Far EasTone Telecommunications Co., Ltd. 2017 Annual ... · 0 Far EasTone Telecommunications Co., Ltd. 2017 Annual Shareholders’ Meeting Handbook June 23, 2017 Taipei City, R.O.C

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Far EasTone Telecommunications Co., Ltd.

2017 Annual Shareholders’ Meeting Handbook

June 23, 2017

Taipei City, R.O.C.

The English version is the translation of the Chinese version and if there is any conflict between the meaning of terms in the Chinese version and English

translation, the meaning of the Chinese version shall prevail.

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Agenda of 2017 Annual Shareholders' Meeting

Time: 9:00 a.m., June 23, 2017

Place: Taipei Hero House, 20 Changsha Street, Sec. 1, Taipei City

Opening – Chairman

Company Presentation – Chairman / President

Agenda of Meeting – Chairman

I. Matters to be reported

(1) The 2016 Business report…………...............……..…………….……………………………………………………………… 3

(2) The 2016 Financial statements …………………..……...….………………………………………………….…. …………… 5

(3) The 2016 Audit Committee’s review report.…………………………………………………………………………………… 6

(4) The 2016 directors’ and employees’ compensation.……………………………………………………………………………… 7

(5) The issuance of corporate bonds………………………………………………………………………………………………… 8

II. Matters to be ratified

(1) The 2016 financial statements (including 2016 business report)……….……………..……………..…………………………... 9

(2) The 2016 retained earnings distribution….……………....….…………....….……………....….……………....…….….…….... 10

III. Matters to be discussed

(1) To discuss and approve the cash distribution from Capital Surplus…………………..………………………………….……...

(2) To discuss and approve the amendments to “Handling Procedure for Acquisition and Disposal of Assets” of the Company…..

IV. Extempore Motion

V. Motion to Adjourn

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Attachment

1. Independent Auditors’ Report………………………………………………………........................................................................ 13

2. Balance Sheets……………………………………………………………………...……….……....………………...................... 17

3. Statements of Comprehensive Income………….………………………….………………......…………………...…………….. 18

4. Statements of Changes in Equity……………………..………………………………………...…...…….……..……................... 20

5. Statements of Cash Flows…………………………………………….………………………...…....…………..………………... 21

6. Independent Auditors’ Report…………………………………….……………………...……...………..……………………….. 23

7. Consolidated Balance Sheets…………………………………………….…………………………..…....……...…...................... 27

8. Consolidated Statements of Comprehensive Income…………………………………….………….……………...…………….. 28

9. Consolidated Statements of Changes in Equity……………………………………….….........................……….………………. 30

10. Consolidated Statements of Cash Flows……………………………………………….…………………....…………………….. 31

11. Amendment to the “Handling Procedure for Acquisition and Disposal of Assets” of Far EasTone Telecommunications Co., Ltd 33

12. Status of Directors’ shareholding of the 7th Term Board of Directors on April 25, 2017…………………………………………. 41

13. Director and Employees’ compensation………..……………………….…………………….………………...……………......... 41

14. Impact of Stock Dividend Distribution on Business Performance, EPS and Return on Investment……………...…………......... 41

Articles

1. Articles of Incorporation of Far EasTone Telecommunication Co., Ltd……………………………………..…...………..……... 43

2. Handling Procedure for Acquisition and Disposal of Assets………………………..……….………………….…………..…... 50

3. Rules Governing the Conduct of Shareholders’ Meeting………………..…………………...……………..……..........................

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I. Matters to be reported

(1) The 2016 Business report Dear Stakeholders and Investors, Looking back at 2016, Far EasTone continued to deliver outstanding business performance thanks to the concerted efforts of our entire staff. Far EasTone was proud to be the first telecom operator in Taiwan to start operating 4.5G/LTE on 2,600MHz band, dominating the telecom industry with the highest internet speed. Furthermore, we have worked with the telecom-equipment giant Ericsson to establish the first 5G Lab in Taiwan, accelerating the IoT development of Taiwan industry. In the meantime, Far EasTone also stepped into the field of mobile payment, launched friDay Wallet aiming to create the most convenient mobile payment ecosystem. In regard to corporate social responsibility, Far EasTone has been relentlessly working on corporate governance, environmental protections and charity works, which results in our listing as an index component in Dow Jones Sustainability Emerging Markets Index. This marks a significant milestone for Far EasTone as it has ranked as one of the top performing companies in corporate sustainability internationally. Far EasTone continued to create value with stable growth prospects for our shareholders in 2016 in which we saw a consolidated revenue of NT$94.3bn, an EBITDA of NT$27.8bn, and an NT$11.4bn profit after tax. The EPS in 2016 was NT$3.5. Far EasTone’s Innovative Technology made Smart Living Anytime, Anywhere

Gearing up for the next mobile era and ever-changing world, Far EasTone not only spearheaded the innovations of mobile technology and continued to expand 4.5G applications, but also launched multiple innovative services that expand the applications of IoT, setting foot in the mobile payment market. With the launch of friDay Wallet last year, Far EasTone stepped into mobile payment, providing users with more enriched digital experience through an array of value-added services under its digital brand friDay(friDay Video, friDay Shopping, friDay Reading, friDay Omusic and friDay Play). Also, Far EasTone pioneered in introducing the first robot as sales assistant in retail stores by incorporating artificial intelligence and virtual technology, marking a huge leap in innovative service. On the other hand, Far EasTone has invested in enterprise IoT applications and partnered with Tainan City Government to promote 4G Smart City Flagship Project, targeting six sectors including traffic management, smart transportation, disaster prevention, tourism industry, health community, and mobile education. Through big data analysis, Far EasTone deployed a cross-industry network with comprehensive ICT solutions, reinventing the value chain. The success of 4G Smart City Flagship Project made it the only Taiwanese case study introduced in GSMA’s (Groupe Speciale Mobile Association) Keys to the Smart City Report. Far EasTone also launched "Smart Home" service that enables users to manage household conveniences through a series of intelligent automation solutions. From fixed internet to mobile, from house to urban life, Far Eastone has embraced a new era of digital living.

360° Services Delivered Warmth and Friendliness to Customers

The essence of telecom industry is embodied in customer service. It’s only through fulfilled customer satisfactions that unique brand value can be shaped, and

made Far EasTone an outstanding brand. During the pursuit of premium service, Far EasTone has established a world-class service learning management

system, the first and only operator accredited with the ISO29990 certification. Also, Far EasTone has dedicated to promoting "360° Services” to realize “service

without distance.” Last year, the brand new online customer service featuring five service categories and personalized services took it even further, enabling

users to enjoy convenient services anytime, anywhere. The universally recognized quality services have won several awards in successive years including the

“Golden Award of the Best Service in Taiwan” hosted by Commercial Times, the "Top Service Award" hosted by Next Magazine, and the “Best Store Manager

Award” presented by the Taiwan Chain Stores and Franchise Association.

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"Express your love. Let it be heard" Far EasTone’s Brand Spirit Brings Positive Energy across Formosa

Far EasTone has always believed that corporate’s social responsibility should build upon the long-term commitment towards the society. With this spirit, we have been promoting “Express your love. Let it be heard” since 2013, an initiative aiming to spread positive sentiments, cherishing and expressing the kindness and beauty of Taiwanese people. Far EasTone has also been working with John Tung Foundation and Teacher Chang Foundation to promote emotion management in hope to change this land for a better future. In addition, for the past four years, Far EasTone has strategically utilized the core competence of mobile connectivity to build up the environmental education from a creative approach. The second “Cherish the Earth, Spread Love Far” campaign, engaging the society to appreciate and take actions to protect Mother Nature’s beauty and diversity, received great applause and response from the public.

Far EasTone’s Sustainability Performance Recognized by the International Society

Far EasTone’s sustainable development, driven by 4G Sustainability Forces: Go Prosperous, Go Innovative, Go Caring, and Go Inclusive, has been able to ensure the Company’s stable development under any changes of external environment. Far EasTone was listed as an index component in Dow Jones Sustainability Emerging Markets Index, indicating the sustainability performance has been recognized by the international community. Apart from this, Far EasTone was rated as one of the top 10 large-scale enterprises of Common Wealth Magazine's Corporate Social Responsibility Excellence Awards and won "The Most Prestigious Sustainability Award” presented by TCSA (Taiwan Corporate Sustainability Awards) for the second consecutive years. In addition, we were named as the, ”Best CEO”, “Best Managed Company”, “Best Corporate Social Responsibility”, “Best CFO” and “Best Investor Relations” in Taiwan by FinanceAsia. The Company was ranked top 5% in Corporate Governance Evaluation conducted by TWSE (Taiwan Stock Exchange) for three consecutive years.

Through Cross-Industry, Border and Domain Transformation, Into A New Digital Age

As the theme of 2016 Mobile World Congress “Mobile is Everything” indicated, mobile will become pervasive and unprecedentedly important while 5G network and IoT will be given significant importance in near future. Looking ahead, as a leading company in telecommunication and digital application services, Far EasTone will take bold steps in cross-industry, cross-border and cross-domain transformation to strengthen the vertical integrations of ICT solutions based on our 4.5G tri-band high speed mobile network. And through segment marketing, we will develop more diversified and intelligent solutions to cater to the needs of customers. While we actively deploy 5G network and IoT solutions, we will continue to deepen business analytics technology and provide products and services catered to customers' intimacy, transforming them into greater business benefits.

With the rapid development of technology, the world is now confronted with VUCA: Volatility, Uncertainty, Complexity and Ambiguity. The strategies, theories, and practices we used to rely on are no longer applicable in today’s business environment. Facing such capricious challenge, Far EasTone will lead organizational transformation to become more agile and apt for changes, bringing operational efficiency up to a new level. Riding on this transformation, we will provide superior customer experience and innovative applications to become the preferred partner in digital life. Most importantly, Far EasTone will continue to pursue sustainable development and growth for our shareholders, employees, the environment and society, fulfilling the vision of “FET Connects and Enriches Life”.

Lastly, our most sincere appreciation to all the shareholders and investors. Please keep your suggestions coming and help us excel and improve. Wish all of you good health and great success.

Chairman President Chief Accountant

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(2) The 2016 Financial statements

1. Balance Sheets

2. Statements of Comprehensive Income

3. Statements of Changes in Equity

4. Statements of Cash Flows

5. Consolidated Balance Sheets

6. Consolidated Statements of Comprehensive Income

7. Consolidated Statements of Changes in Equity

8. Consolidated Statements of Cash Flows

Please refer to the attachments, page 13~32, for Independent Auditors’ Report together with all above financial reports of Year 2016.

For complete financial reports, please download from the Market Observation Post System of the Taiwan Stock Exchange

(http://newmops.twse.com.tw)

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(3) The 2016Audit Committee’s review report

The Board of Directors has prepared the Company’s 2016 Business Report, the Financial Statements and the Proposal for Profit

Distribution. The CPAs of Deloitte & Touche, Annie Lin and Denny Kuo have audited the Financial Statements (including the

Stand-alone & the Consolidated Financial Reports) and issued the audit opinions. The Business Report, Financial Statements, and the

Proposal for Profit Distribution have been reviewed and determined to be correct and accurate by the Audit Committee members of Far

EasTone Telecommunications Co., Ltd. According to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company

Act, we hereby submit this report.

Far EasTone Telecommunications Co., Ltd. Chairman of the Audit Committee:

Lawrence Juen-Yee LAU

February 24, 2017

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(4) The 2016 directors’ and employees’ compensation

Explanatory Notes：

1. According to Article 26 of the Articles of Incorporation, if the Company has surplus, it shall set aside 1%~2% for employees’

compensation and set aside no more than 1% as directors’ compensation. It is proposed that for the 2016, the Company distributes 2%

of the before tax earnings as employees’ compensation in the amount of NT$262,208,083, and distributes approximate 0.72% of the

before tax earnings as directors’ compensation in the amount of NT$94,394,910. The distribution will take place in cash.

2. The compensation of the Company’s directors is distributed in accordance with the shareholding each one represents, and the effort

each has contributed to the Company’s affairs, which are carefully considered for the remuneration arrangement. The Company’s

PIPNS regulations will determine the times and date of the compensation of employees.

3. This proposal has been approved by the 10th

meeting of the seventh-term Board of Directors on February 15, 2017 for submitting to

the 2017 Annual Shareholders Meeting for report.

4. Please report.

Resolution:

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(5) The issuance of corporate bonds


1. Latest Information of the Corporate Bonds Issued in Y2016 & Y2017.

Offering Type Domestic Unsecured Bond Domestic Unsecured Bond

(1st of Year 2016) (1

st of Year 2017)

Total Amount NT$ 5.2 billion NT$ 4.5 billion

Maturity 5 years

Coupon Rate 1.17% p.a.

Repayment The bond is repayable in lump sum on the expiry date.

The interest is calculated on the coupon rate and paid annually.

Guarantor None

Authority

Approval Authority Taipei Exchange

Approved Date December 26th

, 2016 April 17th

, 2017

Approval Letter No. 10500366181 10600093711

Use of Proceeds To repay short term borrowing and strengthen financial structure

Remark Issued at par value on January 5th

, 2017 Issued at par value on April 26th

, 2017

2. According to Article 246 of Company Law, the Company shall report the corporate bond issuances to the shareholders’ meeting.

Please report.

Resolution:

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II. Matters to be ratified

(1) The 2016 financial statements (including 2016 business report)


1. The 2016 business report and the 2016 annual financial statements and consolidated financial statements as of December 31, 2016

have been audited by the Company’s auditing CPAs, Ms. Annie Lin and Mr. Tony Chang of Deloitte and Touche. Audit Committee of

the Company has reviewed the Financial Statements for the year ended December 31, 2016 and issued audit reports.

