 3. Internal audit system (1) The internal audit personnel shall regularly understand the suitability of internal controls on derivatives and monthly audit how faithfully derivatives trading by the trading department adheres to the procedures for engaging in derivatives trading, analyze trading cycle, and prepare an audit report. If any material violation is discovered, supervisors shall be notified in writing. 36