Merry Electronics Co., Ltd. — AGM Information 2016

Stock code ： 2439

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MERRY ELECTRONICS CO.,LTD

First Extraordinary Shareholders’ Meeting of 2016 Meeting Handbook

January 22, 2016

Table of Contents

I. Meeting Procedure ............................................................................................ 1 II. Meeting Agenda ............................................................................................... 2 A. Report Matters ..................................................................................... 3 B. Discussion and Election Matters ......................................................... 4 C. Extempore Motion ............................................................................. 13

III. Attachment

A. Assessment Opinion and Independence Statement of Mega Securities as the Underwriter ....................................................................................... 14

IV. Appendixes

1. Articles of Incorporation (before amendments) .................................. 21 2. Procedures Governing the Acquisition or Disposal of Assets (before amendments) ........................................................................................... 28 3. Rules Governing Election of Directors and Supervisors .................. 57 4. Rules of Procedure for Shareholders Meeting .................................... 61 5. Shareholding of Directors and Supervisors ........................................ 66

I. Meeting Procedure

Merry Electronics Co., Ltd.

Meeting Procedure of the First Extraordinary Shareholders’ Meeting of 2016

• A. Reporting the attending shares

• B. Declaring the meeting to begin

• C. Speech of the chairman

• D. Report Matters

• E. Discussion and Election Matters

• F. Extempore motion

• G. Meeting adjourned

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II. Meeting Agenda

Merry Electronics Co., Ltd.

Meeting Agenda of the First Extraordinary Shareholders’ Meeting of 2016

Time: January 22, 2016 (Friday) 9 AM

Place: The Company (No.22 , Gongyequ 23rd Rd., Nantun Dist., Taichung City)

• A. Speech of the chairman

B. Report matters

• (A)Execution status report of repurchasing the shares of the Company

• C. Discussion and election matters

• (A) Discussion of amendments to the "Articles of Incorporation of the Company"

• (B) Discussion of the proposed private placement of common shares

• (C) Discussion of amendments to the "Procedures Governing the Acquisition or Disposal of Assets"

• (D) By-election of the 17[th] term supervisors

• D. Extempore motion

• E. Meeting adjourned

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A.Report Matters

A. Please kindly note the execution status report of repurchasing the shares of the Company.

Explanation: Please refer to the table below for the execution status of repurchasing treasury stocks as resolved by the board of directors of the Company on June 12, 2015:

Repurchase round	The second time of repurchase
Purpose of the repurchase	To inspire the employees and to improve the employees’s coherence
Originally estimated period of repurchase	From June 15, 2015 to August 14, 2015
Originally estimated amount of repurchase	9,000,000 common shares
Originally estimated price range of repurchase	From NT$41 to NT$98 per share
Actual repurchase period this time	From June 16, 2015 to August 14, 2015
Repurchase amount of the shares this time	2,269,000 common shares
Total amount of shares repurchased this time	NT$103,057,693
Average repurchase price per share this time	NT$45.42
Accumulated shares amount held by the Company	2,269,000 common shares
The % that the accumulated shares amount held by the company accounts for the total outstanding shares issued bythe company	1.23%
Reason for not fully executing this time	Given the market mechanism and not to affect the stock price, the Company considering the fluctuation of stock price and transaction volume adopts in-batchs repurchase strategy, and therefore it was not fullyexecuted.

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B.Discussion and Election Matters

《 Topic 1 》 Proposed by the board of directors

Topic: For amendments to the “Articles of Incorporation of the Company”, please kindly discuss. Explanation: To amend certain provisions under the Articles of Incorporation of the Company to cooperate with the operational development of the Company and in accordance with the ruling of the Ministry of Ecomonic Affairs dated June 11, 2015. For the comparison table of the amended Articles of Incorporation of the Company, please refer to the table below:

below:
Articles after amendment	Current Articles	Explanation
Article 2: The business scope of the Company are as follows: A. CC01030 Electric Appliance and Audiovisual Electric Products Manufacturing B. CC01070 Telecommunication Equipment and Apparatus Manufacturing C. CC01080 Electronic Parts and Components Manufacturing D. CC01110 Computers and Computing Peripheral Equipments Manufacturing E. CC01101 Restrained Telecom Radio Frequency Equipments and Materials Manufacturing F. CF01011 Medical Materials and Equipment Manufacturing G. CR01010 Fuel Gas Equipments, Materials and Parts Manufacturing H. F108031Wholesale of Drugs, Medical Goods I. F401021 Restrained Telecom Radio Frequency Equipments and Materials Import	Article 2 The business scope of the Company are as follows: A. Electric Appliance and Audiovisual Electric Products Manufacturing B. CC01070 Telecommunication Equipment and Apparatus Manufacturing C. CC01080 Electronic Parts and Components Manufacturing D. CC01110 Computers and Computing Peripheral Equipments Manufacturing E. CC01101 Restrained Telecom Radio Frequency Equipments and Materials Manufacturing F. CF01011 Medical Materials and Equipment Manufacturing G. CR01010 Fuel Gas Equipments, Materials and Parts Manufacturing H. F108031Wholesale of Drugs, Medical Goods I. F208031 Retail sale of Medical Equipments J. F401021 Restrained Telecom Radio Frequency Equipments and Materials Import K. I103060 Management Consulting Services	To delete the business items of F208031, I103060, and ZZ99999 to cooperate with the operational development of the Company

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Articles after amendment	Articles after amendment	Current Articles	Current Articles	Explanation
		L. ZZ99999 All business items that are not prohibited or restricted by law, except those that are subject to special approval.
			approval.
Aritlc 12: This Company shall haveseven (7) directors andfour (4)supervisors to be elected from among persons with capacity to make judicial acts by shareholders' meeting. The term of their office shall be three (3) years and they are eligible for re-election. The amount of total shares held by the directors and supervisors will be handled in accordance with the "Rules and Review Procedures for Director and Supervisor Share Ownership Ratios of Public Companies" issued by the competent authority. When the number of vacancies in the board of directors reaches one third of the total number of directors or all supervisors are discharged, the board of directors shall call, within 60 days, a special meeting of shareholders to elect succeeding directors or supervisors to fill the vacancies, and the term shall be limited to fulfilling the remaining term of office of the predecessors. If the term of the directors and supervisors expires and the new election cannot be held in time, their term will be extended until the new directors and supervisor are elected and have assumed the office.		Aritlc 12: This Company shall haveeight (8) directors andthree (3)supervisors to be elected from among persons with capacity to make judicial acts by shareholders' meeting. The term of their office shall be three (3) years and they are eligible for re-election. The amount of total shares owned by the directors and supervisors will be handled in accordance with the "Rules and Review Procedures for Director and Supervisor Share Ownership Ratios of Public Companies" issued by the competent authority. When the number of vacancies in the board of directors reaches one third of the total number of directors or all supervisors are discharged, the board of directors shall call, within 60 days, a special meeting of shareholders to elect succeeding directors or supervisors to fill the vacancies, and the term shall be limited to fulfilling the remaining term of office of the predecessors. If the term of the director and supervisor expires and the new election cannot be held in time, their term will be extended until the new directors and supervisor are elected and have assumed the office.		To amend the number of directors and supervisors to cooperate with the operational development of the Company
Article 22: The industrial environment of the Company is apt to change, and the enterprise life cycle stays in a stage of stable growth, and it is necessary to consider the budget for the future capital		Article 22: The industrial environment of the Company is apt to change, and the enterprise life cycle stays in a stage of stable growth, and it is necessaryto consider the budget for the future		To amend in accordance with the Ruling (Ref.

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Articles after amendment	Current Articles	Explanation
expenditure and funding requirement, and measure the necessasity to cope with funding requirement by earnings, to determine the amount for retaining or distributing the earnings and the distribution amount of shareholder bonus in cash. The net profit after final accounting, except for withholding of income tax in accordance with laws, shall be utilized for make-up of the loss of previous years, and secondly setting aside 10% of the remaining earnings as a legal reserve. After setting aside or reversing special reserve in accordance with laws when necessary, and adding the undistributed earnings of the previous year, it will be the accumulated distributable earnings. The board of directors shall propose an earning distribution proposal for the shareholders’ meeting to resolve the distribution. For the earning distribution proposal proposed by the board of directors, the total amount of shareholders’ bonus shall be 30% to 80% of the accumulated distributable earning, and the cash bonus shall account for 5% or more of the shareholder bonus. To inspire the employees and management team, if the Company makes profits in the said year, it shall set aside: A. 5% to 10% as employee reward; B. up to 2% as reward of directors and supervisor, provided that if the Company has accumulated losses, the amount to make up the accumulated losses shall be reserved in advance. Where the employees'reward will be distributed	capital expenditure and funding requirement, and measure the necessasity to cope with funding requirement by earnings, to determine the amount for retaining or distributing the earnings and the distribution amount of shareholder bonus in cash. The net profit after final accounting, except for withholding of income tax in accordance with laws, shall be utilized for make-up of the loss of previous years, and secondly setting aside 10% of the remaining earnings as a legal reserve. After setting aside or reversing special reserve in accordance with laws when necessary,and setting aside 6% to 10% as employee bonus and reward of directors and supervisors up to 2% (part or all of employee bonus may be made by issuing new shares), the balance after	No. Jing-Shang-Z i 10402413890 ) issued by the Ministry of Economic Affairs dated June 11, 2015
	adding the undistributed earnings of the previous year will be the accumulated distributable earnings. The board of directors shall propose an earning distribution proposal for the shareholders’ meeting to resolve the distribution. For distribution of employee stock bonus, it may be distributed to the employees of subsidiaries meeting certain specific requirements.For the earning distribution proposal proposed by the board of directors, the total amount of shareholders’ bonus shall be 30% to 80% of the accumulated distributable earning, and the cash bonus shall account for 5% or more of the shareholder bonus.
in the form of stocks or in cash, it shall be resolved by a resolution adopted by a majority vote at a meeting of board of directors attended

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Articles after amendment	Current Articles	Explanation
by two-thirds or more of the total number of directors; and in addition thereto a report shall be submitted to the shareholders'meeting. The employees reward distributed by stocks or cash may be made to the employees of subsidiaries meeting certain specific requirements.
Article 25: These Articles of Incorporation were promulgated on December 13, 1975. The 1st amendment was made on October 25, 1977……..The 36th amendment was made on June 12, 2015. The37th amendment was made on January 22, 2016.	Article 25: These Articles of Incorporation were promulgated on December 13, 1975. The 1st amendment was made on October 25, 1977……..The 36th amendment was made on June 12, 2015.	To add the amendment date of the Article of Incorporation for the above amended articles.

Resolved:

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《 Topic 2 》 Proposed by the board of directors

Topic: Propose to conduct private placement of common shares. Please kindly discuss. Explanation: In response to the need for the long term development in the future, it is proposed to increase capital in cash by issuing common shares through private placement within 63,000,000 shares in accordance with the provisions of Article 43-6 (Private Placement of Securities) of the Securities Exchange Act, and the par value per share is NT$10. We explain the matters below in accordance with the provisions of Article 43-6 of the Securities Exchange Act:

1. The basis and fairness for determination of the private placement price.

2. (1) The price of private placement this time will be determined by the simple average closing price of the common shares for either the 1, 3, or 5 business days before the price determination date, after adjustment for any distribution of stock dividends, cash dividends or capital reduction, or the simple average closing price of the common shares for the 30 business days before the price determination date, after adjustment for any distribution of stock dividends, cash dividends, or capital reduction. The reference price will be the higher one resulted from the two calculation above. The price of private placement shall not be lower than 80% of the reference price.

With the date of meeting of board of directors to resolve the private placement (on December 7, 2015)as the price determination date temporarily, and to use the simple average closing price of the common shares for 5 business days before the price determination date, the reference price will be NT$65.48 per share. The basis for determination of the aforementioned reference price of privately placed common shares complies with the "Directions for Public Companies Conducting Private Placements of Securities", and therefore the determination shall be fair.

• (2) For the time being, the price of privately placed common shares will not exceed NT$60 (91.63% of the reference price). It is proposed for the shahreholders meeting to authorize the board of directors to determine the actual price determination date and actual price of private placement under the aforementioned priciples and considering the market condition at that time.

• The method for selecting the specific persons

• (1) The pplacee of this private placement is limited to the specific persons prescribed by Article 43-6 of the Securities Exchange Act and the Letter of Ref. No. Tai-Cai-Zheng-Yi 10003455 issued by the Financial Supervisory Commission of Executive Yuan dated June 13, 2002.

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• (2) The placee initially approached is LUXSHARE PRECISION LIMITED (a aubsidiary wholly owned by LUXSHARE Precision Industry Co., Ltd.)