2. This proposal has been approved by the 10th meeting of the seventh-term Board of Directors on February 15, 2017.

3. Please ratify.

Resolution:

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(2) The 2016 retained earnings distribution

Explanatory Notes： 1. It is proposed the Company to distribute cash dividend of NT$10,195,849,034 from the retained earnings at NT$3.129 per share.

2. Please refer to the following table for the Company’s 2016 appropriation proposal:


Retained Earnings Distribution Proposal (in NT dollars)

3. If the outstanding shares are impacted due to the Company’s subsequent capital increase or other matters before the ex-cash dividend

record date, it is proposed the Board of Directors be authorized by the Shareholders’ Meeting to adjust the ultimate cash to be

distributed to each common share based on the number of actual outstanding shares on the ex-cash dividend record date. Cash

dividend of individual shareholder will be round down to and distributed in integer of New Taiwan Dollar, with fractions of the

Dollar of the cash dividend of each shareholder be reduced and be accounted for as the other income of the Company.

4. It is proposed that the Board authorizes the Chairman to fix the record date of ex-cash dividend after the approval by the 2017 annual

Shareholders’ Meeting.


6. Please ratify.

Resolution:

Un-appropriated earnings as of January 1, 2016 5,143,525

Less: actuarial gain (loss) recognized as retained earnings (35,175,728)

Less: Adjustments due to changes in investees’ equity in equity-method investments (14,440,850)

Adjusted un-appropriated earnings (44,473,053) Add:Y2016 Net income 11,391,302,891

Less: legal reserve (1,134,682,984)

Less : special reserve (13,560,370)

Maximum distributable earnings 10,198,586,484

Less: appropriation

Cash dividends (NT$3.129 per share) (10,195,849,034)

Un-appropriated earnings after distribution 2,737,450

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III. Matters to be discussed

(1) To discuss and approve the Cash distribution from Capital Surplus

Explanatory Notes:

1. According to Article 241 of the Company Act: “Where a company incurs no loss, it may distribute its legal reserve and capital

reserve-Additional Paid-in Capital-Share Issuance in Excess of Par Value as cash dividend to its original shareholders in proportion

to the number of shares being held by each of them.” It is proposed the Company to distribute cash dividend of NT$2,023,529,004

from the capital surplus-Additional Paid-in Capital-Share Issuance in Excess of Par Value & from business combination at NT$0.621

per share.

2. If the outstanding shares are impacted due to the Company’s subsequent capital increase or other matters before the ex-cash

distribution record date, it is proposed the Board of Directors be authorized by the Shareholders’ Meeting to adjust the ultimate cash

to be distributed to each common share based on the number of actual outstanding shares on the ex-cash distribution record date.

Cash dividend of individual shareholder will be round down to and distributed in integer of New Taiwan Dollar, with fractions of the

Dollar of the cash dividend of each shareholder be reduced and be accounted for as the other income of the Company.

3. It is proposed that the Board authorizes the Chairman to fix the record date of ex-cash distribution after the approval by the 2017

annual Shareholders’ Meeting.


5. In Ratification Proposal 2, it is proposed the Company distributes cash of NT$10,195,849,034 from the retained earnings at

NT$3.129 per share. With the cash distribution of NT$0.621 per share from capital surplus, totaling cash NT$3.75 per share of 2016.

6. Please approve. Resolution:

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(2) To discuss and approve the amendments to “Handling Procedure for Acquisition and Disposal of Assets” of the Company

Explanatory Notes:

1. In order to comply with the amendment of “Regulations Governing the Acquisition and Disposal of Assets by Public Companies”

announced by official letter No. 1060001296 of the Financial Supervisory Commission (“FSC”) dated February 9, 2017, it is

proposed to amend of the Company’s “Handling Procedure for Acquisition and Disposal of Assets”. Please refer to page 33~40 for

the amendment.


3. Please approve.

Resolution:

IV. Extempore Motion

V. Motion to Adjourn

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders


Report on the Audit of the Financial Statements Opinion

We have audited the financial statements of Far EasTone Telecommunications Co., Ltd. (“the

Company”), which comprise the balance sheets as of December 31, 2016 and 2015, and the

statements of comprehensive income, statement of changes in equity and statements of cash flows

for the years then ended, and notes to the financial statements, including a summary of significant

accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the

financial position of the Company as of December 31, 2016 and 2015, and its financial

performance and its cash flows for the years then ended in accordance with the Regulations

Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Attestation of

Financial Statements by Certified Public Accountants and auditing standards generally accepted in

the Republic of China. Our responsibilities under those standards are further described in the

Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are

independent of the Company in accordance with the CPA Ethical Standards, and we have fulfilled

our other ethical responsibilities in accordance with these requirements. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in

our audit of 2016 financial statements. These matters were addressed in the context of our audit of

the financial statements as a whole, and in forming our opinion thereon, and we do not provide a

separate opinion on these matters.

The description of the key audit matters of 2016 financial statements are as follows:

The Impairment Loss of Property, Plant and Equipment and Intangible Assets (Including Goodwill)

As of December 31, 2016, the balances of property, plant and equipment and intangible assets

account for 66% of the total assets and are material for the financial statements as a whole. Since

the economic trends, market competition and technology development would influence the

operation of the Company and the management’s evaluation and judgment on the expected

economic benefits and recoverable amounts of the cash-generating unit to which the asset belongs

for the evaluation of asset impairment. Thus, the impairment of property, plant and equipment and

intangible assets is considered as a key audit matter

For the estimates and judgments related to property, plant and equipment and intangible assets,

please refer to Note 5. For other related disclosures, please refer to Note 11 and Note 13.

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By conducting the tests of controls, we obtained an understanding of the Company’s asset

impairment evaluation processes and of the design and implementation of related controls. We

also performed the major corresponding audit procedures as follows:

1. Obtain the Company’s asset impairment evaluation reports for each cash-generating unit.

2. Evaluate and consult with the internal experts of the CPA firm about the reasonableness of the

Company’s identification of asset impairment, the assumptions and sensitivity used in the asset

impairment assessment, including the appropriateness of the classification of cash-generating

unit, cash flows forecasts and discount rates used.

Recognition of telecommunications service revenues

The telecommunications service revenue is the main source of the revenue and it accounts for 75%

of the Company’s total revenue of 2016. The calculation of telecommunications service revenue

highly relies on automatic systems and includes complicated data transmission. In order to meet

market demands and remain competitive, the Company often launches different combinations of

products and services which makes the calculation of revenue more complex and directly affects

the accuracy and timing of revenue recognition. Therefore, the recognition of telecommunications

service revenues is considered as a key audit matter.

For the accounting policies related to telecommunications service revenues, please refer to Note 4.

By conducting the tests of controls, we obtained an understanding of the Company’s recognition of

telecommunications service revenues and of the design and implementation of related controls.

We also performed the major audit procedures as follows:

1. Review the contracts of mobile subscribers to confirm the accuracy of the information in the

accounting system.

2. Perform the dialing test to verify the accuracy and completeness of the traffic and information

in the telephone exchange.

3. Test the accuracy of billing calculation.

4. Test the completeness and accuracy of calculation and billing of monthly fees and airtime fees.

5. Test the completeness and accuracy of calculation and billing of value-added service fees.

For the revenue recognition of billed and unbilled amount, we conducted the following tests:

1. For the billed amounts, compare if there is any difference between the reports generated from

the accounting system and the billing system.

2. For the unbilled amounts, recalculate the service revenue for services provided as of the

balance sheet date based on the applied charge rates to confirm the accuracy.

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Responsibilities of Management and Those Charged with Governance for the Financial

Statements

Management is responsible for the preparation and fair presentation of the financial statements in

accordance with the Regulations Governing the Preparation of Financial Reports by Securities

Issuers, and for such internal control as management determines is necessary to enable the

preparation of financial statements that are free from material misstatement, whether due to fraud

or error.

In preparing the financial statements, management is responsible for assessing the Company’s

ability to continue as a going concern, disclosing, as applicable, matters related to going concern

and using the going concern basis of accounting unless management either intends to liquidate the

Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including audit committee) are responsible for overseeing the

Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report

that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee

that an audit conducted in accordance with the auditing standards generally accepted in the

Republic of China will always detect a material misstatement when it exists. Misstatements can

arise from fraud or error and are considered material if, individually or in the aggregate, they could

reasonably be expected to influence the economic decisions of users taken on the basis of these

financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of

China, we exercise professional judgment and maintain professional skepticism throughout the

audit. We also:

1. Identify and assess the risks of material misstatement of the financial statements, whether due

to fraud or error, design and perform audit procedures responsive to those risks, and obtain

audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of

not detecting a material misstatement resulting from fraud is higher than for one resulting from

error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the

override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Company’s ability to

continue as a going concern. If we conclude that a material uncertainty exists, we are required

to draw attention in our auditors’ report to the related disclosures in the financial statements or,

if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the

audit evidence obtained up to the date of our auditors’ report. However, future events or

conditions may cause the Company to cease to continue as a going concern.

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5. Evaluate the overall presentation, structure and content of the financial statements, including

the disclosures, and whether the financial statements represent the underlying transactions and

events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of the

entities or business activities within the Company to express an opinion on the financial

statements. We are responsible for the direction, supervision and performance of the audit. We

remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies

in internal control that we identify during our audit.

We also provide those charged with governance with statements that we have complied with

relevant ethical requirements regarding independence, and to communicate with them all

relationships and other matters that may reasonably be thought to bear on our independence, and

where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters

that were of most significance in the audit of 2016 financial statements and are therefore the key

audit matters. We describe these matters in our auditor’s report unless law or regulation precludes

public disclosure about the matter or when, in extremely rare circumstances, we determine that a

matter should not be communicated in our report because the adverse consequences of doing so

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

February 15, 2017

Notice to Readers

The accompanying financial statements are intended only to present the financial position,

financial performance and cash flows in accordance with accounting principles and practices

generally accepted in the Republic of China and not those of any other jurisdictions. The

standards, procedures and practices to audit such financial statements are those generally applied

in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial

statements have been translated into English from the original Chinese version prepared and used

in the Republic of China. If there is any conflict between the English version and the original

Chinese version or any difference in the interpretation of the two versions, the Chinese-language

independent auditors’ report and financial statements shall prevail.

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FAR EASTONE TELECOMMUNICATIONS CO., LTD.

BALANCE SHEETS

DECEMBER 31, 2016 AND 2015

(In Thousands of New Taiwan Dollars)

2016 2015

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents (Notes 4, 6 and 28) $ 779,886 1 $ 13,871,815 10

Derivative financial assets for hedging - current (Notes 4 and 7) 2,073 - 3,790 -

Debt investments with no active market - current (Notes 4 and 28) 48,198 - 9,741 -

Notes receivable (Note 4) 29,424 - 30,021 -

Accounts receivable, net (Notes 4 and 8) 6,136,547 5 5,660,525 4

Accounts receivable - related parties (Notes 4, 8 and 28) 302,662 - 201,983 -

Other receivables - related parties (Note 28) 79,562 - 680,383 -

Inventories (Notes 4 and 9) 1,261,852 1 2,877,153 2

Prepaid expenses 1,048,386 1 1,099,484 1

Other financial assets - current (Notes 4 and 28) 2,700,876 2 2,377,066 2

Other current assets (Note 28) 41,596 - 48,213 -

Total current assets 12,431,062 10 26,860,174 19

NONCURRENT ASSETS

Financial assets carried at cost (Note 4) 150,000 - 150,000 -

Investments accounted for using the equity method (Notes 4, 10 and 28) 30,047,042 23 30,831,700 22

Property, plant and equipment, net (Notes 4, 11 and 28) 32,184,965 25 33,288,032 24

Investment properties (Notes 4 and 12) 754,028 1 952,580 1

Concessions, net (Notes 1, 4 and 13) 38,383,531 30 31,834,869 23

Computer software, net (Notes 4 and 13) 2,541,309 2 2,281,848 2

Goodwill (Notes 4 and 13) 10,283,031 8 10,283,031 7

Deferred income tax assets (Notes 4 and 22) 829,824 1 656,892 1

Refundable deposits (Note 28) 436,954 - 469,208 -

Other noncurrent assets (Notes 4) - - 1,002,691 1

Total noncurrent assets 115,610,684 90 111,750,851 81

TOTAL $ 128,041,746 100 $ 138,611,025 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Notes 4 and 14) $ 2,400,000 2 $ - -

Short-term bills payable (Note 14) 2,799,387 2 - -

Derivative financial liabilities for hedging - current (Notes 4 and 7) 40,229 - 5,691 -

Notes payable 9,613 - 10,543 -

Accounts payable 1,554,621 1 1,689,788 1

Accounts payable - related parties (Note 28) 1,124,819 1 1,248,552 1

Other payables (Note 16) 7,674,958 6 8,274,340 6

Other payables - related parties (Note 28) 1,077,282 1 7,509,968 6

Current tax liabilities (Notes 4 and 22) 1,603,206 1 1,683,974 1

Guarantee deposits received - current 219,343 - 237,716 -

Unearned revenue (Note 4) 2,303,684 2 2,418,595 2

Current portion of long-term borrowings (Notes 4 and 15) 6,197,478 5 1,599,112 1

Other current liabilities (Notes 4 and 17) 594,466 1 248,208 -

Total current liabilities 27,599,086 22 24,926,487 18

NONCURRENT LIABILITIES

Bonds payable (Notes 4 and 15) 12,190,103 10 18,381,236 13

Long-term borrowings (Notes 4 and 14) 14,048,345 11 20,490,001 15

Provisions - noncurrent (Notes 4 and 17) 318,447 - 299,022 -

Deferred income tax liabilities (Notes 4 and 22) 1,495,976 1 1,379,001 1

Net defined benefit liabilities - noncurrent (Notes 4 and 18) 763,723 1 731,851 1

Guarantee deposits received - noncurrent 265,089 - 272,517 -

Other noncurrent liabilities (Notes 4, 10 and 16) 354,959 - 224,545 -

Total noncurrent liabilities 29,436,642 23 41,778,173 30

Total liabilities 57,035,728 45 66,704,660 48

EQUITY

Capital stock

Common stock 32,585,008 25 32,585,008 23

Capital surplus 10,166,874 8 12,058,158 9

Retained earnings

Legal reserve 16,270,878 13 15,127,206 11

Special reserve 769,907 - 824,480 1

Unappropriated earnings 11,346,830 9 11,436,725 8

Total retained earnings 28,387,615 22 27,388,411 20

Other equity (133,479) - (125,212) -

Total equity 71,006,018 55 71,906,365 52

TOTAL $ 128,041,746 100 $ 138,611,025 100

The accompanying notes are an integral part of the financial statements.

18


STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2016 2015

Amount % Amount %

OPERATING REVENUES (Notes 4, 20 and 28) $ 78,838,895 100 $ 80,765,722 100

OPERATING COSTS (Notes 4, 9, 21 and 28) 46,227,643 59 48,049,703 59

GROSS PROFIT 32,611,252 41 32,716,019 41

OPERATING EXPENSES (Notes 4, 21 and 28)

Marketing 16,199,526 20 15,848,195 20

General and administrative 4,570,071 6 4,769,490 6

Total operating expenses 20,769,597 26 20,617,685 26

OPERATING INCOME 11,841,655 15 12,098,334 15

NONOPERATING INCOME AND EXPENSES

Other income (Notes 4, 21 and 28) 143,137 - 154,004 -

Other gains and losses (Notes 4, 10 and 12) 54,108 - 66,029 -

Financial costs (Notes 4, 21 and 28) (470,159) (1) (471,705) (1)

Share of the profit of subsidiaries and associates

(Notes 3, 4 and 10) 2,159,787 3 2,866,834 4

Losses on disposal of property, plant, equipment and

intangible assets (Note 4) (616,691) (1) (872,640) (1)

Impairment losses recognized on property, plant and

equipment (313,563) - - -

Total nonoperating income and expenses 956,619 1 1,742,522 2

INCOME BEFORE INCOME TAX 12,798,274 16 13,840,856 17

INCOME TAX (Notes 4 and 22) 1,406,971 2 2,355,161 3

NET INCOME 11,391,303 14 11,485,695 14

OTHER COMPREHENSIVE INCOME

Items that will not be reclassified subsequently to

profit or loss:

Remeasurement of defined benefit plans (Notes 4

and 18) (34,528) - (59,014) -

Share of other comprehensive income of

subsidiaries and associates (Notes 4 and 19) (648) - (234) -

(35,176) - (59,248) -

(Continued)

19


STATEMENTS OF COMPREHENSIVE INCOME



2016 2015

Amount % Amount %

Items that may be reclassified subsequently to profit

or loss:

Exchange differences on translating foreign

operations (Notes 4 and 19) (198) - (74) -

Unrealized losses on available-for-sale financial

assets (Notes 4 and 19) (4,752) - (14,714) -

Cash flow hedges (Notes 4, 7 and 19) (26,814) - (4,980) -


subsidiaries and associates (Notes 4 and 19) 23,497 - 33,653 -

(8,267) - 13,885 -

Total other comprehensive income, net of

income tax (43,443) - (45,363) -

TOTAL COMPREHENSIVE INCOME $ 11,347,860 14 $ 11,440,332 14

EARNINGS PER SHARE, NEW TAIWAN DOLLARS

(Note 23)

Basic $3.50 $3.52

Diluted $3.49 $3.52

The accompanying notes are an integral part of the financial statements. (Concluded)

20


STATEMENTS OF CHANGES IN EQUITY


(In Thousands of New Taiwan Dollars, Except Dividends Per Share)

Other Equity

Exchange Unrealized Gains

Retained Earnings Differences on (Losses) on

Share Capital (Note 19) Unappropriated Translating Available-for-sale

Number of Shares Capital Surplus Legal Reserve Special Reserve Earnings (Notes Foreign Operations Financial Assets Cash Flow Hedges

(Thousand share) Amounts (Notes 4 and 19) (Note 19) (Note 19) 4 and 19) (Notes 4 and 19) (Notes 4 and 19) (Notes 4 and 19) Total

BALANCE AT JANUARY 1, 2015 3,258,501 $ 32,585,008 $ 14,009,061 $ 13,978,791 $ 755,749 $ 11,558,138 $ 2,156 $ 99,084 $ (240,337) $ 72,747,650

Appropriation of the 2014 earnings

Legal reserve - - - 1,148,415 - (1,148,415) - - - -

Special reserve - - - - 68,731 (68,731) - - - -

Cash dividends - NT$3.167 per share - - - - - (10,319,672) - - - (10,319,672)

Cash dividends from capital surplus - NT$0.583 per share - - (1,899,706) - - - - - - (1,899,706)

Adjustments to share of changes in equities of associates - - (51,197) - - (11,042) - - - (62,239)

Net income for the year ended December 31, 2015 - - - - - 11,485,695 - - - 11,485,695

Other comprehensive income (losses) for the year ended

December 31, 2015 - - - - - (59,248) (1,327) (84,459) 99,671 (45,363)

BALANCE AT DECEMBER 31, 2015 3,258,501 32,585,008 12,058,158 15,127,206 824,480 11,436,725 829 14,625 (140,666) 71,906,365


Legal reserve - - - 1,143,672 - (1,143,672) - - - -

Special reserve - - - - (54,573) 54,573 - - - -

Cash dividends - NT$3.174 per share - - - - - (10,342,482) - - - (10,342,482)

Cash dividends from capital surplus - NT$0.576 per share - - (1,876,896) - - - - - - (1,876,896)

Adjustments to share of changes in equities of subsidiaries and

associates - - (14,388) - - (14,441) - - - (28,829)

Net income for the year ended December 31, 2016 - - - - - 11,391,303 - - - 11,391,303

Other comprehensive income (losses) for the year ended

December 31, 2016 - - - - - (35,176) 3,809 (60,497) 48,421 (43,443)

BALANCE AT DECEMBER 31, 2016 3,258,501 $ 32,585,008 $ 10,166,874 $ 16,270,878 $ 769,907 $ 11,346,830 $ 4,638 $ (45,872) $ (92,245) $ 71,006,018

The accompanying notes are an integral part of the financial statements.

21


STATEMENTS OF CASH FLOWS



2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 12,798,274 $ 13,840,856

Adjustments for:

Depreciation 7,351,816 6,577,924

Amortization 644,334 669,623

Amortization of concessions 2,581,338 2,041,126

Allowance for doubtful accounts 296,273 270,389

Financial costs 470,159 471,705

Interest income (24,740) (29,149)

Share of profit of subsidiaries and associates (2,159,787) (2,866,834)

Loss on disposal of property, plant, equipment and intangible assets 616,691 872,640

Gain on disposal of financial assets (265) (25,652)

Impairment loss recognized on financial assets - 17,273

Impairment loss recognized on property, plant and equipment 313,563 -

Reversal of write-down of inventories (29,444) (12,493)

Loss on change in fair value of investment properties 198,552 10,335

Deferred loss on derivative assets for hedging (4,500) (7,250)

Net changes in operating assets and liabilities

Notes receivable 597 (9,856)

Accounts receivable (772,295) (56,491)

Accounts receivable - related parties (100,679) 118,889

Other receivables - related parties 173,193 (5,538)

Inventories 1,644,745 (1,479,812)

Prepaid expenses 51,098 75,559

Other current assets (207) (22,881)

Notes payable (930) 769

Accounts payable (135,167) (764,986)

Accounts payable - related parties (123,733) (353,765)

Other payables (53,338) 335,866

Other payables - related parties 77,679 43,203

Provisions (7,419) 2,489

Unearned revenue (114,911) (91,611)

Other current liabilities 332,781 20,792

Net defined benefit liabilities (9,728) (8,629)

Cash generated from operations 24,013,950 19,634,491

Interest received 25,801 27,415

Dividend received 2,907,365 2,294,788

Interest paid (465,727) (433,528)

Income taxes paid (1,530,158) (3,508,101)

Net cash generated from operating activities 24,951,231 18,015,065

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds of the disposal of available-for-sale financial assets 190,134 -

(Continued)

22


STATEMENTS OF CASH FLOWS



2016

2015

(Restated)

Acquisition of debt investments with no active market (38,457) (5,786)

Acquisition of investments accounted for using the equity method (30,000) (79,500)

Proceeds from the disposal of investments accounted for using the

equity method - 19,600

Proceeds from capital return on liquidation of investments accounted

for using the equity method - 127,157

Acquisition of property, plant and equipment (7,751,175) (9,037,527)

Proceeds from the disposal of property, plant and equipment 40,249 43,391

Increase in refundable deposits (125,896) (123,858)

Decrease in refundable deposits 158,150 123,519

Increase in financing provided by other receivables - related parties - (241,000)

Decrease in financing provided by other receivables - related parties 241,000 -

Acquisition of intangible assets (9,033,843) (823,839)

Increase in other financial assets (323,810) (780,117)

Increase in other noncurrent assets - (1,000,000)

Net cash used in investing activities (16,673,648) (11,777,960)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term borrowings 2,400,000 -

Proceeds from short-term bills payable 2,799,387 -

Repayments of bonds payable (1,600,000) -

Proceeds from long-term borrowings 1,699,831 19,740,001

Repayment of long-term borrowings (8,141,487) (3,350,000)

Increase in guarantee deposits received 77,965 105,274

Decrease in guarantee deposits received (103,766) (161,564)

Increase in financing obtained from other payables - related parties - 6,500,000

Decrease in financing obtained from other payables - related parties (6,500,000) (4,400,000)

Decrease in other noncurrent liabilities - (7,495)

Cash dividends paid (12,219,378) (12,219,378)

Net cash (used in) generated from financing activities (21,587,448) 6,206,838

DECREASE INCREASE IN CASH AND CASH EQUIVALENTS (13,309,865) 12,443,943

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 13,871,815 1,427,872

CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 561,950 $ 13,871,815

The accompanying notes are an integral part of the financial statements. (Concluded)

23

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Far EasTone Telecommunications Co., Ltd.

Report on the Audit of the Consolidated Financial Statements Opinion

We have audited the consolidated financial statements of Far EasTone Telecommunications Co., Ltd. and its

subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31, 2016 and 2015,

and the consolidated statements of comprehensive income, consolidated statement of changes in equity and

consolidated statements of cash flows for the years then ended, and notes to the consolidated financial

statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the

consolidated financial position of the Group as of December 31, 2016 and 2015, and its consolidated financial

performance and its consolidated cash flows for the years then ended in accordance with the Regulations

Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting

Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC

Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Attestation of Financial

Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China.

Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of

the Consolidated Financial Statements section of our report. We are independent of the Group in accordance

with the CPA Ethical Standards, and we have fulfilled our other ethical responsibilities in accordance with these

requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of

2016 consolidated financial statements. These matters were addressed in the context of our audit of the

consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a

separate opinion on these matters.

The description of the key audit matters of 2016 consolidated financial statements are as follows:

The Impairment Loss of Property, Plant and Equipment and Intangible Assets (Including Goodwill)

As of December 31, 2016, the consolidated balances of property, plant and equipment and intangible assets

account for 76% of the total assets and are material for the consolidated financial statements as a whole. Since

the economic trends, market competition and technology development would influence the operation of the

Group and the management’s evaluation and judgment on the expected economic benefits and recoverable

amounts of the cash-generating unit to which the asset belongs for the evaluation of asset impairment. Thus, the

impairment of property, plant and equipment and intangible assets is considered as a key audit matter.

For the estimates and judgments related to property, plant and equipment and intangible assets, please refer to

Note 5. For other related disclosures, please refer to Note 15 and Note 17.

24

By conducting the tests of controls, we obtained an understanding of the Group’s asset impairment evaluation

processes and of the design and implementation of related controls. We also performed the major

corresponding audit procedures as follows:

1. Obtain the Group’s asset impairment evaluation reports for each cash-generating unit.

2. Evaluate the reasonableness of the Group’s identification of asset impairment, the assumptions and

sensitivity used in the asset impairment assessment, including the appropriateness of the classification of

cash-generating unit, cash flows forecasts and discount rates used.

Recognition of telecommunications service revenues

The telecommunications service revenue is the main source of the revenue and it accounts for 71% of the

Group’s total revenue of 2016. The calculation of telecommunications service revenue highly relies on

automatic systems and includes complicated and huge data transmission. In order to meet market demands and

remain competitive, the Group often launches different combinations of products and services which makes the

calculation of revenue more complex and directly affects the accuracy and timing of revenue recognition.

Therefore, the recognition of telecommunications service revenues is considered as a key audit matter.

For the accounting policies related to telecommunications service revenues, please refer to Note 4.

By conducting the tests of controls, we obtained an understanding of the Group’s recognition of

telecommunications service revenues and of the design and implementation of related controls. We also

engaged IT specialists to perform the major audit procedures as follows:

1. Review the contracts of mobile subscribers to confirm the accuracy of the information in the accounting

system.