• ① The list of placees, method and objectives of selecting the placees, and the

relationship between the placees and the Company are explained below:

Placee	Method and Objectives of Selection	Relationship with the Company
LUXSHARE PRECISION LIMITED	It is to generate direct or indirect benefit to the future operation of the Company. In addition to assiting the management and financial resource required for the operation of the Company, through vertical integration of the industries, it is also to strengthen the Company's position in the supplychain of electronic speaker industry.	Nil

• ② The name, shareholding percentage and the relationship with the Company of the top 10 shareholders of the parent company of the placee, LUXSHARE Precision Industry Co., Ltd.:

Precision IndustryCo.,Ltd.:
Name of the Top 10 Shareholders	Shareholding Percentage	Relationship with the Company
1. LiXun Limit Company	57.75	Nil
2. Xin Jiang Zi Xin Tou Zi Limit PartnershipEnterprise	2.17	Nil
3. GTJA Allianz Funds - Industrial and Commercial Bank of China - GTJA Allianz - Eslite - Asset Management Project Private Placement No. 5	1.62	Nil
4. Central Huijin Investment Ltd.	1.57	Nil
5. Combination 502 of National Social Security Fund	1.38	Nil
6. Yingda Asset Management - China Everbright Bank – Pingan Trust – PingAnCaiFu*ChuangYing 5 Term, Collective FundingTrust Project No. 3	1.10	Nil

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7. Foxlink TianJin Co.,Ltd.	0.94	Nil
8. Anhui Investment Group Holding Co., Ltd.	0.82	Nil
9. China Construction Bank – Xing Quan Social Responsibility Blended Securities Investment Fund	0.81	Nil
10. Fubon Life Issurance Co., Ltd. – ProprietaryFunding	0.64	Nil

• (3) We explain the method and objectives of selecting the placee, the necessity, and the anticipated benefits as follow:

  • ① The method and objectives of selecting: The introduction of a strategic investor will generate direct or indirect benefits to the future operation of the Company. In addition to assiting the management and financial resource required for the operation of the Company, through vertical integration of the industries, the Company's position in the supply chain of electronic speaker will also be enhanced.

  • ② Necessity: Given the quick change to the needs of products by the market in recent years, to enhance the competition advantage of the Company, it is proposed to introduce a strategic investor beneficial to the markt development of the Company.

  • ③ The anticipated benefits: The participation of the placee may accelerate the oppoturnity of market development of the Company, and the vertical integration enhancing the profit ratio and expanding the scale to raise market share, will contribute to the stable growth of the Company.

• Reasons for the necessity for conducting the private placement

• (1) Reasons for not adopting a public offering: To timely raise the funds, and to obtain long term funding within a short period of time, and considering the actual need for introducing a strategic investor, and the provision that the privately placed securities cannot be transferred freely within 3 years, it will further assure the long term cooperation relationship between the Company and the strategic investor. As such, it is proposed to raise funds from specific persons through private placement.

• (2) The limit on the amount of private placement: Within 63,000,000 shares, it is proposed for the shareholders meeting to authorize the board of directors to conduct

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once within one year after the resolution of the shareholders meeting.

• (3) The utilization of the funds raised by the private placement, and the anticipated benefits:

The funds raised will be served as operation funds for the long term development in the future. It is anticipated to strengthen the competition ability of the Company, and promote effectiveness of the operation, which will be advantageous to stability of the operation of the Company and shareholders’ interests.

1. The rights and obligations of the new shares privately placed: Generally it will be the same with the outstanding shares of the Company, provided that the privately placed common shares cannot be transferred freely within 3 years from the delivery date except for transfer in accordance with Article 43-8 of the Securities Exchange Act. Application for public offering and listing for trading will be made in accordance with relevant laws and regualtions 3 years after the delivery date of common shares privately placed.

2. If the main content of this private placement plan, in addition to the percentage for the private placement pricing, including the issuing price, shares amount, issuance conditions, project item, progress of fund utilization, anticipated benefits and other matters, is required to be amended as requested by the competent authority or due to change of objective environment factors, it is proposed for the shareholders’ meeting to authorize the board of directors to handle at its discretion in accordance with relevant regulations.

3. It is proposed for the shareholders' meeting, after approving this proposal, to authorize the Chairman to execute any contract or document in relation to the issuance of common shares by private placement, and handle any matters required for issuance of common shares by private placement on behalf of the Company.

4. Given that this private placement requires the approval by the Investment Commission of the Ministry of Economic Affairs, to clarify, this private placement shall be conditional upon approval by the necessary competent authority.

5. For the evaluation opinion of the underwriter, Mega Securities for this private placement, please refer to Attachement 1.

Resolved:

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《 Topic 3 》 Proposed by the board of directors

Cause of motion: For the amendment to the “Procedures Governing the Acquisition or Disposal of Assets”, please kindly discuss.

Explanation: It is to amend the approval authority of derivative products to cooperate with the

organization adjustment. For the comparison table of the amended articles, please refer to the table below:

	to the table below:
	Amended Article		Current Article	Explanation
	5.8.1.(3).(iv). approval authority of derivative products I. Approval authority of the transactions Unit: US$ in 0,000's Total amount of contract Hedge transaction Non-hedge transaction Head of Finance 200 - General Manager 600 - Chairman 1,000 100 Board of Directors 1,000 or more 100 or more The amount above does not include day trades (bid and offer) with the same period and same amount		5.8.1.(3).(iv). approval authority of derivative products I. Approval authority of the transactions Unit: US$ in 0,000's Total amount of contract Hedge transaction Non-hedge transaction Deputy President 200 - General Manager 600 - Chairman 1,000 100 Board of Directors 1,000 or more 100 or more The amounts above does not include day trades (bid and offer) with the same period and same amount	To amend the the approval authority of derivative products to cooperate with the organization adjustment

Resolved:

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《 Topic 4 》 Proposed by the board of directors

Cause of motion: For the by-election of 17[th] term supervisors, please elect. Explanation: 1. To cooperate with the amendment to the Articles of Incorporation regarding the number of supervisors, please by-elect one supervisor, the term of whom will be from the date of election to June 13, 2016.

1. For the by-election of supervisors, according to Article 26-3 of the Securities Exchange Act, there shall be at least one or more seats among supervisors or among supervisors and directors having no spousal relationship and familial relationship within the second degree of kinship.

Result of election:

Extempore motion

Meeting adjurned

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III. A. Attachment 1

Merry Electronics Co., Ltd.

Securities Underwriter's Assessment Opinion on the Private Placement of Common Shares for the Year of 2016

Merry Electronics Co., Ltd. (hereinafter referred to as “Merry Electronics” or the “Company”) proposes to resolve in the board meeting on December 7, 2015 for issuance of not more than 63,000,000 common shares by private placement. The list of subscribers, method of selection, purposes and their relationship with the Company will also be discussed at this board meeting. Thisprivate placement is subject to further approval by the shareholders' meeting dated January 22, 2016.

In this private placement, a maximum of 63,000,000 common shares will be issued. When fully issued, the ratio of this issue to the current paid-in capital of the Company will reach 34.05%, or 25.40% of the Company's paid-in capital after capital increase through the Private Placement. The number of issuance constitutes a high ratio of the whole capital. In addition, the possibility cannot be ruled out that the investors introduced in this private placement of common shares will obtain seats in the board of the Company in the future, thus the operation control may have significant change. As such, the Company engaged us to provide an opinion on the necessity and fairness of this private placement of common shares.

This opinion is only a reference for the shareholders' meeting of the Company to resolve this private placement on January 22, 2016, and is not for other uses. In addition, the opinion is to evaluate based on information publicly disclosed by the Company on the Market Operation Post System prior to issuance of this opinion byus. We hereby represent that with respect to any impacts due to subsequent changes to the private placement plan of the Company or other changes which may affect the content of this opinion, this opinion will not be further updated and will not bear any legal responsibility.

A. Introduction of the Company

Being established in 1975, Merry Electronics has since then dedicated itself in the electro-acoustics industry and is a leading electro-acoustics supplier in the global market. In addition to the electro-acoustics industry, Merry Electronics is also committed to the development of radio technology and batteries. With these three key technologies, Merry Electronics based on the individual needs of each client, designs tailor-made technological products with high entry barriers. The main products of Merry Electronics include headsets, speakers, microphones, mobile power banks etc., which cover various fields of application such as portable devices, sound and visual entertainment, consumer electronics and computer peripheral devices. As of September 30, 2015, the paid-in capital of the Company had reached NT$1,850,273,000.

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B. Plan of the Private Placement

Merry Electronics proposes privately place a maximum of 63,000,000 common shares for the purposes of increasing profitability through vertical integration, increasing market share through business expansion and enhancing its position in the supply chain of the electro-acoustics industry. The price for the shares privately placed will be determined with reference to the higher of the following and at a price of not lower than 80% of such reference price: (a) the simple average closing price of the common shares of the Company of any of one, three or five business days prior to the price determination, and date, after adjustment for any distribution of stock dividends, cash dividends or capital reduction; or (b) the simple average closing price of the common shares of the Company for the 30 business days preceding the price determination date, after adjustment for any distribution of stock dividends, cash dividends, or capital reduction.

If due to the closing price of the public trading market, the issue price determined in accordance with the above method falls below the par value of the shares and thus causes shareholders' equity to be negatively affected as a result of an increase in accumulated loss, the Company will, depending on the then-current operations status, handle by capital reduction, using retained earnings or capital reserve to cover the deficits or other legal methods.

The Company has determined that the private placement is purely to introduce LUXSHARE PRECISION LIMITED, a wholly owned subsidiary of the strategic investor Luxshare Precision Industry Co., Ltd, which will directly or indirectly benefit the future operation of the Company. While the items such as the list of subscribers, method of selection and purposes, and their relationship with the Company will be specified in the notice of shareholders' meeting dated January 22, 2016, these items will also be explained and reportedin the shareholders' meeting on January 22, 2016.

• C. Assessment of Necessity and Fairness of the Private Placement

(A) The Necessity of the Private Placement

Merry Electronics is a leading supplier in the electro-acoustics industry which manufactures speakers, hands-free kits, mobile power banks, entertainment headsets, portable speakers and Bluetooth headphones. The Company's electro-acoustics products mainly apply in the field of consumer electronics, such as mobile devices, sound and visual entertainment and computer peripheral devices.

In terms of mobile devices, the market research institution IDC forecasts that the production

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output of smartphones in 2018 will reach 1.8 billion in number, representing an average compound annual growth rate of 12.7% from 2013 to 2018. IDC is optimistic about the development of phablets with a size of 5.5 inches and above. It anticipates the market share of phablets to surge from 14% in 2014 to 32.2% in 2018 in the global smartphone market.

With the onset of the age of digital multimedia and the appearance of smartphones and tablets, a multifunctional portable device is now capable of storing large quantities of music and integrating music-playing functions. In addition, as visual and sound entertainment devices continue to upgrade and become more prevalent, consumers' demand for peripheral devices and accessories, such as high-quality headsets, portable speakers and headsets with unique appearances or displaying individuality continues to escalate. According to ASKCI, the scale of the global headset market is expected to expand continually from 2013 to 2017, with the growth rate of market production of 7-10%. By 2017, the production will reach 2,972 million in number, while the total sales will be US$9,247 million.

Furthermore, the persistent improvement of technologies related to portable devices coupled with the maturity of ancillary softwares and cloud application environment has brought wearable devices to the attention in the next wave of development. Wearable devices include headsets, head-mounted displays, smartglasses, smartwatches and smart bracelets. According to the information provided by Topology Research Institute, by 2018 the production output of consumer wearable devices is expected to arrive at 210 million, with an annual growth rate of over 40%. As certain devices are embedded with audio components such as microphones or speakers, demand for relevant electro-acoustics components is expected to rise with the development of the wearable device industry.

In summary, as global economy inches upward, consumption begins to gain momentum. The above coupled with the incessant releases of new audio visual electronic products and smart mobile devices, as well as the consumers' increasingly critical standards on the portability, sound quality on transmission, appearances and design of the headsets and waterproofness are expected to fuel demand for electro-acoustic products such as speakers, hands-free kits, entertainment headsets, portable speakers and Bluetooth headphones. Accordingly, to respond to the increased capital needs as a result of industrial development, business growth and production expansion, financing through the private placement is indeed necessary as a means to boost working capital and expand production facilities.

(B) Reasonableness of the Private Placement

The resolution to carry out the private placement was passed by the board meeting of Merry Electronics dated December 7, 2015, at which the list of subscribers was also discussed. The

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above matters are anticipated to be submitted at and passed by the shareholders' meeting dated January 22, 2016, and matters in relation to the private placement will also be specified in the shareholders' meeting notice in accordance with Paragraph 6, Article 43-6 of the Securities Exchange Act. The handling procedure is assessed to be in compliance with the law.