2. Perform the dialing test to verify the accuracy and completeness of the traffic and information in the

telephone exchange.

3. Test the accuracy of billing calculation.

4. Test the completeness and accuracy of calculation and billing of monthly fees and airtime fees.

5. Test the completeness and accuracy of calculation and billing of value-added service fees.

For the revenue recognition of billed and unbilled amount, we conducted the following tests:

1. For the billed amounts, compare if there is any difference between the reports generated from the

accounting system and the billing system.

2. For the unbilled amounts, recalculate the service revenue for services provided as of the balance sheet date

based on the applied charge rates to confirm the accuracy.

Other Information

We have also audited the parent company only financial statements of Far EasTone as of and for the years ended

December 31, 2016 and 2015 on which we have issued an unmodified report.

25

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial

Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in

accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and

International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC

Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of

the Republic of China, and for such internal control as management determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due to fraud

or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability

to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going

concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or

has no realistic alternative but to do so.

Those charged with governance (including audit committee) are responsible for overseeing the Group’s

financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

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

whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit

conducted in accordance with the auditing standards generally accepted in the Republic of China will always

detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered

material if, individually or in the aggregate, they could reasonably be expected to influence the economic

decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we

exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due

to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence

that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of

the Group’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates

and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based

on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that

may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a

material uncertainty exists, we are required to draw attention in our auditors’ report to the related

disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our

opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report.

However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including

the disclosures, and whether the consolidated financial statements represent the underlying transactions and

26

events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or

business activities within the Group to express an opinion on the consolidated financial statements. We are

responsible for the direction, supervision and performance of the audit. We remain solely responsible for

our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and

timing of the audit and significant audit findings, including any significant deficiencies in internal control that

we identify during our audit.

We also provide those charged with governance with statements that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other matters that

may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of 2016 consolidated financial statements and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. February 15, 2017

Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

27

FAR EASTONE TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2016 AND 2015


2016 2015

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents (Notes 4, 6 and 33) $ 10,258,743 8 $ 15,994,767 12

Available-for-sale financial assets - current (Notes 4, 7 and 33) 598,132 - 665,295 1

Derivative financial assets for hedging - current (Notes 4 and 8) 2,073 - 6,015 -

Debt investments with no active market - current (Notes 4, 10 and 33) 910,396 1 1,522,052 1

Notes receivable, net (Notes 4 and 11) 64,361 - 60,620 -

Accounts receivable, net (Notes 4 and 11) 7,445,520 6 6,795,633 5

Accounts receivable - related parties (Notes 4, 11 and 33) 205,425 - 224,184 -

Inventories (Notes 4 and 12) 2,488,365 2 4,505,195 3

Prepaid expenses 1,190,030 1 1,260,828 1

Other financial assets - current (Notes 4, 33 and 34) 3,079,280 2 2,777,469 2

Other current assets (Note 33) 315,063 - 487,315 -

Total current assets 26,557,388 20 34,299,373 25

NONCURRENT ASSETS

Financial assets carried at cost (Notes 4 and 9) 218,308 - 218,308 -

Investments accounted for using the equity method (Notes 4, 14 and 33) 1,025,081 1 1,051,237 1

Property, plant and equipment, net (Notes 4, 15 and 33) 49,849,572 37 52,045,655 38

Investment properties (Notes 4 and 16) 1,041,406 1 1,107,586 1

Concessions, net (Notes 1, 4 and 17) 38,383,531 29 31,834,869 23

Goodwill (Notes 4 and 17) 10,808,901 8 10,808,901 8

Other intangible assets (Notes 4 and 17) 3,266,025 2 3,034,226 2

Deferred income tax assets (Notes 4 and 27) 943,784 1 768,344 1

Other noncurrent assets (Notes 1, 4, 18, 23, 33 and 34) 713,326 1 1,712,672 1

Total noncurrent assets 106,249,934 80 102,581,798 75

TOTAL $ 132,807,322 100 $ 136,881,171 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Notes 4 and 19) $ 2,800,000 2 $ 506,971 1

Short-term bills payable (Notes 4 and 19) 3,149,171 2 329,708 -

Derivative financial liabilities for hedging - current (Notes 4, 8 and 33) 47,767 - 11,016 -

Notes payable 15,425 - 13,494 -

Accounts payable (Note 33) 4,126,464 3 4,526,958 4

Other payables (Note 21) 8,795,001 7 9,660,725 7

Current tax liabilities (Note 4) 2,157,366 2 1,718,345 1

Provisions - current (Notes 4 and 22) 219,922 - 203,557 -

Unearned revenue (Note 4) 2,447,193 2 2,444,973 2

Current portion of long-term borrowings (Notes 4 and 20) 6,197,478 5 1,599,112 1

Guarantee deposits received - current 257,597 - 267,164 -

Other current liabilities (Note 33) 767,320 - 401,282 -

Total current liabilities 30,980,704 23 21,683,305 16

NONCURRENT LIABILITIES

Bonds payable (Notes 4 and 20) 12,190,103 9 18,381,236 13

Long-term borrowings (Notes 4 and 19) 14,048,345 11 20,490,001 15

Provisions -noncurrent (Notes 4 and 22) 859,586 1 811,094 1

Deferred income tax liabilities (Notes 4 and 27) 1,595,238 1 1,467,505 1

Deferred revenue - noncurrent (Note 21) 193,188 - 214,367 -

Net defined benefit liabilities - noncurrent (Notes 4 and 23) 764,232 1 732,152 1

Guarantee deposits received - noncurrent 310,364 - 318,443 -

Other noncurrent liabilities (Notes 4 and 14) 142,961 - 124,172 -

Total noncurrent liabilities 30,104,017 23 42,538,970 31

Total liabilities 61,084,721 46 64,222,275 47

EQUITY ATTRIBUTABLE TO OWNERS OF FAR EASTONE

Capital stock

Common stock 32,585,008 24 32,585,008 23

Capital surplus 10,166,874 8 12,058,158 9

Retained earnings

Legal reserve 16,270,878 12 15,127,206 11

Special reserve 769,907 1 824,480 1

Unappropriated earnings 11,346,830 8 11,436,725 8

Total retained earnings 28,387,615 21 27,388,411 20

Other equity (133,479) - (125,212) -

Total equity attributable to owners of Far EasTone 71,006,018 53 71,906,365 52

NONCONTROLLING INTERESTS 716,583 1 752,531 1

Total equity 71,722,601 54 72,658,896 53

TOTAL $ 132,807,322 100 $ 136,881,171 100

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

28


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



2016 2015

Amount % Amount %

OPERATING REVENUES (Notes 4, 25 and 33) $ 94,344,266 100 $ 97,293,218 100

OPERATING COSTS (Notes 4, 12, 26 and 33) 56,193,147 60 58,783,432 60

GROSS PROFIT 38,151,119 40 38,509,786 40

OPERATING EXPENSES (Notes 4, 26 and 33)

Marketing 17,274,374 18 17,034,243 18

General and administrative 5,852,395 6 6,082,506 6

Total operating expenses 23,126,769 24 23,116,749 24

OPERATING INCOME 15,024,350 16 15,393,037 16

NONOPERATING INCOME AND EXPENSES

Other income (Notes 4, 26 and 33) 93,536 - 125,031 -

Other gains and losses (Notes 4, 8, 16, 17 and 33) 275,644 - 102,366 -

Financial costs (Notes 4, 26 and 33) (441,781) - (442,567) (1)

Share of the loss of associates (Note 4) (164,917) - (277,267) -

Loss on disposal of property, plant, equipment and

intangible assets (Note 4) (683,934) (1) (962,734) (1)

Impairment loss recognized on property, plant and

equipment (Notes 4 and 15) (313,563) - - -

Total nonoperating income and expenses (1,235,015) (1) (1,455,171) (2)

INCOME BEFORE INCOME TAX 13,789,335 15 13,937,866 14

INCOME TAX (Notes 4 and 27) 2,378,660 3 2,403,615 2

NET INCOME 11,410,675 12 11,534,251 12

OTHER COMPREHENSIVE INCOME

Items that will not be reclassified subsequently to

profit or loss:

Remeasurement of defined benefit plans (Note 4) (35,245) - (59,416) -


associates accounted for using the equity

method (Note 4) - - 206 -

(35,245) - (59,210) -

(Continued)

29


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



2016 2015

Amount % Amount %

Items that may be reclassified subsequently to profit

or loss:

Exchange differences on translating foreign

operations (Notes 4 and 24) 5,590 - (1,370) -

Unrealized losses on available-for-sale financial

assets (Notes 4 and 24) (60,497) - (84,459) -

Cash flow hedges (Notes 4, 8 and 24) (17,269) - 21,697 -


associates accounted for using the equity

method (Note 4) 65,243 - 77,975 -

(6,933) - 13,843 -

Total other comprehensive income, net of

income tax (42,178) - (45,367) -

TOTAL COMPREHENSIVE INCOME $ 11,368,497 12 $ 11,488,884 12

NET INCOME ATTRIBUTABLE TO:

Owners of Far EasTone $ 11,391,303 12 $ 11,485,695 12

Noncontrolling interests 19,372 - 48,556 -

$ 11,410,675 12 $ 11,534,251 12

COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Owners of Far EasTone $ 11,347,860 12 $ 11,440,332 12

Noncontrolling interests 20,637 - 48,552 -

$ 11,368,497 12 $ 11,488,884 12

EARNINGS PER SHARE, NEW TAIWAN DOLLARS

(Note 28)

Basic $ 3.50 $ 3.52

Diluted $ 3.49 $ 3.52

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

30


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


(In Thousands of New Taiwan Dollars, Except Dividends Per Share)

Equity Attributable to Owners of Far EasTone

Other Equity

Exchange Unrealized Gains

Retained Earnings Differences (Losses) on

Unappropriated on Translating Available-for-sale Noncontrolling

Share Capital Capital Surplus Legal Reserve Special Reserve Earnings Foreign Operations Financial Assets Cash Flow Hedges Interests

(Note 24) (Notes 4, 24 and 29) (Note 24) (Note 24)

(Notes 3, 4, 24 and

29) (Notes 4 and 24) (Notes 4 and 24) (Notes 4 and 24) Total (Notes 4 and 24) Total Equity

BALANCE AT JANUARY 1, 2015 $ 32,585,008 $ 14,009,061 $ 13,978,791 $ 755,749 $ 11,558,138 $ 2,156 $ 99,084 $ (240,337 ) $ 72,747,650 $ 805,351 $ 73,553,001

Appropriation of the 2014 earnings Legal reserve - - 1,148,415 - (1,148,415 ) - - - - - -

Special reserve - - - 68,731 (68,731 ) - - - - - -

Cash dividends - NT$3.167 per share - - - - (10,319,672 ) - - - (10,319,672 ) - (10,319,672 )

Cash dividends from capital surplus - NT$0.583 per share - (1,899,706 ) - - - - - - (1,899,706 ) - (1,899,706 )

Adjustments to share of changes in equities of associates - (51,197 ) - - (11,042 ) - - - (62,239 ) - (62,239 )

Cash dividends distributed by subsidiaries - - - - - - - - - (85,107 ) (85,107 )

Net income for the year ended December 31, 2015 - - - - 11,485,695 - - - 11,485,695 48,556 11,534,251

Other comprehensive income (losses) for the year ended December 31, 2015 - - - - (59,248 ) (1,327 ) (84,459 ) 99,671 (45,363 ) (4 ) (45,367 )

Return of cash capital due to a subsidiary's liquidation - - - - - - - - - (16,265 ) (16,265 )

BALANCE AT DECEMBER 31, 2015 32,585,008 12,058,158 15,127,206 824,480 11,436,725 829 14,625 (140,666 ) 71,906,365 752,531 72,658,896


Legal reserve - - 1,143,672 - (1,143,672 ) - - - - - -

Special reserve - - - (54,573 ) 54,573 - - - - - -

Cash dividends - NT$3.174 per share - - - - (10,342,482 ) - - - (10,342,482 ) - (10,342,482 )

Cash dividends from capital surplus - NT$0.576 per share - (1,876,896 ) - - - - - - (1,876,896 ) - (1,876,896 )

Adjustments to share of changes in equities of associates - - - - (1,892 ) - - - (1,892 ) - (1,892 )

Changes in ownership interests of subsidiaries - (14,388 ) - - (12,549 ) - - - (26,937 ) 26,937 -

Cash capital reduction by subsidiaries - - - - - - - - - (15 ) (15 )

Cash dividends distributed by subsidiaries - - - - - - - - - (83,507 ) (83,507 )

Net income for the year ended December 31, 2016 - - - - 11,391,303 - - - 11,391,303 19,372 11,410,675

Other comprehensive income (losses) for the year ended December 31, 2016 - - - - (35,176 ) 3,809 (60,497 ) 48,421 (43,443 ) 1,265 (42,178 )

BALANCE AT DECEMBER 31, 2016 $ 32,585,008 $ 10,166,874 $ 16,270,878 $ 769,907 $ 11,346,830 $ 4,638 $ (45,872 ) $ (92,245 ) $ 71,006,018 $ 716,583 $ 71,722,601

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

31


CONSOLIDATED STATEMENTS OF CASH FLOWS



2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 13,789,335 $ 13,937,866

Adjustments for:

Depreciation 9,444,179 8,538,292

Amortization 791,724 840,547

Amortization of concessions 2,581,338 2,041,126

Allowance for doubtful accounts 421,688 268,034

Financial costs 441,781 442,567

Interest income (43,085) (68,457)

Dividend income (2,011) (2,581)

Share of the loss of associates 164,917 277,267

Loss on disposal of property, plant, equipment and intangible assets 683,934 962,734

Transfer from property, plant and equipment to expenses - 1,309

Gain on disposal of financial assets (265) (98,258)

Reversal of write-down of inventories (31,779) (51,629)

Impairment loss on nonfinancial assets 313,563 59,886

Loss on change in fair value of investment properties 18,653 51,835

Deferred gain (loss) on derivative assets for hedging 11,438 (24,786)

Net changes in operating assets and liabilities

Notes receivable (3,741) 9,669

Accounts receivable (1,071,514) 75,535

Accounts receivable - related parties 18,759 20,914

Inventories 2,048,609 (1,606,676)

Prepaid expenses 70,798 55,052

Other current assets (14,082) (59,929)

Notes payable 1,931 (7,655)

Accounts payable (400,494) (660,083)

Other payables (158,732) 283,417

Provisions (9,808) (4,340)

Unearned revenue 2,220 (137,829)

Other current liabilities 357,268 (185,215)

Net defined benefit liabilities (10,272) (9,022)

Cash generated from operations 29,416,352 24,949,590

Interest received 50,094 71,526

Dividend received 2,011 7,173

Interest paid (421,965) (399,034)

Income taxes paid (1,971,801) (3,577,501)

Net cash generated from operating activities 27,074,691 21,051,754

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of available-for-sale financial assets - (653,400)

Proceeds of the disposal of available-for-sale financial assets 190,134 597,301

Disposal of debt investments with no active market 611,656 886,629

Proceeds of capital reduction of financial assets measured at cost - 6,004

(Continued)

32


CONSOLIDATED STATEMENTS OF CASH FLOWS



2016 2015

Acquisition of investments accounted for using the equity method (30,000) (106,000)

Disposal of investments accounted for using the equity method - 19,600

Acquisition of property, plant and equipment (8,906,250) (10,905,829)

Proceeds of the disposal of property, plant and equipment 38,081 47,612

Increase in refundable deposits (316,693) (304,694)

Decrease in refundable deposits 312,106 293,322

Acquisition of intangible assets (9,147,729) (916,612)

Increase in other financial assets (297,880) (826,506)

Increase in noncurrent assets - (1,000,000)

Net cash used in investing activities (17,546,575) (12,862,573)

CASH FLOWS FROM FINANCING ACTIVITIES

Increase in short-term borrowings 2,293,029 148,976

Increase (decrease) in short-term bills payable 2,819,463 (199,940)

Repayments of bonds payable (1,600,000) -

Proceeds of long-term borrowings 1,699,831 19,740,001

Repayment of long-term borrowings (8,141,487) (3,350,000)

Increase in guarantee deposits received 114,190 130,302

Decrease in guarantee deposits received (131,836) (170,608)

Decrease in deferred revenue (21,179) (24,975)

Cash dividend paid (12,302,885) (12,304,485)

Net changes in noncontrolling interests (15) (16,265)

Net cash (used in) generated from financing activities (15,270,889) 3,953,006

EFFECT OF EXCHANGE RATE CHANGES 6,749 (458)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,736,024) 12,141,729

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 15,994,767 3,853,038

CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 10,258,743 $ 15,994,767

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

33

Handling Procedure for Acquisition and Disposal of Assets

The Far EasTone Telecommunications Co., Ltd. Article Current Articles Amended Articles Explanation

Article 8 Handling Procedures for Related Party Transactions

I. (Omitted)

II. Evaluation and Operation Process

Besides trading of government bonds, bonds

under repurchase and resale agreements etc., or

subscribing or redeeming of domestic money

market funds, the Corporation may not, in

acquiring from or disposing of real property to a

related party, or acquiring from or disposing of

assets other than real property to a related party

and the transaction amount of which reaches 20

percent of the Corporation’s paid-in capital, 10

percent of the Corporation’s total assets, or over

NT$300 million , the Corporation proceed to

enter into a transaction contract or execute a

payment until the following matters have been

first approved by more than half of all members

of the Audit Committee, and then submitted to

the Board of Directors for resolution: (Omitted)

Handling Procedures for Related Party Transactions

I. (Omitted)


Besides trading of government bonds, bonds

under repurchase and resale agreements etc., or

subscribing or redeeming of domestic money

market funds issued by domestic securities

investment trust enterprises, the Corporation

may not, in acquiring from or disposing of real

property to a related party, or acquiring from or

disposing of assets other than real property to a

related party and the transaction amount of

which reaches 20 percent of the Corporation’s

paid-in capital, 10 percent of the Corporation’s

total assets, or over NT$300 million , the

Corporation proceed to enter into a transaction

contract or execute a payment until the

following matters have been first approved by

more than half of all members of the Audit

Committee, and then submitted to the Board of

Directors for resolution: (Omitted)

According to Article 14 of the

“Regulations Governing the

Acquisition and Disposal of Assets

by Public Companies”

(“Regulations”), amend the

paragraph 2. The domestic money

market funds was mean, according to

the “Securities Investment Trust and

Consulting Act”, and issued by

domestic securities investment trust

enterprises approved by the Financial

Supervisory Commission.

Article 10 Handling Procedures for Acquisition and Disposal of

Derivative Products

I Principles and Guidelines for transaction

(A) Type of transaction (Omitted)

(B) Strategies for operation or hedging (Omitted)

(C) Rights and duties

(a) Signing of contracts and relevant

documents for dealings: The chairman or

the person designated thereof shall sign

Handling Procedures for Acquisition and Disposal of

Derivative Products

I Principles and Guidelines for transaction

(A) Type of transaction (Omitted)

(B) Strategies for operation or hedging (Omitted)


(a) Signing of contracts and relevant

documents for dealings: The chairman or

the person designated thereof shall sign

According to the opinion of the

Financial Supervisory Commission, a

company's internal audit personnel

shall periodically make a

determination of the suitability of

internal controls on derivatives.

Because the board should not

authorize the chief internal auditor to

conduct the management and

34

the aforesaid documents for and on behalf

of this Corporation.

(b) Execution of the transaction and the

evaluation of losses and gains:

(i) (Omitted)

(ii) (Omitted)

(iii) (Omitted)

(iv) The assistant director from each

relevant department shall conduct the

evaluation of losses and gains and the

statement thereof shall be submitted

to Audit Department.

(c) (Omitted)

(d) (Omitted)

(e) (Omitted)

(f) (Omitted)

(D) Evaluation of performance (Omitted)

(E)Total amount of contract and authorization

(Omitted)

(F) The upper limit of losses (Omitted)

II. Measures for risk management

(A) (Omitted)

(B) (Omitted)

(C) (Omitted)

(D) (Omitted)

(E) (Omitted)

(F) (Omitted)

(G) (Omitted)

(H) (Omitted)

(I) The positions held by a derivatives exchange

shall be assessed at least once a week except

that the hedge transactions needed in the

business operation shall be evaluated at least

twice a month. The evaluation reports

the aforesaid documents for and on behalf

of this Corporation.

(b) Execution of the transaction and the

evaluation of losses and gains:

(i) (Omitted)

(ii) (Omitted)

(iii) (Omitted)

(iv) The assistant director from each

relevant department shall conduct the

evaluation of losses and gains and the

statement thereof shall be submitted

to the Chairman or a person

designated by the Chairman.

(c) (Omitted)

(d) (Omitted)

(e) (Omitted)

(f) (Omitted)

(D) Evaluation of performance (Omitted)

(E) Total amount of contract and authorization

(Omitted)

(F) The upper limit of losses (Omitted)


(A) (Omitted)

(B) (Omitted)

(C) (Omitted)

(D) (Omitted)

(E) (Omitted)

(F) (Omitted)

(G) (Omitted)

(H) (Omitted)

(I) The positions held by a derivatives

exchange shall be assessed at least once a

week except that the hedge transactions

needed in the business operation shall be

supervision of derivatives, we

amended the paragraph 1, 2 , and 4 of

this Article, only the Chairman or a

person designated by the Chairman

can conduct the management and

supervision of the trading risk of

derivatives.

35

thereof shall be submitted to the senior

executives authorized by the board meeting.

III. Internal audit (Omitted)

IV. Ways of periodical evaluation and handling of

abnormal conditions

(A) The board meeting shall designate a

supervisor of the audit department to see to

supervision and control of risks involved in

the transactions of derivative products at

any time.

(B) The board meeting shall designate persons

especially in charge of periodical of

whether the performance of transactions of

derivative products is in compliance with

the strategies for operation and whether the

risks involved are bearable for the

Corporation.

(C) The supervisor of the audit department

shall conduct periodical evaluation of

whether the measures on risk management

is appropriate and dealt with according to

handling procedures prescribed herein and

shall supervise the transaction and the

losses and gains. In case of any abnormal

circumstances, the supervisor shall take

necessary corresponding measures and

report immediately to the board meeting.

And the same shall attend the board

meeting and be entitled to express its

opinions. (Omitted)

evaluated at least twice a month. The

evaluation reports thereof shall be

submitted to the Chairman or a person

designated by the Chairman.

III. Internal audit (Omitted)

IV. Ways of periodical evaluation and handling of

abnormal conditions

(A) The Chairman or a person designated by

the Chairman shall see the supervision and

control of risks involved in the transactions

of derivative products at any time.

(B) The Chairman or a person designated by

the Chairman shall in charge of periodical

of whether the performance of transactions

of derivative products is in compliance

with the strategies for operation and

whether the risks involved are bearable for

the Corporation.

(C) The Chairman or a person designated by

the Chairman shall conduct periodical

evaluation of whether the measures on risk

management is appropriate and dealt with

according to handling procedures

prescribed herein and shall supervise the

transaction and the losses and gains. In case

of any abnormal circumstances, the

supervisor shall take necessary

corresponding measures and report

immediately to the board meeting. And the

same shall attend the board meeting and be

entitled to express its opinions. (Omitted)

Article 11 Handling Procedures for Merger, Division,

Acquisition or Stock transfer

I. Evaluation and Operation Process

Handling Procedures for Merger, Division,

Acquisition or Stock transfer


Based on the Enterprise Mergers and

Acquisitions Law, the subsidiaries of

the Corporation which the

36

(A)The accounts, attorneys or underwriters shall

be invited, before the decision of the board

meeting by Finance & Shared Services

Division give their opinions on

reasonableness of swap rate, price of

purchase or cash distributed to the

shareholders or other properties prior to the

merger, division, acquisition or stock

transfer by this company. The said opinions

shall be submitted to the board meeting for

discussion and approval. (Omitted)

(A)The accounts, attorneys or underwriters shall

be invited, before the decision of the board

meeting by Finance & Shared Services

Division give their opinions on

reasonableness of swap rate, price of

purchase or cash distributed to the

shareholders or other properties prior to the

merger, division, acquisition or stock

transfer by this company. The said opinions

shall be submitted to the board meeting for

discussion and approval. However, the

requirement of obtaining an aforesaid

opinion on reasonableness issued by an

expert may be exempted in the case of a

merger by a public company of a subsidiary

of the Corporation in which the Corporation

holds directly or indirectly 100% of the

issued shares or authorized capital, and in

the case of a merger between the

subsidiaries in which the Corporation holds

directly or indirectly 100% of the respective

subsidiaries’ issued shares or authorized

capital. (Omitted)

Corporation owns directly or

indirectly 100% shares merger to

each other or between the

subsidiaries of the Corporation which

the Corporation owns directly or

indirectly 100% is organization

reform in the group enterprise, and it

is not apply to the share swap ratio,

cash to the shareholders or related to

the asset. According the Article 22 of

the Regulations, the Company can’t

get their opinions on reasonableness

of swap rate.

Article 12 Procedures for Disclosure of Information

I. Items for public announcement and declaration

and its standard

(A) Acquisition or disposal of real property

from or to a related party, or acquisition or

disposal of assets other than real property

from or to a related party where the

transaction amount reaches 20 percent or

more of paid-in capital, 10 percent or more

of the company's total assets, or NT$300

million or more; provided, this shall not

Procedures for Disclosure of Information

I. Items for public announcement and declaration

and its standard

(A) Acquisition or disposal of real property

from or to a related party, or acquisition or

disposal of assets other than real property

from or to a related party where the

transaction amount reaches 20 percent or

more of paid-in capital, 10 percent or more

of the company's total assets, or NT$300

million or more; provided, this shall not

I. According to Article 30 of

Regulations, amend the

paragraph 1 and subparagraph 2

of paragraph 6.

II. Due to the assets acquired or

disposed are equipment for

business use is normal operation

in over 10 billion of paid-in

capital of public company, so

announcement standard in the

counter part of the transaction

37

apply to trading of government bonds or

bonds under repurchase and resale

agreements, or subscription or redemption

of domestic money market funds.

(B) Merger, division, acquisition or stock

transfer

(C) The loss incurred in the dealing of

derivatives reach the upper limit of losses

of all or individual contracts specified in

Subparagraph 5 of Paragraph 1 of Article

10.

(D) The amount of transactions other than those

stated in the preceding three subparagraphs

or an investment in the mainland China

reach 20% of paid-in capital of this

company or NTD0.3 billion. The following

circumstances shall be excluded therein.

(a) Transactions of public bond.

(b) Transactions of debentures with

conditions for redemption and selling

off, or subscription or redemption of

domestic money market funds.

(c) The assets acquired or disposed are

equipment for business use and the

counter part of the transaction are not

associated persons and amount thereof

is under NTD 0.5 billion.

(d) 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

apply to trading of government bonds or

bonds under repurchase and resale

agreements, or subscription or redemption

of domestic money market funds issued by

domestic securities investment trust

enterprises.