Capitalization through the domestic private placement of common shares as proposed by Merry Electronics to fund its working capital and expand production facilities will close its funding hole, provide it with stable long-term funding, assist in the sound development of the Company's operations and protect the shareholders' equity. Compared with public offering, the rule forbidding privately placed securities to be freely transferred within the first three-year will further ensure a long-term cooperation between the Company and the subscriber.

The reference price for the private placement is determined in accordance with the Directions for Public Companies Conducting Private Placements of Securities. Since the subscriber chosen by the Company's board of directors is a strategic investor which will directly or indirectly benefit the future operations of the Company, aside from the requirement that items such as the list of subscribers, method of selection and purposes as well as their relationship with the Company are to be specified in the meeting notice for the shareholders' meeting dated January 22, 2016, the requirement under the same Directions that the price fixed for privately placed shares may not be lower than 80% of the reference price has also been observed.

In conclusion, the Company's attempt to boost working capital and expand production facilities as a response to its future operational needs as well as the cost of issue, timeliness and convenience the capitalization should constitute reasonable causes for the Company's decision to undertake the private placement. Its efforts to consolidate its position in the supply chain of the electro-acoustics industry and strengthen its operation through vertical integration as an attempt to expand business scale and raise the overall shareholders' equity are also reasonable. Accordingly, the handling procedure, uses for the fund and the efficiency thereto, the conditions for the determination of the subscription price and the selection for the subscriber have reasonable grounds.

• (C) Selection of Subscriber and the Assessment of the Feasibility and Fairness thereof

1. Selection of Subscriber

The subscriber chosen by Merry Electronics is a strategic investor directly or indirectly benefiting the future operations of the Company, that is, LUXSHARE PRECISION LIMITED, a wholly-owned subsidiary of Luxshare Precision Industry Co., Ltd. The reason is such that the Company may solidify its client base, consolidate its position in the

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supply chain of the electro-acoustics industry, and strengthen operation under vertical integration, so as to expand the business scale of the Company and ensure continued development of the Company's operations as well as protecting the rights and benefits of its employees and shareholders.

1. Feasibility and Necessity in Relation to the Subscriber

LUXSHARE PRECISION LIMITED is a wholly-owned subsidiary of Luxshare Precision Industry Co., Ltd., a technology-oriented company listed on the Shenzhen Stock Exchange (stock code: 002475) which is dedicated to the research, development and distribution of cables as well as the development of high-frequency products. Its products are mainly applied in the field of computer, communications and consumer electronics and the automobile industry. Approximately 30,000 employees work for the business group, which has a total of over 37 associated companies, among which are 27 factories, located throughout the provinces of Guangdong, Jiangsu and Jiangxi. LUXSHARE PRECISION LIMITED is a strategic investor that will directly or indirectly benefit the future operations of the Company, which intends to increase profitability through vertical integration, increase market share through business expansion, solidity its client base, consolidate its position in the supply chain of the electro-acoustics industry and ensure continued development of the Company's operations, and thus seeks to break through the current conditions by cooperating with and receiving injection of resources from an external strategic investor as an attempt to ensure the sustainable operations and development of the Company and an increase in the shareholders' equity. As such, is appears both feasible and necessary.

• (D) Impacts to the Company in Relation to its Business, Financial Status and Shareholders' Equity Following the Transfer of Managerial Control

The key consideration of the subscriber in this private placement is to assist the Company to cooperate in the technology and business so as to provide the clients with the best integration service proposal, to consolidate and establish the vertical integration of the electronic industry supply chain, and to expand the sales of the current products. Thus the current operation scale will be expanded, the position at the supply chain of electro-acoustics business will be solidified, and the profits of the Company will increase. Although after the private placement and introduction of the strategic investor, the management control may change, there will be no substantial change to the main business operation of the Company.

The issue of not more than 63,000,000 common shares at a price of not lower than 80% of the reference price on private placement basis by the Company to boost working capital and expand

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production facilities may prevent over-reliance on bank loans, which would increase financial risks as it increases debt ratio and interest expenses. Through the private placement, the strategic investor thus introduced will assist the Company in solidifying its client base, consolidating its position in the supply chain of the electro-acoustic industry, ensuring the continued development of the Company's operations and enhancing profitability for the Company, and will indeed be a positive force in enhancing the rights and interests of the shareholders. In addition, in fixing the subscription price for the privately placed shares at a price of not lower than 80% of the reference price, relevant laws and regulations are observed and impacts to shareholders' equity are contained. As such, although changes in the managerial control may take place after the introduction of a strategic investor via the private placement, the vertical integration of funding, experiences, brand name and distribution channel is also facilitated, and benefits arising from the strategic cooperation such as higher profitability and efficiency as well as larger market share will surface, thus enhancing the overall shareholders' equity of the Company and exerting positive effects on the Company's financial conditions.

In summary, with regard to Merry Electronics's plan to propose at the shareholders' meeting on January 22, 2016 to undertake the private placement of not more than 63,000,000 shares at a price of not lower than 80% of the reference price per share, we, as the underwriter, after contemplation of the uses of the funding, anticipated effects, selection of the subscriber and the impacts to the Company in relation to its business, financial status and shareholders' equity following changes to managerial control, deems the introduction of the strategic investor via the private placement a necessary and reasonable step.

We, as the underwriter, deems the private placement by Merry Electronics a necessary and reasonable step pursuant to the provisions of the Directions for Public Companies Conducting Private Placements of Securities.

Assessor: Mega Securities Co., Ltd

Representative: Darby Liu

Date: December 7, 2015

(Only for the use of securities underwriter's opinion of assessment on the private placement of common shares for the Year of 2016 by Merry Electronics Co., Ltd.)

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Independence Statement

This Company was engaged to provide the evaluation opinions related to the necessity and reasonability of conducting private placement of the common shares of 2016 by Merry Electronics Co.,Ltd (hereunder, "Merry Electronics").

To perform the service above, this Company hereby declares that there is no following circumstance:

• A. My spouse and I are not currently employed or engaged by Merry Electronics to conduct regular works or receive fixed salaries.

• B. My spouse and I are not within two years period after discharge of a position with Merry Electronics.

• C. The company by which my spouse and I are currently employed, and Merry Electronics, are not related parties with each other.

• D. I am not a spouse or a relative within the second degree of kinship of a responsible person or managerial officer of Merry Electronics.

• E. My spouse and I do not have an investment or interests-sharing relationship with Merry Electronics.

• F. I am not a certified public accountant aquditing Merry Electronics.

With respect to the private placement of common shares by Merry Electronics, all the expert evaluation opinions we provided keep the unbiased and independent spirit.

Evaluator: Mega Securities Co., Ltd.

Representative: Darby Liu

Address: 3F, No.95, Sec. 2, Jhongsiao E. Road, Taipei, Taiwan

Date: December 7, 2015

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IV. Appendix 1

Merry Electronics Co., Ltd

Articles of Incorporation (prior to the amendment)

CHAPTER I GENERAL

Article 1: This Company is duly organized as a company limited by shares under the Company Act, bearing the name of Merry Electronics Co., Ltd.

Article 2: The business scope of the Company are as follows:

• A. Electric Appliance and Audiovisual Electric Products Manufacturing

• B. CC01070 Telecommunication Equipment and Apparatus Manufacturing

• C. CC01080 Electronic Parts and Components Manufacturing

• D. CC01110 Computers and Computing Peripheral Equipments Manufacturing

• E. CC01101 Restrained Telecom Radio Frequency Equipments and Materials Manufacturing

• F. CF01011 Medical Materials and Equipment Manufacturing

• G. CR01010 Fuel Gas Equipments, Materials and Parts Manufacturing

• H. F108031Wholesale of Drugs, Medical Goods

• I. F208031 Retail sale of Medical Equipments

• J. F401021 Restrained Telecom Radio Frequency Equipments and Materials Import

• K. I103060 Management Consulting Services

• L. ZZ99999 All business items that are not prohibited or restricted by law, except those that are subject to special approval.

• Article 3: In response to its business requirements, the Company may conduct mutual guarantee business with affiliates or entities of the same industry.

• Article 4: The headquarters of the Company is located in the Taichung City. If necessary, with the resolution of the board of directors, the Company may establish branch offices or factories onshore or offshore in accordance with laws.

CHAPTER II SHARES

• Article 5: The total amount of capital of the Company is NTD 3,000,000,000, divided into 300,000,000 shares (in which the number of shares for employee stock warrants is 5,000,000 shares), with a par value of NTD 10 per share, to be issued in installments, and the relevant matters of issuance

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shall be stipulated by the board of directors.

• Article 6: The Company shall not be a shareholder of unlimited liability in another company or the

• partner of a partnership affairs. When the Company becomes a shareholder of limited liability in other companies, the total amount of its investments may exceed forty percent of the amount of paid-up capital of the Company.

• Article 7: For share transfer, the transferor and transferee shall apply for title transfer with the Company with an application form signed or bearing the seal of the transferor and the transferee; before completing the transfer procedures, the share transfer shall not be set up as a defense against the Company.

The shares issued by the Company may be exempted from printing any share certificate, provided that the shares being issued shall be recorded with the centralized securities custody enterprise.

CHAPTER III SHAREHOLDERS' MEETING

Article 8: A shareholders’ meeting can be divided into two types:

• A. Annual shareholders’ meeting, to be convened within six months after close of each fiscal year.

• B. Extraordinary shareholders’ meeting, to be convened when necessary according to relevant law and regulations.

• Article 9: The shareholder of the Company shall have one voting power in respect of each share in his/her possession. The Company has no voting power in respect of the shares in its own possession in accordance with the Company Act. When the shareholder cannot attend the shareholders’ meeting for any cause, he/she/it may execute a power of attorney and appoint a proxy to attend the shareholders' meeting on his/her/its behalf in accordance with Article 177 of the Company Act and the Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies announced by the competent authority. The Chairman shall preside at the shareholders' meetings. In the event that the Chairman is absent, the Vice Chairman shall act on his/her behalf. If the Vice Chairman is also absent, the Chairman shall designate one of the directors to act on his/her behalf. If there is no such designation, the directors shall elect a chairman to act on his/her behalf from among themselves. For the shareholders' meeting convened by any other person having the convening right, he/she shall act as the chairman of that meeting, provided, however, that if there are two or moreconvenors, the chairman of the

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meeting shall be elected from among themselves.

• Article 10: Resolutions at a shareholders' meeting shall, unless otherwise provided for in the Company Act, be adopted by a majority vote of the shares represented by the attending shareholders, who represent more than one-half of the total number of voting shares. When it comes to a vote, if the chairman puts the matter before all shareholders present at the meeting and none voices an objection, the matter is deemed approved, wth the same effect with voting by ballot.

• Article 11: Resolutions adopted at a shareholders' meeting shall be recorded in the minutes of the meeting, which shall be signed or bear the seal of the chairman of the meeting and shall be distributed to all shareholders of the Company within 20 days after the close of the meeting.

The preparation and distribution of the minutes of shareholders' meeting as required in the preceding Paragraph may be effected by means of electronic transmission; the distribution of the minutes of shareholders' meeting may also be effected by means of a public notice.

CHAPTER IV DIRECTORS AND SUPERVISORS

• Article 12: This Company shall have eight (8) directors and three (3) supervisors to be elected from among persons with capacity to make judicial acts by shareholders' meeting. The term of their office shall be three (3) years and they are eligible for re-election. The amount of total shares owned by the directors and supervisors will be handled in accordance with the "Rules and Review Procedures for Director and Supervisor Share Ownership Ratios of Public Companies" issued by the competent authority. When the number of vacancies in the board of directors reaches one third of the total number of directors or all supervisors are discharged, the board of directors shall call, within 60 days, a special meeting of shareholders to elect succeeding directors or supervisors to fill the vacancies, and the term shall be limited to fulfilling the remaining term of office of the predecessors. If the term of the director and supervisor expires and the new election cannot be held in time, their term will be extended until the new directors and supervisor are elected and have assumed the office.

• Article 12-1: Amongst the directors of the Company, two shall be independent directors to be elected by the shareholders’ meeting from the independent directors’ candidates list, and the candidate nomination system shall be adopted. The professional qualification, shareholding, restriction on the concurrent posts, the means of nomination and election of independent directors and other matters to be complied with, shall all be in accordance with the relevant rules of the competent authority of securities.