(B) Merger, division, acquisition or stock

transfer

(C) The loss incurred in the dealing of

derivatives reach the upper limit of losses

of all or individual contracts specified in

Subparagraph 5 of Paragraph 1 of Article

10.

(D) The assets acquired or disposed are

equipment for business use and the counter

part of the transaction are not associated

persons and amount thereof is over NTD 1

billion.

(E) 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

exceed than NT$500 million.

(F) The amount of transactions other than those

stated in the preceding three subparagraphs

or an investment in the mainland China

reach 20% of paid-in capital of this

company or NTD0.3 billion. The following

circumstances shall be excluded therein.

are not associated persons for 0.5

billion to 1 billion

III. To amend the wording of

subparagraph 2 to comply with

subparagraph 1.

38

joint construction and separate sale, and

the amount the company expects to

invest in the transaction is less than

NT$500 million.

(E) The calculations for the dealing amount in

the preceding four subparagraph

(a) Amount of each transaction

(b) Cumulative amount of acquisition or

disposal of the objects of the same

nature with the same counterpart within

a year

(c) Cumulative amount of acquisition or


nature with the same counterpart within

a year

(d) Respective cumulative amount of

acquisition and disposal of the same

security within a year

(F) "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.

II. Time for public announcement and declaration

In case of any circumstances specified in

Subparagraph 1 to 4 of Paragraph 1, the same

shall be handled for public announcement and

declaration within two (2) days commencing

immediately from the date of the event.

III. Procedures for public announcement and

declaration (A) This company shall handle public

(a)Transactions of public bond.

(b) Transactions of debentures with

conditions for redemption and selling

off, or subscription or redemption of

domestic money market funds issued

by domestic securities investment trust

enterprises.

(G) The calculations for the dealing amount in

the preceding six subparagraph


(b) Cumulative amount of acquisition or


nature with the same counterpart

within a year

(c) Cumulative amount of acquisition or


nature with the same counterpart

within a year

(d) Respective cumulative amount of

acquisition and disposal of the same

security within a year

(H) "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.


In case of any circumstances specified in

Subparagraph 1 to 6 of Paragraph 1, the same

shall be handled for public announcement and

declaration within two (2) days commencing

immediately from the date of the event.

39

announcement and declaration of relating

information in the website designated by the

FSC.

(B) This company shall, within first ten (10)

days in each month, input the information

about the dealings in derivatives as of the

end of last month by this company and the

subsidiaries, which are not affiliated to

domestic public companies, into the website

designated by the FSC.

(C) In case of any mistakes or omissions of

necessary items therein, appropriate

corrections shall be made and the entire

items shall be re-announced publicly and

re-declared.

(D) This company shall, within two (2) days

commencing immediately from the date of

the events, handle public announcement and

declaration of relating information in the

website designated by FSC after the

transaction announced and declared as

required. (Omitted)

III. Procedures for public announcement and

declaration (A) This company shall handle public

announcement and declaration of relating

information in the website designated by

the FSC.

(B) This company shall, within first ten (10)

days in each month, input the information

about the dealings in derivatives as of the

end of last month by this company and the

subsidiaries, which are not affiliated to

domestic public companies, into the website

designated by the FSC.

(C) In case of any mistakes or omissions of

necessary items therein, appropriate

corrections shall be made and the entire

items shall be re-announced publicly and

re-declared.

(D) This company shall, within two (2) days

commencing immediately from the date of

the events, handle public announcement and

declaration of relating information in the

website designated by FSC after the

transaction announced and declared as

required. (Omitted)

Article 14 The following provisions apply to the subsidiary of

the Corporation:

I. The subsidiaries shall, in accordance with

Guidelines for Handling Acquisition and Disposal

of Assets of Public Companies, establish and

execute the Procedures of Acquisition or disposal

of Assets, which shall be approved by the board

meeting and shareholders meeting and

subsequently reviewed by and deposited with the

The following provisions apply to the subsidiary of

the Corporation:

I. The subsidiaries shall, in accordance with

Guidelines for Handling Acquisition and

Disposal of Assets of Public Companies,

establish and execute the Procedures of

Acquisition or disposal of Assets, which shall

be approved by the board meeting and

shareholders meeting and subsequently

Because it is the company’s

judgment whether the establishment

or amendment of subsidiaries’

procedures for the acquisition or

disposal of assets should report to the

board of directors of parent company,

we amended, paragraph 1 of this

Article to simplify the establishment

or amendment procedure of the

40

board meeting of the Corporation. The same

procedures shall apply to the amendments

thereto. (Omitted)

reviewed by and deposited with the F&SS of

the Corporation. The same procedures shall

apply to the amendments thereto. (Omitted)

subsidiaries.

41

Status of Directors’ shareholding on April 25, 2017 The list of the Seventh Term Board of Directors of Far EasTone Telecommunications Co., Ltd.

Title Name Shares %

Chairman Douglas Hsu, Representative of Yuan Ding Investment Co., Ltd.

1,066,657,614 32.73 Managing Director

Peter Hsu, Representative of Yuan Ding Investment Co., Ltd.

Jan Nilsson, Representative of Yuan Ding Investment Co., Ltd.

Independence Director

Lawrence Juen-Yee LAU -- --

Kurt Roland Hellström -- --

Chung Laung Liu -- --

Director

Champion Lee, Representative of Yuan Ding Co., Ltd. 4,163,500 0.13

Jeff Hsu, Representative of Yuan Ding Co., Ltd.

Keisuke Yoshizawa, Representative of U-Ming Marine Transport Corp. 331,000 0.01

Bonnie Peng, Representative of Asia Investment Corp. 1,426,303 0.04

Toon Lim, Representative of Ding Yuan International Investment Co., Ltd. 919,653 0.03

Total shares owned by all Directors 1,073,498,070 32.93

The total legal registered shares owned by all Directors 78,204,019 2.40

Director and Employees’ compensation Year 2016 Director and Employees’ compensation has been approved by the 10th meeting of the seventh-term Board of Directors on February 15, 2017. The

information regarding compensation to Directors and Employees are as underneath:

- It is proposed to distribute NT$262,208,083 for employee compensation and NT$94,394,910 for Directors compensation. The distribution will take place in

cash.

- As the compensation to Employees and Directors are different from recognized estimated amount, the difference, reasons, and measures should be disclosed:

Not applicable.

Impact of Stock Dividend Distribution on Business Performance, EPS and Return on Investment Impact of Stock Dividend Distribution on Business Performance, EPS and Return on Investment: Not applicable.

42

ARTICLES

43

The Articles of Incorporation of Far EasTone Telecommunication Co., Ltd. Approved by Annual Shareholder’s Meeting on 2016/6/16

Chapter I. General Provisions Article 1 The Corporation shall be named Far EasTone Telecommunication Co., Ltd. and be incorporated as a company limited by shares in accordance

with the Company Law of the Republic of China.

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

(1) G901011 Type I Telecommunications Enterprise;

(2) G902011 Type II Telecommunications Enterprise;

(3) F213060 Retail Sale of Telecom Instruments;

(4) F113070 Wholesale of Telecom Instruments;

(5) JA02010 Electric Appliance and Audiovisual Electric Products Repair Shops;

(6) E701030 Restrained Telecom Radio Frequency Equipments and Materials Construction;

(7) F401010 International Trade;

(8) F204110 Retail sale of Cloths, Clothes, Shoes, Hat, Umbrella and Apparel, Clothing Accessories and Other Textile Products;

(9) CC01070 Telecommunication Equipment and Apparatus Manufacturing;

(10) I301020 Data Processing Services;

(11) IZ11010 overdue receivables management service business;

(12) F201070 Retail sale of Flowers;

(13) F209060 Retail sale of Stationery Articles, Musical Instruments and Educational Entertainment Articles;

(14) F213030 Retail sale of Computing and Business Machinery Equipment;

(15) F218010 Retail sale of Computer Software;

(16) IZ12010 Manpower Services;

(17) JZ99050 Agency Services;

(18) I301030 Digital Information Supply Services;

(19) I401010 General Advertising Services;

(20) IZ99990 Other Industry and Commerce Services Not Elsewhere Classified;

(21) JE01010 Rental and Leasing Business;

(22) I199990 Other Consultancy;

(23) IE01010 Telecommunications Number Agencies;

(24) JA02990 Other Repair Shops;

(25) F401021 Restrained Telecom Radio Frequency Equipments and Materials Import;

(26) CC01060 Wired Communication Equipment and Apparatus Manufacturing;

(27) CC01080 Electronic Parts and Components Manufacturing;

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(28) CC01110 Computers and Computing Peripheral Equipments Manufacturing;

(29) CC01120 Data Storage Media Manufacturing and Duplicating;

(30) CC01990 Electrical Machinery, Supplies Manufacturing;

(31) CD01020 Tramway Cars Manufacturing;

(32) E601010 Electric Appliance Construction;

(33) E601020 Electric Appliance Installation;

(34) E603010 Cables Construction;

(35) E603050 Cybernation Equipments Construction;

(36) E603080 Traffic Signals Construction;

(37) E603090 Illumination Equipments Construction;

(38) E605010 Computing Equipments Installation Construction;

(39) E701010 Telecommunications Construction;

(40) E701020 Channel KU and C of Satellite TV Equipments and Materials Construction;

(41) EZ05010 Apparatus Installation Construction;

(42) F113050 Wholesale of Computing and Business Machinery Equipment;

(43) F114080 Wholesale of Tramway Cars and Parts;

(44) F118010 Wholesale of Computer Software;

(45) F119010 Wholesale of Electronic Materials;

(46) F214080 Retail Sale of Tramway Cars and Parts;

(47) F214990 Retail Sale of Other Transport Equipment and Parts;

(48) G202010 Parking Garage Business;

(49) I103060 Management Consulting Services;

(50) I301010 Software Design Services;

(51) IG03010 Energy Technical Services;

(52) IZ13010 Internet Identify Services;

(53) J101050 Sanitary and Pollution Controlling Services;

(54) F108031 Wholesale of Drugs, Medical Goods;

(55) F208031 Retail sale of Medical Equipments;

(56) I301040 Third Party Payment Platform;

(57) F399040 Non-Store Retailing

(58)ZZ99999 Other business items that are not prohibited or restricted by law, except those that are subject to special approval.

Article 3 The Corporation may provide guarantees for third parties by the regulation of Procedure for Making Endorsements and Guarantees. The

Corporation may also act as a shareholder with limited liability of another company. Upon approval of the Board Directors, its investment may

exceed forty percent (40%) of the paid-in capital of the Corporation, notwithstanding Article 13 of the Company Law, but the Company shall

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follow the Company’s “Procedures for Handling Acquisition or Disposal of Assets” for acquiring assets.

Article 4 The head office of the Corporation shall be located in Taipei, Taiwan, ROC. The Board of Directors may decide to establish branch offices

within or outside the territory of the Republic of China.

Chapter II. Shares Article 5 The registered capital of the Company is NT$42,000,000,000 and is divided into 4,200,000,000 common shares with a par value of NT$10

each share.

The Board is authorized, at different stage, to issue the shares that are not outstanding.

Article 6 Prior to issuance, the share certificates of the Corporation shall bear the shareholders’ names, shall be numbered serially, shall be signed or

sealed by three or more Directors of the Board, and certified by the competent government agent.

The share certificates may not be printed to represent the Company’s shares. Registration with the Taiwan Securities Central Depository Co.,

Ltd. is necessary. On the total number of shares, the Company may, as well, consolidate share certificates for printing, provided that the share

certificates shall be put into the Taiwan Securities Central Depository Co., Ltd. for deposit.

The Company may, while requested by the Taiwan Securities Central Depository Co., Ltd., consolidate shares to issue share certificates of

large denomination.

The Company may issue preferred stocks.

Where the Company is merged with another company, the Company is not required to come to resolution through a preferred stocks

shareholders’ extraordinary meeting.

Article 7 The Company shall handle equity affairs in compliance with “Regulations Governing Equity Affairs of Public Offering Companies” and other

laws concerned.

Article 8 No transfer of share certificates shall be permitted within sixty days prior to a regular meeting of shareholders, thirty days prior to a special

meeting of shareholders, or within five days prior to the date fixed for distributing dividends, bonuses, or other benefits.

Chapter III. Shareholders’ Meetings Article 9 Shareholders’ meetings shall be convened as follows:

(1) Regular meeting –to be convened by the Board of Directors within six months from closing of every fiscal year; and

(2) Special meeting – shall be convened in accordance with relevant laws and regulations.

Article 10 Unless otherwise provided for in the Company Law and these Articles of Incorporation, the shareholders’ meeting shall be duly called pursuant

to the Company’s Regulations Governing Shareholders’ Meetings.

Article 11 A notice to convene a regular meeting of shareholders shall be given to each shareholder thirty days in advance. A notice to convene a special

meeting of shareholders shall be given to each shareholder fifteen days in advance. The notice shall state the time, place and purpose of the

meeting to be convened.

Article 12 Resolutions at a Shareholders’ meeting shall, unless otherwise provided for in the Company Law, be adopted by a majority vote of shareholders

present in person or by proxy, who represent a majority of the total number of outstanding shares.

Article 13 In case a shareholder is unable to attend the Shareholders’ meeting, he/she may make another person his/her proxy to attend the meeting. They

proxy document for this purpose must be provided, however, in the event the same proxy acts for two or more shareholders, his delegated

46

voting power shall not exceed three percent (3%) of the total voting power of the Company’s total issued shares and such portion of shares

exceeding three percent (3%) shall not be counted for vote purposes. This limitation shall not apply to holders of proxies engaged in the trust

business or the shares transfer agency.

Article 14 Resolutions adopted at a meeting of the shareholders shall be recorded in the minutes of the proceedings which shall be prepared in English

and in Chinese and shall be signed and sealed by the chairman of the meeting. The minutes of proceedings shall also include the time and place

of the meeting, name of the chairman, number of shares represented by attending shareholders (or proxies) and the manner in which resolutions

had been adopted, as well as other essentials of the proceedings. The minutes shall be given to each shareholder within twenty (20) days after

the meeting and may be effected by means of a public notice and shall be duly filed according to law along with a list of shareholders present at

the meeting and the proxies.

Chapter IV. Directors and Officers Article 15 The Company shall have nine (9) to eleven (11) Directors, to be elected who are competent persons at Shareholders’ meeting. The tenure of

office of Directors will be three (3) years and they will be eligible for re-election.

Among the aforesaid number of members of the Board of Directors shall have three (3) Independent Directors.

Election of Directors shall adopt candidate nomination system according to Article 192-1 of the Company Act.

Regulations governing the professional qualifications, restrictions on shareholdings and concurrent positions held, assessment of being

independent, method of nomination, and other matters for compliance with respect to Independent Directors shall follow relevant regulations

prescribed by the Competent Authority.

The remuneration for Directors shall be determined by the Remuneration Committee and the Board of Directors.

The total number of registered shares owned by all Directors shall be determined pursuant to “Rules and Review Procedures for

Director and Supervisor Share Ownership Ratios at Public Companies”, as amended May 20, 2008.

Article15-1 Pursuant to Article 14-4 of the Securities and Exchange Act, as amended June 5, 2013, the Company will establish an Audit Committee when

as the 7th Term Board of Directors is elected into the office in 2015. The Audit Committee shall make up of the entire number of Independent

Directors, is responsible for executing powers relegated to Supervisors by the Company Act, Securities and Exchange Act and other laws and

regulations.

The organizing members, exercise of powers and other matters to be abided by the Audit Committee shall follow related laws, regulations or

rules or regulations of the Company. The organization regulations of the Audit Committee shall be stipulated by the Board of Director.

Article 16 A corporate shareholder of this Company shall have the right to designate a number of representatives to be elected as Director(s) of the

Company and the right to designate representatives as substitutes or successors of such Director(s).

Article 17 The Managing Directors shall be selected from among the directors. He Directors shall form a Board of Directors. The chairman or the vice

chairman of the board shall be elected from the managing directors. He Managing Directors shall form a Board of Managing Directors. During

the recess of the board of directors, the managing directors shall regularly exercise the power and authority of the board of directors

accordingly.

Article 18 A meeting of the Board of Directors shall be convened by its Chairman, provided that the initial meeting of each term of the Board of Directors

shall be called by the Director who receives the number of ballots representing the largest of votes.

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Directors may attend the meeting in person or by proxy. A Director cannot represent more than one absentee Director for a meeting of the

Board of Directors. A Director residing in a foreign country may appoint, in writing, a Director residing within the Republic of China as his

alternate to attend the meetings of the Board of Directors regularly, provided, the appointment shall be registered with competent government

authority.

In case a meeting of the Board of Directors is held via visual communication network, then the Directors taking part in such a visual

communication meeting shall be deemed to have attended the meeting in person.

The notice for the Board meeting shall state the reasons and agenda of the meeting, and shall be sent to each Directors seven (7) days prior to

the meeting, provided, however, that in case of emergency the meeting may be convened at any time.

The meeting notice provided in preceding paragraph could be issued by email or fax.

Article 19 The Chairman of the Board of Directors shall preside at meetings of the Board of Directors. In case the Chairman of the Board of Directors is

on leave or absent or cannot exercise his power and authority for any cause, the Vice Chairman shall act on his behalf. In case of absent of or

unavailability of the Vice Chairman as well, the Chairman of the Board of Directors shall designate one of the managing directors to act on his

behalf. In the absence of such a designation, the managing directors or the directors shall elect from among themselves an acting chairman of

the Board of Directors.

Article 20 The powers of the Board of Directors shall be as follows:

(1) make business plans;

(2) review and examine important rules;

(3) appoint and dismiss officers;

(4) determine the establishment, change or revocation of any domestic or foreign branch offices;

(5) review and examine budget and financial reports;

(6) establish audit committee or any other functional committees; review and approve regulations governing the exercise of power and duty of

these functional committees.

(7) implement any other matters designated by resolution of the shareholders or in accordance with the Company Law, and determine any other

important matters.

Article 21 (Omitted)

Article 22 The Company has one President, one General Auditor and several Executives Vice Presidents and Vice Presidents. All managerial officers

shall be duly appointed, discharged by the Board of Directors through a majority vote of the attending Directors who represent a majority of

the total Directors.

Article 23 The President shall take charge of all affairs of the Corporation in accordance with the order of the Chairman of the Board. The Executive Vice

Presidents shall assist the President.

Article 23-1 The Company shall take out liability insurance for Directors and officers with respect to their liabilities resulting from exercising their duties

during their terms of occupancy.

Chapter V. Accounting Article 24 The business year of the Corporation shall begin on January 1

st and end on December 31

st of each year. Annual closing of books shall be made

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at the closing date / end of each business year.

Article 25 At the end of each fiscal year, the Board of Directors shall, on thirty days prior to the regular Shareholders’ Meeting, prepare the following

reports, and forward them to the Audit Committee for examination and for the latter’s preparing examination report:

(1) Report on operations;

(2) Financial reports; and

(3) Proposal concerning distribution of net profits or action to deal with losses.

The appointment, dismissal and compensation of the certified accountant responsible for auditing the above books and reports shall be

determined by the Board of Directors by a majority vote of the attending Directors representing a majority of the Board members.

Article 26 IF there is profit for the current year, the Company shall set aside 1%~2% of it as compensation for employees and, shall set aside not more

than 1% of it as compensation for Directors. If there is accumulated loss on the books of the Company, portion of the profit equaling the loss

shall first be set aside to cover the latter.

The employees’ compensation may be distributed by shares or by cash. The company shall, by a resolution adopted by a majority vote at a

meeting of board of directors attended by two-thirds of the total number of directors, determine the actual profit ratio of distribution, amount,

methods, and number of shares, and shall report to the shareholders’ meeting. The board of directors shall also determine the ratio of

distribution of directors’ compensation and amount and shall report to the shareholders’ meeting.

If the account closing at the end of the fiscal year of the company discloses profit, the company, when allocating its profit, after paying all

taxes, making good losses of previous year(s), shall first set aside ten (10) percent of said profit in balance as statutory surplus reserve, and then

set aside special surplus reserve as required by the Articles of Incorporation or by resolution of the shareholders’ meeting.

The rest of surplus, if any, shall be consolidated with the unallocated earning accumulated in the preceding year(s) as distributable earning, as

determined by the shareholders’ meeting to be allocated equally according to all shares to every shareholder as shareholders’ dividend or to be

retained.

Article 27 The dividend payout ratio each fiscal year shall be no less than fifty percent 50% of the final surplus which is the sum of after-tax profit of

the fiscal year to withhold previous loss, if any, legal reserve and special reserve as required by law; while cash dividend declared by the

Corporation shall be no less than fifty percent (50%) of the total dividends distributed that year; provided, however, depending on whether the

Corporation has any financial structure improvement or major capital expenditure plans in the year, the earning unallocated and accumulated in

the preceding year may be distributed, and the payout ratio and percentage of cash dividend may be raised or lowered by a resolution adopted

at the shareholders’ meeting.

Article 28 Dividends will be paid only to those shareholders whose names are recorded on the shareholders’ register on the date fixed for distributing

dividends.

Chapter VI. Appendix Article 29 Other rules of the Corporation shall be set up separately by the Board of Directors.

Article 30 Provisions of the Company law shall be referred to for matters not provided for in these Articles of Incorporation.

Article 31 These Articles of Incorporation were agreed upon and signed on Mar. 7, 1997.

First amended on Jun. 6, 1997;

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Second amended on Aug. 20, 1998;

Third amended on Apr. 28, 1999;

Fourth amended on Apr. 21, 2000;

Fifth amended on Dec. 28, 2000;

Sixth amended on May. 15, 2001;

Seventh amended on Jun. 25, 2002;

Eighth amended on May 23, 2003;

Ninth amended on Feb. 18, 2004;

Tenth amended on Jun. 30,2004;

Eleventh amended on May 20, 2005;

Twelfth amended on May 26, 2006;

Thirteenth amended on June 12, 2007;

Fourteenth amended on June 15, 2010;

Fifteenth amended on June 9, 2011;

Sixteenth amended on June 13, 2012;

Seventeenth amended on June 13, 2013;

Eighteenth amendment on June 11, 2014;

Nineteenth amendment on June 18, 2015;

Twentieth amendment on June 16, 2016.

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Far EasTone Telecommunications Co., Ltd Handling Procedure for Acquisition and Disposal of Assets

Approved by Annual Shareholder’s Meeting on 2015/6/18

Chapter I. General Principle Article 1 The acquisition and disposal of any assets of this company shall follow the Handling Procedure on Acquisition and Disposal of Assets (hereinafter

called as the Procedure) unless the rules on the management of assets of this company and other relevant regulations shall apply thereto.

Article 2 The scope of assets referred to in the Procedures refers to:

I. Marketable securities: shares, public bond, corporate bond, financial debenture, securities representing interest in a fund, deposit receipt,

call (put) warrant, beneficiary securities and assets backed securities.

II. Real property (including land, houses and buildings, investment real property, easement) and equipment.

III. Membership

IV. Patent, Copyright, Trademark Right, Franchise and other intangible assets

V. Derivative products

VI. Assets acquired or disposed by means of merger, division, acquisition or stock transfer in accordance with the laws

VII. Other important assets

Article 3 Definitions:

I. Derivative products shall mean forward, option, future, leverage contract, swap contract, whose value are derived from such items as

assets, interest rate, exchange rate, index and other interest, as well as the plural contracts for combination of the aforesaid items. The

forward as mentioned shall not include insurance agreement, performance agreement, after sale service agreement, long-term lease

agreement and long-term purchase or sales agreement.

I. Assets acquired or disposed by means of merger, division, acquisition or stock transfer in accordance with the laws shall mean those assets

acquired or disposed by means of merger, division or acquisition in accordance with the Law on Acquisition and Merger of Enterprises,

Law on Financial Holding Companies and other relevant laws or the stock obtained from the transfer or issued for initial public offering in

accordance with Article 156.1 of Company Act.

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

III. Professional appraiser shall mean valuator of real estate or other persons engaged in appraising real estate, equipment in accordance with

law.

IV. Date of occurrence of events shall mean those date, whichever is earlier, such as the date of conclusion of transactions, date of payment,

date of entrusted dealing, date of stock transfer, date of decision of the Board or other date when the dealing counterpart and amount of

dealing can be determined. In case the investment is required to be approved by the competent authority and the date of approval thereof is

earlier than those described in the preceding paragraph, the former shall be adopted.

V. Investments in the Mainland shall mean the investments prescribed in the Rules on the Approval of Investment and Technological

Cooperation in the Mainland enacted by the Investment Commission, Ministry of Economy.

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Article 4 Where the acquisition and disposal of assets by this Corporation is required by the Procedures and regulations of other laws to be approved by the

Board of Directors, , the Corporation shall deliver dissenting information to the Audit Committee if any Director dissents and recorded in the

minutes or by a written statement thereto. In the event the Corporation, according to the regulations, submits the proposal of acquisition and/or

disposal of assets to the Board of Directors for discussions, the opinion of each Independent Director shall be fully considered, and their

disagreeing or reservation opinions and the reasons shall be recorded into the minutes.

Any transaction involving major assets or derivatives the decision of which requires submission to the Board of Directors for discussion according

to the Procedure or regulations of laws shall be concurred in by more than half of all audit committee members and be submitted to the Board of

Directors for determination,

In the absence of concurrence by over half of all audit committee members for the regulatory audit committee consent matter(s) as required by the

Procedure, the matter(s) may be implemented by approval by over two-thirds of all Directors, and the minutes of the Board of Directors shall

record the resolution(s) of the audit committee. The "all audit committee members" and “all Directors” shall be the de facto account of numbers of

people then holding respective offices.

Article 5 The total amount of securities investment of this company shall not exceed 150% of shareholders’ equity as stated in the latest financial statement

of this company and the investment in each individual security shall not exceed 80% of shareholders’ equity therein. The total book value of real

estate for non-business purpose and equipment shall not exceed 50% of total assets therein.

The total amount of equity investment of this company and its subsidiaries shall not exceed 150% of shareholders’ equity as stated in the latest

financial statement of this company. The calculation of the said rate shall be referred to the provisions of detailed rules on stock companies of

Taiwan securities exchange and other relevant laws and decrees.

The latest financial statement mentioned herein shall mean the financial statement made public and reviewed and signed by accountant prior to the

acquisition and disposal thereof.

Chapter II. Handling Procedures Article 6 Handling Procedures for Acquisition and Disposal of Securities

I. Evaluation Process

(A) Where this company is involved in the investment in securities, its Finance & Shared Services Division shall make a financial analysis of

the object of investment and prospective financial gains there from and at the same time, conduct an evaluation of the risks thereof.

(B) The securities transactions of this company in stock exchange or over the counter shall be studied and determined by responsible units in

light of the market trends. For those transactions not conducted in the stock exchange or over the counter, the latest financial statement of

the company issued the shares concerned, which has been made public and reviewed and signed by accountant, shall be referenced for

evaluation of net value of per share, profit making capability and the potentials thereof.