• Article 13: A Chairman and a Vice Chairman shall be elected from amongst the directors. The Chairman

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represents the Company in external affairs, be the chairman of the shareholders’ meeting and the board meeting in internal affairs, and execute all the affairs of the Company in accordance with laws, regulations, Articles of Incorporation and the resolutions of shareholders’ meeting and the board of directors. In the event that the Chairman cannot attend the meetings for any cause, the Vice Chairman shall act on his/her behalf; and if the Vice Chairman also cannot attend the meetings, the Chairman shall designate one of directors to act on his/her behalf, and if there is no such designation, the directors shall elect a chairperson to act on his/her behalf from among themselves.

• Article 14: The board of directors is organized by the directors, and the powers and duties of the board of directors are as follows:

• A.Drawing up and amending various important by-law.

• B. Proposals of amendments to the Articles of Incorporation.

• C. Determination and amendment to the business guideline(s).

• D.Review of annual budget and final accounts.

• E. Proposals of earnings distribution or loss make-up.

• F. Approval of reinvestment, loans to other companies and collateralizing assets.

• G.Drawing up and approval of real estate acquisition and disposal.

• H.Determination of important officers.

• I. If the amount of endorsements and guarantees to affiliates exceeds the total amount enacted by the board of directors, it shall be submitted to the board of directors for approval.

• J. The establishment, modification, revocation and determination of other essential matters of important organization of the Company.

• K.Other powers and duties empowered/required by laws, regulations or the shareholders meeting.

Article 15: In calling a meeting of the board of directors, a notice setting forth therein the subject(s) to be

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discussed at the meeting shall be given to each director and supervisor no later than 7 days prior to the scheduled meeting date. However, in the case of emergency, the meeting may be convened at any time.

The notice of convening meetings of the board of directors of the Company may be given by the means of written notice, e-mail or fax. Unless otherwise provided for in the Company Act, meetings of the board of directors shall be adopted by a majority vote of the directors present at a meeting where a majority of the directors attend. In case a director cannot attend the meeting for any cause, a proxy setting forth therein the scope of authority with reference to the subject(s) to be discussed at the meeting may be submitted to delegate the attendance to other directors, provided that one director may accept the delegation of one other director only.

The meeting of the board of directors may be proceeded viavideo conference. The directors participating by video conference shall be deemed to have attended the meeting in person.

Article 16: The powers and duties of the supervisors are as follows:

• A.Investigating the Company’s business condition.

• B. Investigating the Company’s financial condition.

• C. Auditing the books and documents of the Company.

• D.Attending the meetings of the board of directors to state the opinions and request the board of directors to report, while having no voting right.

• E. Other powers and duties empowered/required by the Company Act.

• Article 17: The directors and supervisors may receive transportation allowance, the amount of which is decided by the resolution at the meetings of the board of directors. The board of directors is authorized to determine the remuneration of directors and supervisors based on the level of participation and the value of devotion to the operation of the Company, with reference to the standard of other entities in the same industry. The Company may purchase liability insurance for the directors and supervisors within the scope of the business he/she conducts during his/her term.

CHAPTER V MANAGER AND EMPLOYEE

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• Article 18: The Company may have managers, his/her appointment, discharge and remuneration shall be handled in accordance with the Company Act.

• Article 19: The Company may engage advisors and important personnel by the resolution at the meetings of the board of directors in accordance with Article 15 of the Articles of Incorporation.

• Article 20: Otherpersonnel of the Company shall be appointed and discharged by the president and shall be reported to the board of directors.

CHAPTER VI FINAL ACCOUNTS

• Article 21: The fiscal year of the Company is annually from 1 January until 31 December. The Company shall act in accordance with Article 228 of the Company Act. Upon close of each fiscal year, the following reports and statements shall be prepared by the board of directors and be given to the supervisors for auditing no later than 30 days prior to the date of the annual meeting of shareholders, and the supervisors shall submit the report to the annual meeting of shareholders for ratification.

• A.The business report

• B. The financial statements

The earnings distribution or loss make-up proposal.

• Article 22: The industrial environment of the Company is apt to change, and the enterprise life cycle stays in a stage of stable growth, and it is necessary to consider the budget for the future capital expenditure and funding requirement, and measure the necessasity to cope with funding requirement by earnings, to determine the amount for retaining or distributing the earnings and the distribution amount of shareholder bonus in cash. The net profit after final accounting, except for withholding of income tax in accordance with laws, shall be utilized for make-up of the loss of previous years, and secondly setting aside 10% of the remaining earnings as a legal reserve. After setting aside or reversing special reserve in accordance with laws when necessary, and setting aside 6% to 10% as employee bonus and reward of directors and supervisors up to 2% (part or all of employee bonus may be made by issuing new shares), the balance after adding the undistributed earnings of the previous year will be the accumulated distributable earnings. The board of directors shall propose an earning distribution proposal for the shareholders’ meeting to resolve the distribution. For distribution of employee stock bonus, it may be distributed to the employees of subsidiaries meeting certain specific requirements. For the earning distribution proposal proposed by the board of directors, the total amount of shareholders’ bonus shall be 30% to 80% of the accumulated distributable earning, and the cash bonus shall account for 5% or more of the shareholder bonus.

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CHAPTER VII ANCILLARY PROVISIONS

• Article 23: The organic regulations and the operational regulations of the Company are stipulated by the board of directors.

• Article 24: Any items that are not specified herein shall be dealt with in accordance with the Company Act and any other laws or rules.

• Article 25: These Articles of Incorporation were promulgated on December 13, 1975. The 1st amendment was made on October 25, 1977. The 2nd amendment was on October 12, 1981. The 3rd amendment was on December 30, 1981. The 4th amendment was on December 15, 1984. The 5th amendment was on December 9, 1985. The 6th amendment was on December 20, 1985. The 7th amendment was on September 15, 1987. The 8th amendment was on December 10, 1988. The 9th amendment was on November 15, 1989. The 10th amendment was on May 10, 1990. The 11th amendment was on June 25, 1990. The 12th amendment was on December 15, 1990. The 13th amendment was on January 23, 1991. The 14th amendment was on March 1, 1991. The 15th amendment was on April 2, 1991. The 16th amendment was on July 12, 1991. The 17th amendment was on June 10, 1995. The 18th amendment was on July 26, 1996. The 19th amendment was on May 31, 1997. The 20th amendment was on March 25, 1998. The 21st amendment was on May 18, 1999. The 22nd amendment was on May 16, 2000. The 23rd amendment was on May 3, 2001. The 24th amendment was on August 28, 2001. The 25th amendment was on May 27, 2002. The 26th amendment was on May 20, 2004. The 27th amendment was on May 19, 2005. The 28th amendment was on October 18, 2005. The 29th amendment was on June 16, 2006. The 30th amendment was on June 13, 2007. The 31st amendment was on June 13, 2008. The 32nd amendment was on June 16, 2009. The 33rd amendment was on 14 June 2010. The 34th amendment was on June 22, 2012. The 35th amendment was on June 11, 2014. The 36th amendment was on June 12, 2015.

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Appendix 2

Procedures Governing the Acquisition and Disposal of Assets (prior to amendments)

1. Purpose

The Company hereby adopted this procedure in order to protect assets and carry out the information disclosure.

2. Scope

2.1. Legal basis

This procedure is adopted and handled in accordance with relevant provisions of Article 36-1 of the Securities Exchange Act and the "Regulations Governing the Acquisition and Disposal of Assets by Public Companies" enacted and announced by the Financial Supervisory Commission of the Executive Yuan ("FSC"), provided that, where other laws or regulations provide otherwise, such provisions shall govern.

2.2. Scope of the assets

• 2.2.1. Investments in stocks, government bonds, corporate bonds, financial bonds, securities representing interest in a fund, depositary receipts, call (put) warrants, beneficial interest securities, and asset-backed securities.

• 2.2.2. Real property (including investment property, rights to use land, and construction enterprise inventory), factory and equipment.

2.2.3. Memberships.

• 2.2.4. Intangible assets: Including patents, copyrights, trademarks, franchise rights, and other intangible assets.

• 2.2.5. Claims of financial institutions (including receivables, bills purchased and discounted, loans, and overdue receivables).

2.2.6. Derivatives.

• 2.2.7. Assets acquired or disposed of as a result of mergers, demergers, acquisitions, or transfer of

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shares in accordance with laws.

2.2.8. Other major assets.

3. Authority: Finance Departmant.

4. Glossary

4.1. Derivatives

It refers to forward contracts, options contracts, futures contracts, leverage contracts, and swap contracts, and compound contracts combining the above products, whose value is derived from assets, interest rates, foreign exchange rates, indexes or other interests. The term "forward contracts" does not include insurance contracts, performance contracts, after-sales service contracts, long-term leasing contracts, or long-term purchase (sales) agreements.

• 4.2. Assets acquired or disposed as a result of mergers, demergers, acquisitions, or transfer of shares in accordance with laws

It refers to assets acquired or disposed of as a result of mergers, demergers, or acquisitions conducted under the Business Mergers and Acquisitions Act, Financial Holding Company Act, Financial Institution Merger Act and other laws, or issuance of new shares as a consideration of assuming the shares of another company (hereinafter "transfer of shares") under Paragraph 8, Article 156 of the Company Act.

4.3. Related party or subsidiary

As defined under the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

• 4.4. Professional appraiser

It refers to a real property appraiser or other persons duly authorized by laws to engage in the value appraisal of real property, factory or equipment.

4.5. Date of occurrence

It refers to the date of contract signing, date of payment, date of consignment trade, date of transfer, dates of boards resolutions, or other dates that can confirm the counterpart and

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transaction amount, whichever is earlier, provided that, for investment subject to the approval of the competent authority, the earlier of the above dates or the date of receipt of approval by the competent authority.

4.6. Mainland China area investment

It refers to investments in the mainland China area in accordance with the provisions of the Regulations Governing Permission for Investment or Technical Cooperation in the Mainland Area enacted by the "Investment Commission, the Ministry of Economic Affairs".

• 4.7."Within the preceding year" as used herein refers to the year preceding the date of the acquisition and disposal of assets (excluding the public announcement period).

• 4.8. The "latest financial statements" refers to the financial statements audited or reviewed by a CPA and has been announced prior to the Company's acquisition or disposal of assets.

5. Operational contents

• 5.1. The quota for investment in real property not for business use and securities:

The respective quota for acquisition of the above-mentioned assets by the Company and each of the subsidiaries is as follow:

• 5.1.1. For investment in real property not for business use, the total investment amount shall not exceed 50% of the assets.

• 5.1.2. For the investment in securities, the total investment amount shall not exceed 70% of the assets.

• 5.1.3. For the investment in individual security, the investment amount shall not exceed 50% of the assets.

• 5.2. For the appraisal reports, CPA's, attorney's or underwriter's opinions the Company obtained, such professional appraisers and their officers, CPAs, attorneys, and securities underwriters shall not be a related party of any party to the transaction.

• 5.3. Procedures governing the acquisition and disposal of real property or other fixed assets

• 5.3.1. The appraisal and operational procedures

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The Company shall follow the Company's cycle procedures for fixed assets under the internal control system to handle the acquisition or diposal of the real property and other fixed assets.

• 5.3.2. The procedure to determine the transaction terms and authorized quota

• (1) For the acquisition or disposal of real property, it is required to consider the publicly announced current value, apprised value and the actual transaction price of the neighboring real property to determine the transaction terms and price and then prepare an analysis report and submit to the chairman. If the amount does not exceed NT$ 50 million, such transaction shall be submitted to the chairman for approval and reported in the latest following board meeting. If the amount exceeds NT$ 50 million, such transaction shall not be commenced until it is approved by the board of directors.

• (2) For the acquisition or disposal of other fixed assets, it shall be done by one of the following: price inquiry, price survey, price negociation or bidding. If the amount does not exceed NT$ 50 million (inclusive), such transaction shall be properly approved in accordance with the authorization rules. If the amount exceeds NT$ 50 million, such transaction shall be submitted to the general manager for approval and shall not be commenced until it is approved by the board of directors.

• (3) For the Company's acquisition or disposal of assets which is subject to the approval of the board of directors under the procedure or other laws or regulations, if any director expresses dissent and it is recorded or contained in a written statement, the Company shall submit the director's dissenting opinion to each supervisor. Where the Company has independent director(s) or audit committee, the resolution procedures shall be handled in accordance with Article [5.14.2].

5.3.3. Execution unit

The acquisition or disposal of real property or other fixed assets shall be submitted for approval in accordance with the approval authorization provided in the preceeding paragraph and executed by relevant departments.

5.3.4. Apprisal reports of real property or other fixed assets

In acquisition or disposal of real property, factory or equipment where the transaction amount reaches 20% of the Company's paid-in capital or NT$300 million or more, the

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Company, unless transacting with a government agency, engaging others to build on its own land, engaging others to build on rented land, or acquisition or disposal of machines and equipment for business use, shall obtain an appraisal report prior to the date of occurrence of the event from a professional appraiser and shall further comply with the following provisions:

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

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

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

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

  • (b) The discrepancy between the appraisal result and the transaction amount is 20 % or more of the transaction amount.

• (4) No more than 3 months may elapse between the date of the appraisal report issued by a professional appraiser and the contract execution date; provided, where the publicly announced current value for the same period is used and no more than 6 months have elapsed, an opinion may still be issued by the original professional appraiser.

• (5) Where the Company acquires or disposes of assets through court auction procedures, the evidentiary documentation issued by the court may be substituted for the appraisal report or CPA opinion.

• 5.4. Investment procedures governing the acquisition and disposal of securities

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• 5.4.1. The appraisal and operational procedures

The Company shall follow the Company's investment cycle procedures under the internal control system for purchase and sale of securities.

• 5.4.2. The procedure to determine the transaction terms and authorized quota

• (1) Transactions of securities traded on the centralized securities exchange market or over the counter shall be determined by the responsible units according to the market quotation and approved in accordance with the relevant authorization requirement of the Company.

• (2) For transactions of the securities not traded on the centralized securities exchange market or over the counter, it is required to obtain financial statements of the issuing company certified or reviewed by a CPA for the most recent period for reference in appraising the transaction price, consider the net value per share, profitability and the growing potential in the future and be approved in accordance with the relevant authorization requirement of the Company.

• (3) With respect to the Company's acquisition or disposal of assets which is subject to the approval of the board of directors under the procedure or other laws or regulations, if any director expresses dissent and it is recorded or contained in a written statement, the Company shall submit the director's dissenting opinion to each supervisor. Where the position of independent director has been created or an audit committee has been established, the resolution procedures shall be handled in accordance with Article [5.14.2].

• 5.4.3. Execution unit: The Company's investment in securities shall be submitted for approval in accordance with the approval authorization provided in the preceeding paragraph and executed by the finance and accounting departments.

• 5.4.4. Obtaining professional's opinion

• (1) The Company acquiring or disposing of securities shall, prior to the date of occurrence of the event, obtain financial statements of the issuing company certified or reviewed by a CPA for the most recent period for reference in appraising the transaction price, and if the amount of the transaction is 20% of the Company's paid-in capital or NT$300 million or more, the Company shall additionally engage a CPA prior to the

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date of occurrence of the event to provide an opinion regarding the reasonableness of the transaction price. If the CPA needs to use the report of an expert, the CPA shall do so in accordance with the provisions of Statement of Auditing Standards No. 20 published by the ARDF. This requirement does not apply, however, to securities with public quotation of an active market, or where otherwise provided by regulations of the FSC.

• (2) Where the Company acquires or disposes of assets through court auction procedures, the evidentiary documentation issued by the court may be substituted for the appraisal report or CPA opinion.

5.5. Related party transactions

• 5.5.1. When the Company acquires or disposes of assets from or to a related party, in addition to ensuring that relevant resolutions are adopted and the reasonableness of the transaction terms is appraised in accordance with Article 7 and this Article, if the transaction amount reaches 10% or more of the Company's total assets, the Company shall also obtain an appraisal report from a professional appraiser or a CPA's opinion in compliance with the provisions of the preceding section.

The calculation of the transaction amount referred to in the preceding paragraph shall be made in accordance with Article [5.6.4.(4)] herein.

When judging whether a transaction counterparty is a related party, in addition to its legal formalities, the substance of the relationship shall also be considered.

• 5.5.2. The appraisal and operational procedures

When the Company intends to acquire or dispose of real property from or to a related party, or when it intends to acquire or dispose of assets other than real property from or to a related party and the transaction amount reaches 20% or more of the paid-in capital, 10% or more of the Company's total assets, or NT$300 million or more, except in trading of government bonds or bonds under repurchase and resale agreements, or subscription or redemption of domestic money market funds, the Company may not proceed to enter into a transaction contract or make a payment until the following information has been submitted and approved by the board of directors and recognized by the supervisors:

• (1) The purpose, necessity and anticipated benefit of the acquisition or disposal of assets.

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• (2) The reason for choosing the related party as a transaction counterparty.

• (3) With respect to acquisition of real property from a related party, relevant information regarding appraisal of the reasonableness of the preliminary transaction terms in accordance with Article [5.5.3.(1)] and Article [5.5.3.(4)].

• (4) The date and price at which the related party originally acquired the real property, the original transaction counterparty, and that transaction counterparty's relationship with the Company and the related party.

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

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

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

The calculation of the transaction amounts referred to in the preceding paragraph shall be made in accordance with Article [5.10.1.(5)] herein, and "within the preceding year" as used herein refers to the year preceding the date of occurrence of the current transaction. Items that have been approved by the board of directors and recognized by the supervisors in accordance with this procedure need not be counted toward the transaction amount.

With respect to the acquisition or disposal of business-use machines and equipment between the Company and its parent or subsidiaries, the Company's board of directors may delegate the chairman to decide such matters when the transaction amount is within NT$ 50 million and have the decisions subsequently submitted to and ratified by the next board meeting.

Where the position of independent director has been created, when a matter is submitted for discussion by the board of directors pursuant to Article [5.14.2.], the board of directors shall take into full consideration each independent director's opinions. If an independent director objects to or expresses reservations, it shall be recorded in the minutes of the board of directors meeting.

Where an audit committee has been established, the matters for which Article [5.14.2.]

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requires recognition by the supervisors shall first be approved by the majority of all audit committee members and then submitted to the board of directors for a resolution, and sArticle [5.14.2.] shall apply mutatis mutandis.

• 5.5.3. Evaluation of the reasonableness of the transaction costs

• (1) For the Company to acquire real property from a related party, it shall evaluate the reasonableness of the transaction costs by the following means:

  • (a) Based upon the related party's transaction price plus necessary interest on funding and the costs to be duly borne by the buyer. "Necessary interest on funding" is calculated by the weighted average interest rate for borrowing in the year the Company purchases the property; provided that it may not be higher than the maximum non-financial industry borrowing rate announced by the Ministry of Finance.

  • (b) The total loan value appraisal from a financial institution where the related party has previously created a mortgage on the property as security for a loan; provided that the actual cumulative amount lended by the financial institution shall be 70% or more of the financial institution's appraised loan value of the property and the period of the loan shall be 1 year or more. However, this shall not apply where the financial institution is a related party of one of the transaction counterparties.

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

• (3) The Company acquirying real property from a related party and appraises the cost of the real property in accordance with Article [5.5.3.(1)] and Article [5.5.3.(2)] shall engage a CPA to review the appraisal and render a concrete opinion.

• (4) When the results of the Company's appraisal conducted in accordance with Article [5.5.3.(1)] and Article [5.5.3.(2)] are both lower than the transaction price, the matter shall be handled in accordance with Article [5.5.3.(5)]. However, where the following circumstances exist, objective evidence has been provided and specific opinions on reasonableness have been obtained from a professional real property appraiser and a CPA, this restriction shall not apply:

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• (a) Where the related party acquired undeveloped land or leased land for development, it may provide proof of satisfying one of the following conditions:

  • (i) Where undeveloped land is appraised in accordance with the means in the preceding Article, and buildings are valued according to the related party's construction cost plus reasonable construction profit, the aggregate amount is in excess of the actual transaction price. The "reasonable construction profit" shall be determined according to the average gross operating profit margin of the related party's construction division over the most recent 3 years or the gross profit margin for the construction industry for the most recent period as announced by the Ministry of Finance, whichever is lower.

  • (ii) Completed transactions by unrelated parties within the preceding year involving other floors of the same property or neighboring area, where the land area and transaction terms are similar after calculation of reasonable price discrepancies in floor or area land prices in accordance with standard property market practices.

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

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

• (5) Where the Company acquires real property from a related party and the results of appraisals conducted in accordance with Article [5.5.3.(1)] and Article [5.5.3.(2)] are both lower than the transaction price, the following steps shall be taken.

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In addition, if the Company and a public company using the equity method to account for its investment in the Company have set aside a special reserve under Article [5.5.3.(5).(a)], they may not utilize the special reserve until it has recognized a loss on decline in market value of the assets it purchased at a premium, or they have been disposed of, or adequate compensation has been made, or the status quo ante has been restored, or there is other evidence confirming that there was nothing unreasonable about the transaction, and the FSC has given its consent.

• (a) A special reserve shall be set aside by the Company in accordance with Paragraph 1, Article 41 of the Securities Exchange Act for 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 Paragraph 1, Article 41 of the Securities Exchange Act shall be set aside pro rata in accordance with its shareholding in the Company.

• (b) Supervisors shall handle in accordance with Article 218 of the Company Act. Where an audit committee has been established, such requirement shall apply to the independent directors of the audit committee.

• (c) Actions taken pursuant to Article[5.5.3.5.(a)] and Article [5.5.3.5.(b)] shall be reported to the shareholders meeting, and the details of the transaction shall be disclosed in the annual report and any prospectus.

• (6).Where the Company acquires real property from a related party and one of the following circumstances exists, the acquisition shall be conducted in accordance with the appraisal and operational procedures provided in Article [5.5.1] and Article [5.5.2] and the evaluation of the reasonableness of the transaction costs provided in Articles [5.5.3.(1), 5.5.3.(2), 5.5.3.(3)] shall not apply:

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

• (b) More than 5 years will have elapsed from the time the related party signed the contract to obtain the real property to the signing date for the current transaction.

• (c) The real property is acquired through signing of a joint development contract with the related party, or through engaging a related party to build real property, either on the Company's own land or on rented land.

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  - (7) When the Company obtains real property from a related party, it shall also comply with Article [5.5.3.(5)] if there is other evidence indicating that the acquisition was not an arms length transaction.

• 5.6. Procedures governing the acquisition and disposal of memberships or intangible assets

• 5.6.1. The appraisal and operational procedures

The Company shall follow the Company's cycle procedures for fixed assets under the internal control system for the acquisition and disposal of memberships or intangible assets.

• 5.6.2. The procedure to determine the transaction terms and authorized quota

• (1) For the acquisition or disposal of memberships, it is required to consider the market fair value to determine the transaction terms and price and then prepare an analysis report to be submitted to the general manager. If the amount does not exceed 1% of the paid-in capital or NT$ 3 million, such transaction shall be submitted to the general manager for approval and reported to the next board meeting. If the amount exceeds NT$ 3 million, such transaction shall not be commenced until it is approved by the board of directors.

• (2) For the acquisition or disposal of intangible assets, it is required to consider experts' appraisal report and market fair value to determine the transaction terms and price and then prepare an analysis report to be submitted to the chairman. If the amount does not exceed 10% of the paid-in capital or NT$ 20 million, such transaction shall be submitted to the chairman for approval and reported to the next board meeting. If the amount exceeds NT$ 20 million, such transaction shall not be commenced until it is approved by the board of directors.

• (3) For the Company's acquisition or disposal of assets which is subject to the approval of the board of directors under the procedure or other laws or regulations, if any director expresses dissent and it is recorded or contained in a written statement, the Company shall submit the director's dissenting opinion to each supervisor. Where the position of independent director has been created or an audit committee has been established, the resolution procedures shall be handled in accordance with Article [5.14.2].

5.6.3. Execution unit:

The acquisition or disposal of memberships or intangible assets shall be submitted for

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approval in accordance with the approval authorization provided in the preceeding paragraph and executed by the departments using such assets and the finance department or the administration department.

• 5.6.4. Experts appraisal opinion and report of memberships or intangible assets

  • (1) Where the transaction amount of the Company’s acquisition or disposal of memberships reaches 1% of the paid-in capital or NT$1 million or more, appraisal reports from experts shall be obtained.

  • (2) Where the transaction amount of the Company’s acquisition or disposal of intangibal assets reaches 10% of the paid-in capital or NT$20 million or more, appraisal reports from experts shall be obtained.

  • (3) Where the transaction amount of the Company’s acquisition or disposal of memberships or intangible assets reaches 20% or more of paid-in capital or NT$300 million or more, except for transactions with a government agency, the Company shall engage a CPA prior to the date of occurrence of the event to render an opinion on the reasonableness of the transaction price; the CPA shall handle in accordance with the provisions of Statement of Auditing Standards No. 20 published by the ARDF.

  • (4) The calculation of the transaction amounts referred to in the preceding three paragraphs shall be handled in accordance with Article [5.10.1.5] herein, and "within the preceding year" as used herein refers to the year preceding the date of occurrence of the current transaction. Items that have obtained the appraisal report from a professional appraiser or a CPA's opinion or in accordance with this procedure need not be counted toward the transaction amount.

• 5.7. Procedures governing the acquisition and disposal of claims of financial institutions

The Company will not engage in the acquisition and disposal of claims of financial insitutions in principle. If the Company would like to engage in transaction of the acquisition and disposal of claims of financial insitutions in the future, the Company will submit to the board of directors for approval and then establish the assessment and operational procedures.

5.8. Procedures governing the acquisition and disposal of derivatives

• 5.8.1. Trading principles and strategies

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(1) Trading types

• (a) The transaction of derivatives the Company engaged in refers to transaction contract whose value is derived from assets, interest rates, foreign exchange rates, indexes or other interests (such as forward contracts, options contracts, futures, interest rates or foreign exchange rates, swaps and compound contracts combining the above products.)

• (b) Relevant matters in connection with the Company engaging in deposit trading of bonds shall also comply with the relevant requirements of this procedure. The requirements in this procedure may not apply to engaging in bonds transactions with repurchase agreement.

(2) Operational (hedging) strategy

The Company shall engage in derivatives transaction for the purpose of hedging and shall choose the transaction products to hedge the risks generate from the operation of the Company's business. The currencies held by the Company shall meet the demand of the Company for foreign currencies in import and export transactions. Such positions shall be covered by the total internal positions held by the Company (foreign currency assets, foreign currency income and expenses) in principle so as to reduce the total foreign exchange risks the Company assumed and also save the costs to operate foreign exchange. Transaction for other specific purpose shall be carefully assessed and shall not commence until it has been submitted to the board of directors for approval.

(3) Delegation of authority and duty

(a) Finance department

(i) Trading personnel

• (I) Responsible to plan the strategy for the transaction of financial products for the whole company.

• (II) Trading personnel shall calculate the positions on a regular basis, collect market information and conduct the trends judging and risk assessment to plan the opearational strategy. Once such strategy is approved by the authority, it will serve as the basis for the Company to conduct transaction.

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(III) To execute transactions based on the authorization and the existing strategy.

• (IV)To propose assessment reports and replan the strategy from time to time when there is a material change to the financial market and the trading personnel determined that the existing strategy shall not apply anymore. Once such strategy is approved by the general manager, it will serve as the basis for the Company to conduct transaction.

• (ii) Accounting personnel

• (I) To confirm the transaction executed.

• (II) To review and check whether the transaction is conducted in accordance with the authorization and existing strategy.

• (III) To conduct evaluations on a monthly basis and submit the evaluation reports to the general manager.

• (IV)To handle accounting and books.

• (V) To conduct report and announcement according to the requirements of the FSC.

• (iii)Settlement personnel: Responsible to execute settlements.

• (iv) Authorization to approve the derivatives

• (I) The authorization to approve transaction

		Unit: US$10 thousand Non-hedging transaction - - 100 100 and above
Total amount of the contract	Hedging transaction	Non-hedging transaction
Vicepresident	200	-
General manager	600	-
Chairman	1000	100
Board of directors	1000 and above	100 and above

The abovementioned amount shall not include the purchase and sale of the

~ 42 ~

contracts with the same tenor and same amount on the same day.

• (II) For the Company's acquisition or disposal of assets which is subject to the approval of the board of directors under the procedure or other laws or regulations, if any director expresses dissent and it is recorded or contained in a written statement, the Company shall submit the director's dissenting opinion to each supervisor. Where the position of independent director has been created or an audit committee has been established, the resolution procedures shall be handled in accordance with Article [5.14.2].

(b) Audit department

Responsible to understand the appropriateness of the internal control system of the derivatives transaction, audit the compliance of the trading department with the operational procedures, analyze the transaction cycle, generate audit report and report to the board of directos when there is any material deficiency.

• (c) Performance assessment

• (i) Hedging transaction

  • (I) Take the profits and losses generated between the cost of foreign exchange rate from the Company's books and the transaction of derivatives as the basis for performance assessment.

  • (II) In order to fully control and express the transaction risks assessed, the Company will assess profits and losses based on the monthly balabce.

  • (III) The finance department shall provide the evaluation on foreign exchange positions and the market trend of the foreign exchange and market analysis to the general manager as management reference and indication.

• (ii) Transaction for specific purposes

It shall take the actual profits and losses as the basis to assess performance and the accounting personnel shall compile the positions into a statement on a regular basis for the management's reference.

• (d) Setting the total amount of contracts and the maximum loss limit

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(i) Total amount of contracts

• (I) Quota for hedging transaction

The finance department shall control the total positions of the Company in order to hedge transaction risks. The amount of hedging transaction shall not exceed the Company's total net positions, where exceeded, it shall be reported to the general manager for approval.

• (II) Transaction for specific purposes

Based on the assessment on the market change, the finance department may propose strategy when needed and submit to the general manager and chairman for approval and execution. The total amount of the contracts of the net accumulated positions the Company holds for transaction for specific purposes shall not exceed US$10 million. Once the total amount exceeds US$10 million, it shall not be executed until it is approved by the board of directors and executed in accordance with policy instruction.

• (ii) Setting the maximum loss limit

• (I) With respect to hedging transaction, the maximum loss limit for individual contract shall be 50% of each transaction amount.

• (II) If it is a transaction contract for specific purposes, when the position is held by the Company, it is required to set the stop loss point to avoid excess of loss.

The setting of stop loss point shall not excess of 10% of the total transaction contract amount. If the loss amount exceeds 10% of the transaction amount, it shall be reported to the general manager immediately and reported to the board of directors to discuss the necessary measures to deal with it.

• (III) The loss amount of individual contract shall not exceed US$20,000 or 5% of the transcation contract amount, whichever is lower.

• (IV)The Company’s annual maximum loss limit for transactional operation for specific purposes is US$300,000.

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5.8.2. Risk management measures

• (1) Management of credit risk

Considering that the market fluctuates due to various elements, which may cause the operational risk of derivatives financial products, the management of market risk shall be conducted in accordance with the following principles:

• (a) Counterpartys: The Company shall mainly deal with reputational local or foreign financial institutions.

• (b) Transaction products: The Company shall only transact the products provided by reputational local or foreign financial institutions

• (c) Transaction amount: Hedging shall be centralized to deal with a single counterparty, unless such transaction is approved by the general manager.

• (2) Management of market risks: The Company shall mainly deal on the public foreign exchange trading market provided by banks.

• (3) Mnagement of liquidity risk

To ensure the market liquidity, the Company shall choose the financial products with higher liquidity (which means the position can be covered on the market at any time) and the financial institutions accept trading orders shall maintain adequate information and the ability to engage in transaction on any market at any time.

• (4) Mnagement of cash flow risk

To ensure the stability of the turnover of the Company'soperational fund, the funding for the Company to engage in derivatives transaction shall be the Company's self-owned capital and it shall also consider the demand for fund based on the estimation of cash inflow and outflow for the next three months to decide the transaction amount.

• (5) Management of operational risk

• (a) It is required to strictly follow the Company's authorized quota and operational

~ 45 ~

procedures, which shall be adopted into the internal audit to avoid operational risk.

• (b) The trading personnel for derivative products shall not concurrently act as the operational personnel such as the persons handling confirmation or settlement.

• (c) The personnel of risk assessment, supervision and control shall belong to departments other than the department of personnel mentioned in the preceding paragraph and shall report to the board of directors or to the high-level managers not responsible for decision making of transactions or positions.

• (6) Mnagement of product risk

The internal trading personnel shall equip with complete and correct professional knowledge of the financial products and shall request banks to fully disclose risks to avoid the risk of misuse of financial products.

• (7) Management of legal risk

The documents to be executed with financial institutions shall not be executed unless

they have been reviewed by the expert of foreign exchange and legal or legal counsuls to avoid legal risk.

5.8.3. Internal audit system

• (1) The internal auditor shall periodically make a determination of the suitability of internal controls on derivatives, conduct monthly audit on the compliance of procedure for derivatives trading engaged by the trading department and analyze the trading cycle, and prepare an audit report. If any material violation is found, he/she shall notify the supervisor in writing.

• (2) The internal auditor shall file the audit report, together with the annual internal auditing condition, to the FSC by the end of February of the following year, and shall file the improvement to the irregular circumstance by the end of May of the following year at the latest.

5.8.4. Regular evaluation methods

• (1) The board of directors shall authorize senior management personnel to periodically monitor and evaluate whether the derivatives tradings are faithfully conducted in

~ 46 ~

accordance with the trading procedure stipulated by the Company and whether the risk undertaken is within the Company's permitted scope of tolerance. Where the irregular circumstance is found in the evaluation report of market price (such as the holding position has exceeded the upper limit of the loss), a report shall be immediately made to the board of directors and the corresponding measures shall be adopted.

• (2) The holding position of derivatives tradings shall be evaluated at least once per week. If the hedging trading is made in consideration of business necessity, the evalution of which shall be made at least twice per month. The evaluation report shall be submitted to the senior management personnel authorized by the board of directors.

• 5.8.5. The supervising and managing principles of the board of directions when engaging in derivatives tradings:

• (1) Designate senior management personnel to pay continuous attention to monitoring and controlling derivatives trading risk.

• (2) Periodically evaluate whether derivatives trading performance is consistent with established operational strategy and whether the risk undertaken is within the Company's permitted scope of tolerance. Senior management personnel authorized by the board of directors shall manage derivatives trading in accordance with the following principles:

  • (a) Periodically evaluate whether the risk management measures currently employed are appropriate and whether the regulations and the procedures for engaging in derivatives trading stipulated by the Company are faithfully complied with.

  • (b) When irregular circumstances are found in the course of supervising trading and profit-loss circumstances, appropriate measures shall be adopted and a report shall be immediately made to the board of directors. Where the Company has independent directors, an independent director shall be present at the meeting and express an opinion.

• (3) The Company shall report to the latest board meeting if it authorizes the relevant personnel to handle derivates trading in accordance with its procedures for engaging in derivatives trading.

• (4) When engaging in derivatives tradings, the Company shall establish a record book in

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which details of the types and amounts of derivatives trading engaged in, board of directors approval dates, and the matters required to be carefully evaluated under [5.8.4.(2), 5.8.5.(1) and 5.8.5.(2)] shall be recorded in detail in the record book.

5.9. Procedures for engaging in mergers, demergers, acquisitions, and shares assumption

5.9.1. Evaluation and Operation Procedure

• (1) When engaging in mergers, demergers, acquisition and shares assumptions, it is advisable for the Company to engage a lawyer, certified public accountant (CPA) and securities underwriter to jointly discuss the expected timline of regulatory procedure and form an ad hoc group for implementation in accordance with the regulatory procedure. Prior to convening the board of directors to make a resolution, the Copmany shall engage a CPA, lawyer, or securities underwriter to give an opinion on the fairness of the share exchange ratio, acquisition price, or cash or other property distributed to shareholders, and submit it to the board of directors for deliberation and resolution.

• (2) The Company shall prepare a public report to shareholders detailing important contractual terms and matters relevant to the merger, demerger or acquisition prior to the shareholders' meeting and include it along with the expert opinion referred to in [5.9.1.(1)] when sending notification of the shareholders' meeting to shareholders for reference to determine whether to approve the merger, demerger or acquisition, provided that the restriction shall not apply where other laws or regulations exempt a company from convening a shareholders' meeting to approve the merger, demerger or acquisition. In addition, where the shareholders' meeting of any party participating in a merger, demerger or acquisition fails to convene or pass a resolution due to lack of a quorum, insufficient votes, or other legal restriction, or the proposal is rejected by the shareholders' meeting, the companies participating in the merger, demerger or acquisition shall immediately and publicly explain the reason, the follow-up measures, and the preliminary date of the next shareholders' meeting.

5.9.2. Other matters to be noted

• (1) Date of the board meeting: The companies participating in a merger, demerger or acquisition shall convene the meeting of the board of directors and shareholders' meeting on the same day to resolve matters relevant to the merger, demerger or acquisition, unless other laws provide otherwise or the FSC is notified in advance of extraordinary circumstances and grants the consent. The companies participating in

~ 48 ~

assumption of shares shall convene the meeting of the board of directors on the same day, unless other laws provide otherwise or the FSC is notified in advance of extraordinary circumstances and grants the consent.

• (2) Prior undertaking of confidentiality: Every person participating in or privy to the plan for merger, demerger, acquisition, or assumption of shares shall issue a written undertaking of confidentiality and may not disclose the content of the plan prior to public disclosure of the information and may not trade, in their own name or under the name of another person, in any stock or other equity securities of any company related to the plan for merger, demerger, acquisition or assumption of shares.

• (3) Determination and alteration principles of the exchange ratio or acquisition price

Companies participating in merger, demerger, acquisition, or assumption of shares shall, prior to convening the board of directors, engage a CPA, lawyer, or securities underwriter to give an opinion on the fairness of the share exchange ratio, acquisition price, or cash or other property distributed to shareholders, and submit it to the shareholders' meeting. Share exchange ratio or acquisition price may not be arbitrarily altered in principle, provided that this restriction shall not apply if the conditions for alteration have already been stipulated in the contract and disclosed to the public. Share exchange ratio or acquisition price is permitted to be altered in the following conditions:

• (a) Capital increase in cash, or issuance of convertible corporate bonds, bonus shares, corporate bonds with warrants, preferred shares with warrants, stock warrants, or other equity securities.

• (b) An action which affects the company's financial and operations, such as a disposal of major assets.

• (c) An event which affects shareholder equity or securities price, such as a major disaster or major change in technology.

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

• (e) An increase or decrease in the number of entities or companies participating in the merger, demerger, acquisition, or assumption of shares, or change of such entities

~ 49 ~

or companies.

• (f) Other terms/conditions permitted to alter which are stipulated in the contract and have been publicly disclosed.

• (4) Content shall be included in the contract

In addition to Article 317-1 of Company Act and Article 22 of Business Mergers and Acquisitions Act, the contract for a merger, demerger, acquisition, or assumption of shares shall record the following:

• (a) Handling of breach of contract.

• (b) Principles for handling equity-type securities previously issued or treasury stock previously bought back by any company that is dissolved in a merger or that is demerged.

• (c) The amount of treasury stock participating companies are permitted under the laws to buy back after the record date of calculation of the share exchange ratio, and the principles for handling thereof.

• (d) The handling manner of changes in the number of participating entities or companies or changes of such entities or companies.

• (e) Preliminary schedule for plan execution, and anticipated completion date.

• (f) Scheduled date for convening the legally required shareholders meeting if the plan is not completed as scheduled, as well as the relevant procedures.

• (5) Changes in the number of companies participating in the merger, demerger, acquisition, or share assumption

After public disclosure of the information, if any company participating in the merger, demerger, acquisition, or share assumption intends to further carry out a merger, demerger, acquisition, or share assumption with another company, all of the participating companies shall carry out again the procedures or legal actions that had originally been completed for the merger, demerger, acquisition, or share assumption; except that where the number of participating companies is decreased and a participating company's shareholders meeting has adopted a resolution authorizing the

~ 50 ~

board of directors tochange, such participating company may be exempted from calling another shareholders meeting to resolve on the matter again.

• (6) Where any of the companies participating in a merger, demerger, acquisition, or transfer of shares is not a public company, the Company shall sign an agreement with the non-public company and act in accordance with [5.9.2.(1), 5.9.2.(2), 5.9.2.(5), 5.9.2.(7)].

• (7) A company participating in a merger, demerger, acquisition, or share assumption and listed on an exchange or having its shares traded on an OTC market shall prepare a complete written record of the following information and retain it for 5 years for reference:

• (a) Basic identification data of personnel: Including the titles, names, and national ID numbers (or passport numbers in the case of foreign nationals) of all persons involved in the planning or implementation of any merger, demerger, acquisition, or assumption of another company's shares prior to disclosure of the information.

• (b) Dates of material events: Including signing of any letter of intent or memorandum of understanding, engaging a financial or legal advisor, execution of a contract, and convening of a board of directors meeting.

• (c) Important documents and minutes: Including merger, demerger, acquisition, and share assumption plans, any letter of intent or memorandum of understanding, material contracts, and minutes of board of directors meetings.

A company participating in a merger, demerger, acquisition, or share assumption and listed on an exchange or having its shares traded on an OTC market shall report (in the prescribed format and via the Internet-based information system) the information set out in (a) and (b) of the preceding paragraph to the FSC for recordation within 2 days immediately from the date of a resolution by the board of directors.

Where any of the companies participating in a merger, demerger, acquisition, or share assumption of another company's shares is neither listed on an exchange nor has its shares traded on an OTC market, the company(s) so listed or traded shall sign an agreement with such company whereby the provisions of paragraphs 1 and 2 shall be complied with.

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• 5.10. Procedure for Public Disclosure of Information

• 5.10.1. Under any of the following circumstances, the Company acquiring or disposing of assets shall publicly announce and report the relevant information on the FSC's designated website in the prescribed format within two days immediately from the date of occurrence of the event:

  • (1) Acquisition or disposal of real property from or to a related party, or acquisition or disposal of assets other than real property from or to a related party where the transaction amount reaches twenty percent or more of paid-in capital, ten percent or more of the company's total assets, or NT$300 million or more; provided that, this shall not apply to trading of government bonds or bonds under repurchase and resale agreements, or subscription or redemption of domestic money market funds.

  • (2) Merger, demerger, acquisition, or shares assumption.

  • (3) Losses from derivatives trading reaching the limits on aggregate losses or losses on individual contracts set out in the procedures adopted by the Company.

  • (4) Where an asset transaction other than any of those referred to in the preceding three subparagraphs, a disposal of receivables by a financial institution, or an investment in the mainland China area reaches twenty percent or more of paid-in capital or NT$300 million; provided that, this shall not apply to the following circumstances:

    • (a) Trading of government bonds.

    • (b) Securities trading by investment professionals on foreign or domestic securities exchanges or over-the-counter markets, or subscription of securities by a securities firm, either in the primary market or in accordance with relevant regulations.

    • (c) Trading of bonds under repurchase/resale agreements, or subscription or redemption of domestic money market funds.

    • (d) Where the type of asset acquired or disposed is equipment/machinery for business use, the trading counterparty is not a related party, and the transaction amount is less than NT$500 million.

    • (e) Acquisition or disposal by a public company in the construction business of real property for construction use, where the trading counterparty is not a related party,

~ 52 ~

and the transaction amount is less than NT$500 million.

• (f) Where land is acquired under an arrangement on engaging others to build on the company's own land, engaging others to build on rented land, joint construction and allocation of housing units, joint construction and allocation of ownership percentages, or joint construction and separate sale, and the amount the company expects to invest in the transaction is less than NT$500 million.

• (5) The amount of transactions above shall be calculated as follows:

• (a) The amount of any individual transaction.

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

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

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

"Within the preceding year" as used in the preceding paragraph refers to the year preceding the date of occurrence of the current transaction. Items duly announced in accordance with these Regulations need not be counted toward the transaction amount.

5.10.2. Time limit on announcement and report

Where the Company acquires or disposes the asset which includes the item to be announced and the trading amount reaches the threshold for public announcement and report, a public announcement and report shall be made within 2 days immediately from the date of occurrence of the event.

• 5.10.3. Procedure of public announcement and report

• (1) The Company shall make a public announcement and report of relevant information on the website designated by the FSC.

~ 53 ~

  - (2) The Company shall compile monthly reports on the status of derivatives trading engaged in up to the end of the preceding month by itself and any subsidiaries that are not domestic public companies and enter the information in the prescribed format into the information reporting website designated by the FSC by the 10th day of each month.

  - (3) When the Company at the time of public announcement makes an error or omission in an item required by regulations to be publicly announced and so is required to correct it, all the items shall be again publicly announced and reported in their entirety.

  - (4) The Company acquiring or disposing of assets shall keep all relevant contracts, meeting minutes, record books, appraisal reports and CPA, lawyer, and securities underwriter opinions at the company headquarters, where they shall be retained for five years except where another act provides otherwise.

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

     - (a) Change, termination, or rescission of a contract signed in regard to the original transaction.

     - (b) The merger, demerger, acquisition, or shares assumption is not completed by the scheduled date set forth in the contract.

     - (c) Amendment to the originally publicly announced and reported information.

• 5.11. The subsidiaries of the Company shall act in accordance with the following:

• 5.11.1. The subsidiary shall also set up "Procedures Governing the Acquisition and Disposal of Assets" in accordance with relevant regulations of "Regulations Governing the Acquisition and Disposal of Assets by Public Companies" and the same applies to any amendments thereto.

• 5.11.2. Where the matter is not stipulated in the "Procedures Governing the Acquisition and Disposal of Assets" set up or amended by the subsidiary or is in violation of "Procedures Governing the Acquisition and Disposal of Assets" set up by the Company, it shall be handled in accordance with the regulations of the Company.

~ 54 ~

• 5.11.3. Where the subsidiary of the Company is not a public company and its acquisition or disposal of assets meets the standards under the "Regulations Governing the Acquisition and Disposal of Assets by Public Companies" to be publicly announced and reported, the public announcement and report shall be made by the Company.

The standards for publicannoucnement and report under [5.10.1.] shall apply to subsidiaries mentioned above.

For the calculation of ten percent of total assets under this procedure, the total assets stated in the most recent stand alone financial report or individual financial report prepared under the Regulations Governing the Preparation of Financial Reports by Securities Issuers shall apply.

In the case of a company whose shares have no par value or a par value other than NT$10, for calculation of transaction amounts of twenty percent of paid-in capital under this procedure, ten percent of shareholder equity attributable to the parent company shall apply instead.

• 5.12. Penalty: The manager and in-charge personnel shall compensate the loss and damage suffered by the Company if he/she violates this procedure.

• 5.13. Implementation and amendment

After the "Procedures Governing the Acquisition and Disposal of Assets" established by the Company has been approved by the board of directors, it shall be submitted to each supervisor, and then to a shareholders' meeting for approval; the same applies when the procedure is amended. If any director expresses dissent and it is contained in the minutes or a written statement, the company shall submit the director's dissenting opinion to each supervisor.

Where the position of independent director or audit committee has been created, the resolution procedure shall be conducted in accordance with [5.14.2.].

5.14. Supplementary

• 5.14.1. Where any matter is not stipulated in this procedure, it shall be handled in accordance with relevant laws and regulations.

• 5.14.2. Where the position of independent director has been created in accordance with thelaws,

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when a matter is submitted for discussion by the board of directors, the board of directors shall take into full consideration each independent director's opinions. If an independent director objects to or expresses reservations about any matter, it shall be recorded in the minutes. Where an audit committee has been established in accordance with the laws, the matters shall first be approved by a half of all audit committee members and then submitted to the board of directors for a resolution. If approval of a half of all audit committee members is not obtained, it shall be subject to approval by two-thirds or more of all directors, and the resolution of the audit committee shall be recorded in the minutes of the board of directors meeting. The terms "all audit committee members" and "all directors" shall be counted as the actual number of persons currently holding those positions. The provisions for supervisors in this procedure shall apply to the audit committee mutatis mutandis.

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Appendix 3

Regulations for Election of Directors and Supervisors

1. Purpose:

To elect the directors and shareholders impartially, fairly, and publicly, we hereby establish these Regulations in accordance with Article 21 and Article 41 of the "Corporate Governance Best Practice Principles for TWSE/GTSM Listed Companies".

2. Applicable scope:

Except otherwise provided by the laws and regulations, the election of directors and supervisors of the Company shall be conducted in accordance with the Regulations.

3. Authority:

• 3.1. General Finance Department: The responsible department of establishment, amendment and revocation of the Regulation.

• 3.2 Other Departments: Supporting departments of the Regulations.

4. Glossary:

• 4.1 Directors: The persons elected by the shareholder' meeting, including the independent directors and non-independent directors, organizing the board of directors and implementing the businesses in accordance with the laws and regulations, articles of incorporation and resolutions of shareholder' meeting.

5. Operational contents:

• 5.1 The election of directors and supervisors of the Company adopts uni-nominal cumulative voting system. In the process of electing directors at a shareholders' meeting, the number of votes exercisable in respect of one share shall be the same as the number of directors to be elected, and the total number of votes per share may be consolidated for election of one candidate or may be demerger for election of two or more candidates. The election of supervisors adopts the same approach. The name record of the voting person may be altered by the attendance certificate number printed in the ballot.

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• 5.1.1. The qualification and election of the independent directors of the Company shall be in compliance with regulations stipulated in the "Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies".

• 5.1.2. The election of the independent directors of the Company adopts a candidate nomination system. The candidate shall be elected in accordance with candidate nomination process as stipulated in Article 192-1 of Company Act.

• 5.2 The directors and superviors of the Company shall be elected by the shareholders' meeting from among the persons with capacity to make judicial acts. The number of directors and supervisors will be as specified in the Company's articles of incorporation, with voting rights separately calculated for independent and non-independent director positions. Those receiving ballots representing the highest numbers of voting rights will be elected sequentially according to their respective numbers of votes. When two or more persons receive the same number of votes, thus exceeding the specified number of positions, they shall draw lots to determine the one being elected, with the chair drawing lots on behalf of any person not in attendance.

Where the shareholder was elected to be the director and supervisor at the same time in accordance with the preceding paragraph, he/she shall decide which position to be assumed. The vacancy shall be filled in by the candidate with major voting in the same election.

• 5.3 The overall composition of the board of directors shall be taken into consideration in the selection of the Company's directors. Each board member shall have the necessary knowledge, skill, and experience to perform their duties; the abilities that must be present in the board as a whole are as follows:

• 5.3.1. The ability to make judgments about operations.

• 5.3.2. Accounting and financial analysis ability.

• 5.3.3. Business management ability.

• 5.3.4. Crisis management ability.

• 5.3.5. Knowledge of the industry.

• 5.3.6. An international market view.

• 5.3.7. Leadership ability.

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5.3.8. Decision-making ability.

• 5.4 Supervisors of the Company shall meet the following qualifications:

• 5.4.1. Integrity and a practical attitude.

5.4.2. Impartial judgment.

5.4.3. Professional knowledge.

5.4.4. Broad experience.

5.4.5. Ability to read financial statements.

In addition to the requirements of the preceding paragraph, at least one among the supervisors of the Company must be an accounting or finance professional.

• 5.5 The ballot is printed by the Company in sequence of the attendance certificate number, with the number of voting rights of each shareholder.

• 5.6 Before the election begins, the chairman shall appoint a number of counting personnel and vote monitoring personnel with shareholder status to perform the respective duties.

• 5.7 If a candidate is a shareholder, a voter must enter the candidate's account name and shareholder account number in the "candidate" column of the ballot; for a non-shareholder, the voter shall enter the candidate's full name and identity card number. However, when the candidate is a governmental organization or juristic-person shareholder, the name of the governmental organization or juristic-person shareholder shall be entered in the column for the candidate's account name in the ballot paper, or both the name of the governmental organization or juristic-person shareholder and the name of its representative may be entered. When there are multiple representatives, the names of each respective representative shall be entered.

• 5.8 A ballot is invalid under any of the following circumstances:

• 5.8.1. The ballot was not the one prescribed under this Regulations.

• 5.8.2. A blank ballot is placed in the ballot box.

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• 5.8.3. The writing is unclear and indecipherable or has been altered.

• 5.8.4. The candidate whose name is entered in the ballot is a shareholder, but the candidate's identity and shareholder account number do not conform with those given in the shareholder register, or the candidate whose name is entered in the ballot is a non-shareholder, and a cross-check shows that the candidate's name and identity card number do not match.

• 5.8.5. Other words or marks are entered in addition to the candidate's account name or shareholder account number or identity card number.

• 5.8.6. The name of the candidate entered in the ballot is identical to that of another shareholder, but no shareholder account number or identity card number is provided in the ballot to identify such individual.

• 5.8.7 Two or more candidates are elected in the same ballot.

• 5.9 The ballot boxes for election of directors and supervisors shall be prepared by the board of directors respectively, and voting shall be conducted respectively. The ballot boxes shall be publicly checked by the vote monitoring personnel before voting commences.

• 5.10 The votes shall be calculated on site immediately after the end of the poll, and the results of the calculation, including the list of persons elected as directors or supervisors, shall be announced by the chairman on the site.

• 5.11 Supplementary:

• 5.11.1. Where any matter is not stipulated in this Regulations, it shall be handled in accordance with the Company Act and relevant laws and regulations.

• 5.11.2. This Regulations, and any amendments hereto, shall be implemented after approval by a shareholders meeting.

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Appendix 4

Rules of Procedure for Shareholders Meetings

1. Purpose: To establish rules for shareholders’ meetings of the Company.

2. Applicable scope: Annual shareholders meeting and extraordinary shareholders meeting.

3. Responsibilities and duties: General Finance Department.

4. Glossary: Nil.

5. Operational contents:

• 5.1 The rules of procedures for the Company's shareholders’ meetings, except as otherwise provided by laws, regulations, or the articles of incorporation, shall be as provided in this Rules.

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

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

Shareholders and their proxies (collectively, "shareholders") shall attend shareholders’ meetings based on attendance cards, sign-in cards, or other certificates of attendance. Solicitors soliciting proxy forms shall also bring identification documents for verification.

The Company shall furnish the attending shareholders with an attendance book to sign, or attending shareholders may hand in a sign-in card in lieu of signing in.

Attending shares shall be calculated based on the attendance book or sign-in card.

The Company shall furnish attending shareholders with the meeting agenda book, annual report, attendance card, speaker's slips, voting slips, and other meeting materials. Where there is an election of directors or supervisors, pre-printed ballots shall also be furnished.

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• 5.3 Attendance at shareholders’ meetings shall be calculated based on the numbers of shares.

• 5.4 The venue for a shareholders meeting shall be the premises of the Company, or a place easily accessible to shareholders and suitable for a shareholders meeting. The meeting may begin no earlier than 9 a.m. and no later than 3 p.m.

• 5.5 If a shareholders meeting is convened by the board of directors, the meeting shall be chaired by the chairman of the board. When the chairman of the board is on leave or for any reason unable to exercise the powers of the chairman, the vice chairman shall act in place of the chairman; if there is no vice chairman or the vice chairman is also on leave or for any reason unable to exercise the powers of the vice chairman, the chairman shall appoint one of the managing directors to act as chair, or, if there are no managing directors, one of the directors shall be appointed to act as chair. Where the chairman does not make such a designation, the managing directors or the directors shall select from among themselves one person to serve as chair.

When a managing director or a director serves as chair as referred to in the preceding paragraph, the managing director or director shall have held that position for six months or more and understands the financial and business conditions of the company. The same shall apply to a representative of a juristic person director that serves as chair.

It is advisable that shareholders’ meetings convened by the board of directors be attended by a majority of the directors.

If a shareholders meeting is convened by a party with power to convene but other than the board of directors, the convening party shall chair the meeting.

• 5.6 This Company may appoint its lawyers, CPAs, or related persons retained by it to present in a shareholders meeting.

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

• 5.8 The chair shall call the meeting to order at the appointed meeting time. However, when the attending shareholders do not represent a majority of the total number of issued shares, the chair may announce a postponement, provided that no more than two such postponements, for a combined total of no more than 1 hour, may be made. If the quorum is not met after two postponements but the attending shareholders represent one third or more of the total number of

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issued shares, a tentative resolution may be made in accordance with Paragraph 1, Article 175 of the Company Act.

When, prior to conclusion of the meeting, the attending shareholders represent a majority of the total number of issued shares, the chair may resubmit the tentative resolution for a vote by the shareholders meeting pursuant to Article 174 of the Company Act.

• 5.9 If a shareholders meeting is convened by the board of directors, the meeting agenda shall be set by the board of directors. The meeting shall proceed in the order set by the agenda, which may not be changed without a resolution of the shareholders meeting.

The provisions of the preceding paragraph apply mutatis mutandis to a shareholders meeting convened by a party with the power to convene that is not the board of directors.

The chair may not declare the meeting adjourned prior to completion of the meeting agenda of the preceding two paragraphs (including extraordinary motions), except by a resolution of the shareholders meeting.

After close of the said meeting, shareholders shall not elect another chairman to hold another meeting at the same place or at any other place. However, if the chair declares the meeting adjourned in violation of the rules of procedure, the meeting can be continued by electing a new chair under the agreement of a majority of the votes represented by the attending shareholders.

• 5.10 Before speaking, an attending shareholder must specify on a speaker's slip the subject of the speech, his/her shareholder account number (or attendance card number), and account name. The order in which shareholders speak will be set by the chair.

A shareholder in attendance who has submitted a speaker's slip but does not actually speak shall be deemed to have not spoken. When the content of the speech does not correspond to the subject given on the speaker's slip, the spoken content shall prevail.

When an attending shareholder is speaking, other shareholders may not speak or interrupt unless they have sought and obtained the consent of the chair and the shareholder that has the floor; the chair shall stop any violation.

• 5.11 Except with the consent of the chair, a shareholder may not speak more than twice on the same proposal, and a single speech may not exceed five minutes. If the shareholder's speech violates the rules or exceeds the scope of the agenda item, the chair may terminate the speech.

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• 5.12 When a juristic person is appointed to attend as proxy, it may designate only one person to represent it in the meeting.

When a juristic person shareholder appoints two or more representatives to attend a shareholders meeting, only one of the representatives so appointed may speak on the same proposal.

• 5.13 After an attending shareholder has spoken, the chair may respond in person or direct relevant personnel to respond.

• 5.14 When the chair is of the opinion that a proposal has been discussed sufficiently to put it to a vote, the chair may announce the discussion closed and call for a vote.

• 5.15 Vote monitoring and counting personnel for the voting on a proposal shall be appointed by the chair, provided that all monitoring personnel shall be shareholders of the Company.

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

The election of directors or supervisors at a shareholders meeting shall be held in accordance with the applicable election rules 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.

• 5.16 When a meeting is in progress, the chair may announce a break based on time considerations.

• 5.17 Except otherwise provided in the Company Act and in the Company's articles of incorporation, the passage of a proposal shall require an affirmative vote of a majority of the voting rights represented by the attending shareholders. When a matter comes to a vote, if upon inquiry by the meeting chair no member voices an objection, the matter will be deemed approved, with the same effect as approval by vote.

• 5.18 When there is an amendment or an alternative to a proposal, the chair shall present the amended or alternative proposal together with the original proposal and decide the order in which they will be put to a vote. When any one among them is passed, the other proposals will then be deemed rejected, and no further voting shall be required.

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• 5.19 Staff handling administrative affairs of a shareholders meeting shall wear identification cards or arm bands.

The chair may direct the proctors or security personnel to help maintain order at the meeting place. When proctors or security personnel help maintain order at the meeting place, they shall wear an identification card or armband bearing the word "Proctor."

When a shareholder violates the rules of procedure and defies the chair's correction, obstructing the proceedings and refusing to heed calls to stop, the chair may direct the proctors or security personnel to escort the shareholder from the meeting.

• 5.20 Matters relating to the resolutions of a shareholders meeting shall be recorded in the meeting minutes. The meeting minutes shall be signed or sealed by the chair of the meeting and a copy shall be distributed to each shareholder within twenty days after the conclusion of the meeting. The meeting minutes shall be retained for the duration of the existence of this Company.

The meeting minutes may be produced and distributed in electronic form. The meeting minutes may also be distributed in the means of announcement.

The attendance list bearing the signatures of shareholders present at the meeting and the powers of attorney of the proxies shall be kept by the Company for a minimum period of at least one year. However, if a lawsuit has been instituted by any shareholder in accordance with the provisions of Article 189 of the Company Act, the minutes of the shareholders' meeting involved shall be kept by the Company until the legal proceedings of the foregoing lawsuit have been concluded.

• 5.21 Where there is air alarm happened during the meeting, the meeting shall be terminated or suspended immediately and the participant shall be evacuated. The meeting shall be continued one hour after the clear of alarm.

• 5.22 Where any matter is not stipulated in this Rules, it shall be handled in accordance with Company Act and other relevant laws and regulations and the article of incorporation of the Company.

• 5.23 This Rules, and any amendments hereto, shall be implemented after adoption by the shareholders’ meetings.

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Appendix 5

Merry Electronics Co., Ltd.

Shareholding of Directors and Supervisors

1. The paid-in capital of the Company is NT$1,850,273,230. The issued and outstanding shares is 185,027,323 shares.

2. According to Article 26 of the Securities Exchange Act, the minimum shareholding of all of the directors is 13,877,049 shares and the minimum shareholding of all of the supervisors is 1,387,704 shares.

3. As of the book closure date of this extraordinary shareholders meeting, the shareholding of all of directors and supervisors in the shareholders book are as follows:

Title	Title	Name	Shareholdings in the shareholders book as of December 24, 2015 (share)	Note
Chairman		Lu-Lee Liao	6,065,975	（Note）
Director		Wen-Chien Wei	9,568,067
Director		Lu-Yen Liao	7,450,638	（Note）
Director		Wen-Chen Lai	525,236
Director		Chin-TangTseng	208,355
Director		Shu-Chun Lin	356,204
Director		Shin-Chieh Lin	307,576
Total shares of all directors			24,482,051
Supervisor	Yun-chuan Hung		754,571
Supervisor	Shan-Chun Cho		450,280
Supervisor	Ben-lin Liao		105,729
Total shares of all supervisors			1,310,580

Note: The shareholding includes the entrusted shares with reservation of decision discretionary.

1. The name, shareholding and discharged reason of the discharged director or supervisor as of December 24, 2015: Nil

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