II. Obtaining professional opinions

(A) A public company acquiring or disposing of securities shall, prior to the date of occurrence of the event , obtain financial statements of

the issuing company for the most recent period, certified or reviewed by a certified public accountant, for reference in appraising the

transaction price, and if the dollar amount of the transaction is 20 percent of the company's paid-in capital or NT$300 million or more,

the company shall also engage a certified public accountant prior to the date of occurrence of the event to provide an opinion regarding

52

the reasonableness of the transaction price. If the CPA needs to use the report of an expert as evidence, the CPA shall do so in accordance

with the provisions of Statement of Auditing Standards No. 20 published by the ROC Accounting Research and Development Foundation

(ARDF). This requirement does not apply, however, to publicly quoted prices of securities that have an active market, or where otherwise

provided by regulations of the Financial Supervisory Commission (FSC).

(B) In case the assets acquired or disposed by this company through the auction procedures held by a court, the certificates issued by the

court may substitute the evaluation report or the opinion of an accountant

III. Authorization and the units in charge of execution

The relevant material of acquisition and disposal securities by this company shall be submitted by the Finance & Shared Services Division to

the Board for review and approval prior the conduction thereof.

In case of the impossibilities of prior review and approval thereby due to time, the acquisition or disposal securities by the Company with the

value under NTD 10,000,000, shall be determined by the authorized President (if the President sub-delegates the authorization, the

sub-delegation shall apply thereto); where the amount is under NTD 500,000,000, the same shall be determined by the authorized Chairman

of the Board (if the Chairman sub-delegates the authorization, the sub-delegation shall apply thereto); however, such transaction shall be

confirmed by the Board immediately after the completion thereof. While the amount is over NTD 500,000,000, the same shall be determined

by the Board prior to the execution.

Article 7 Handling Procedures for Acquisition and Disposal of Real Estate or Equipment

I. Evaluation Process

(A) The investment of this company in real estate and equipment shall be assessed prudently by the Finance & Shared Services Division or

relevant unit regarding its beneficial result and risks involved in light of its current operation, financial status and future planning.

(B) An analysis report on the acquisition or disposal of assets shall be made by making reference to its announced current value, appraised

value, actual dealing price of its neighboring real estate as well as putting forward conditions and prices for transaction.

(C) Acquisition or disposal of equipment shall be conducted by means of inquiries, price comparison, price negotiation or invitation to bid.

II. Evaluation Report On Real estate and equipment

If and whenever the amount of the acquisition or disposal of real estate or equipment by this company, unless the same is transacted with

government agency, entrusted construction on self-owned land or leased land, or machine or equipment for business use, has reached 20% of

the paid-in capital of the company or NTD0.3 billion, the professional appraiser shall be invited to make evaluation report prior to the date of

occurrence of the event (see detailed content as per appendix 1) and meanwhile the following stipulations shall be complied with:

(A) In case a transaction must be conducted with reference to limited price, specific price or special price due to special reasons, the board

meeting in advance shall approve the same. If the conditions thereof were changed in the future, the prices mentioned herein above shall

be still made as references.

(B) In case the transaction value reaches NTD 1 billion, the same shall be assessed by at least two professional appraisers.

(C) If the results of appraisal thereof have one of the following circumstances, 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,

accounts shall be invited to handle the differences in accordance with the Statement of Financial Audit Standards, No. 20 announced by

53

the Accounting R&D Foundation. Meanwhile, the accounts shall explain the reasons thereof and the reasonableness of dealing prices.

(a) The gap between the results of appraisal and the dealing price represents at least 20% of the latter.

(b) The gap between the results of appraisal conducted by the two professional appraisers or over represents at least 10% of the dealing

price.

(D) In case the professional appraiser is conducted prior to the date of conclusion of transaction, the latter shall not be later by over three

months than the date of report thereon. However, if the same current value announced may be applied thereto and the time does not

exceed six months, the opinions may be given by the original professional appraisal.

(E) In case the assets acquired or disposed by this company through the auction procedures held by a court, the certificates issued by the

court may substitute the evaluation report or the opinion of an accountant.

III. Authorization and the units in charge of execution

The acquisition of real estate or equipment shall be determined as follows:

(A) Any transaction within and under the scope of the annual budget approved by the Board shall be determined by the authorized Chairman

(if the Chairman sub-delegates the authorization, the sub-delegation shall apply thereto);

(B) Any transaction not within or above the scope of the annual budget approved by the Board: if the amount is under NTD 10,000,000, it

shall be determined by the authorized President (if the President sub-delegates the authorization, the sub-delegation shall apply thereto);

if the amount is over NTD10,000,000 but under NTD 500,000,000, the same shall be determined by the authorized Chairman of the

Board (if the Chairman sub-delegates the authorization, the sub-delegation shall apply thereto); However, all the aforesaid transactions

shall be confirmed by the Board immediately after the completion thereof.

(C) Any transaction no-within or above the scope of the annual budget approved by the Board and the amount is over NTD 500,000,000

shall be determined by the Board prior to the execution.

The disposal of real estate or equipment shall be determined as follows:

(A) Any transaction which book value is under NTD 10,000,000,:shall be determined by the authorized President (if the President

sub-delegates the authorization, the sub-delegation shall apply thereto); any transaction which book value is over NTD10,000,000 but

under NTD 500,000,000 shall be determined by the authorized Chairman of the board (if the Chairman sub-delegates the authorization,

the sub-delegation shall apply thereto); However, all the aforesaid transactions shall be confirmed by the Board immediately after the

completion thereof.

(B) Any transaction which book value is over NTD 500,000,000 shall be determined by the Board prior to the execution.

Finance & Shared Services Division or relevant units will be in charge of the execution upon receiving the authorization aforementioned.

Article 8 Handling Procedures for Related Party Transactions

I. Besides ensuring that the necessary resolutions are adopted and reasonableness of the transaction terms appraised, in any acquisition or

disposal of assets transaction between the Corporation and a Related Party amount of which reaches over 10 percent of the Corporation's total

assets, the Corporation shall also obtain an appraisal report from a professional appraiser or an opinion by CPA according to the Procedures.

In determining whether the trading counterparty is a related party, the material relationship as well as its legal formalism thereof shall be

examined.

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Besides trading of government bonds, bonds under repurchase and resale agreements etc., or subscribing or redeeming of domestic money

market funds, the Corporation may not, in acquiring from or disposing of real property to a related party, or acquiring from or disposing of

assets other than real property to a related party and the transaction amount of which reaches 20 percent of the Corporation’s paid-in capital,

10 percent of the Corporation’s total assets, or over NT$300 million , the Corporation proceed to enter into a transaction contract or execute a

payment until the following matters have been first approved by more than half of all members of the Audit Committee, and then submitted

to the Board of Directors for resolution:

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

(B) Reasons for selecting a related party as the trading counterparty.

(C) With respect to the acquisition of real property from a related party, information regarding appraisal of the reasonableness of the

prospective transaction terms in accordance with the first and fourth subparagraphs of the third paragraph in this Article.

(D) The date and price at which the related party originally acquired the real property, its original trading counterparty, and its respective

related party related party relationship with the Corporation and the related party, etc.

(E) Monthly cash flow forecasts for the one year commencing from the execution of the agreement and evaluation of the necessity of dealing

and the reasonableness of utilization of funds.

(F) The appraisal report issued by a professional appraiser or an opinion by a CPA obtained in compliance with the preceding paragraph.

(G) Restrictive covenants and other important agreements of this transaction.

In the event a proposal of acquisition or disposal of assets is submitted to the Board of Directors for discussions pursuant to the preceding

paragraph, the opinion of each Independent Director shall be fully considered, and their disagreeing or reservation opinions and the reasons

shall be recorded into the minutes.

III. Evaluation of reasonableness of transaction cost

(A) In evaluating the reasonableness of the transaction cost for acquiring real estate from related party, the Corporation shall apply the

following methods :

(a) In accordance with the transaction price of related party plus necessary interest on funding and the costs to be legally borne by the

buyer. The necessary cost of interest on funding is imputed as the weighted average interest rate for the loan borrowed during the

year the Corporation acquiring the assets, provided, it shall not be higher than the highest rate of non-financial industry lending as

stipulated by the Ministry of Finance.

(b) In accordance with the total value of the real estate assessed by financial institution, if the related party created mortgage to obtain

loans from the financial institution, provided the cumulative loans account for 70% of the total assessed value and the term of loan

has exceeded one year. However, this will not apply if the financial institution is a related party of one of the trading counterparties to

the transaction.

(B) In case of combined purchase of land and house of the same object, the cost of transaction of land or house may separately be appraised

by adopting any one of the aforesaid methods.

(C) The Corporation shall not only appraise the cost of real estate acquired from related parties by applying either methods described in the

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preceding two paragraphs, but also engage certified public accountants to review the same and render their specific opinions.

(D) When the Corporation acquires real property from a related party and one of the following circumstances exists, the acquisition shall be

processed in accordance with the methods described in the first and second paragraphs of this Article, and the abovementioned three

subparagraphs dealing with the evaluating of the reasonableness of transaction cost shall not apply:

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

(b) More than five (5) years 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 Corporation's own land or on rented land.

(E) In case the results of evaluation in accordance with the first and second subparagraphs of this paragraph have been proven to be lower than

dealing price, the provisions in the sixth and seventh subparagraph of this paragraph herein shall be applied. However, the following

circumstances shall be excluded provided competent evidences thereof have been provided and the opinions rendered by the professional appraiser

of real estate or accountants so described.

(a) The reconstruction on the fountain or leased land acquired by the related party shall meet the following conditions:

i. The fountain may be appraised with methods stipulated herein above and the house shall be assessed by construction cost plus

reasonable construction profit, the aggregate thereof is higher than the actual dealing price. The reasonable construction profit

shall mean the average gross profit margin of the construction department of the related party in the recent three years or the

latest gross profit margin in construction industry announced by the Ministry of Finance, whichever is lower.

ii. The successful transaction concluded within one (1) year by other non-related party of real estate on the other floor of the same

object or in the neighboring area, provided the area and the conditions thereof has been identified as similar after appraisal of

variance in prices allowing for the specific floor and region in accordance with the dealing practices of real estate.

iii. The successful rental concluded within one (1) year by other non-related party of real estate on the other floor of the same object,

provided the conditions thereof has been identified as similar after appraisal of variance in prices allowing for the region in

accordance with the rental practices of real estate.

(b) This Corporation will induce evidences to establish that the transaction of the real estate acquired by the related party is similar to the

successful transaction concluded within one year in the neighboring region by other non-related party in terms of the conditions

therefore and the area thereof. The successful transaction in the neighboring region shall mean the real estate thereof is in the same or

neighboring street and is less than 500 meters far from the object or the current value thereof announced is similar to that of the

object; That the area is similar shall mean the area of the real estate acquired by the non-related party is not less than that of the object

by 50% in area.

(F) In case the results of evaluation of the real estate acquired by the related party in accordance with the fifth subparagraph of this paragraph

have been proven to be lower than dealing price, the following provisions herein below shall be applied.

(a) The difference between the dealing prices of the real estate appraised cost thereof shall be allocated to Appropriated Retained

Earnings in accordance with Article 41.1 of the Securities Exchange Act and shall not be distributed or converted into new shares. In

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case an investor adopting equity appraisal methods towards its investment in this Corporation is a public Corporation, the same shall

allocate a certain percentage in proportion to its proportion of shares held to Appropriated Retained Earnings in accordance with laws.

(b) The Independence Directors shall handle the matter in accordance with Article 218 of the Company Act.

(c) The circumstances specified in 1 and 2 of this subparagraph shall be reported to the shareholders meeting and the details thereof shall be

disclosed in the annual report and prospectus.

(G) The Appropriated Retained Earnings reserved according to the preceding paragraph shall be used to compensate appropriately or recover

or dispose the assets with the losses due to price reduction, which was purchased at high price, or the same may be used for the purpose

with proven reasonableness after being approved by the Financial Supervisory Commission (hereinafter called FSC).

(H) In case of other proofs indicating any unusual circumstances occurred to the acquisition of real estate from the related party, the same

shall be handled according to the sixth and seventh sub-paragraph hereof.

IV. With respect to the acquisition or disposal of business-use machinery and equipment between the Corporation and its parent or subsidiaries,

shall be submitted by the Finance & Shared Services Division to the Board for review and approval prior the conduction thereof. In case of

the impossibilities of prior review and approval thereby due to time, the acquisition or disposal business-use machinery and equipment by the

Corporation with the value under NTD 10,000,000, shall be determined by the authorized President (if the President sub-delegates the

authorization, the sub-delegation shall apply thereto); where the amount is under NTD 500,000,000, the same shall be determined by the

authorized Chairman of the Board (if the Chairman sub-delegates the authorization, the sub-delegation shall apply thereto); however, such

transaction shall be confirmed by the Board immediately after the completion thereof. While the amount is over NTD 500,000,000, the same

shall be determined by the Board prior to the execution.

V. With respect to the regulations of 10 percent of total assets, the calculation is based upon total assets stated in the most recent parent

Corporation only financial report or individual financial report prepared under the Regulations Governing the Preparation of Financial

Reports by Securities Issuers.

Article 9 Handling Procedures on Acquisition and Disposal of Membership or Intangible assets


(A) The acquisition or disposal of membership shall make reference to the fair market value, proposed conditions for transaction and the

dealing price and subsequent an analysis report shall be made. Where the amount thereof is less than NTD3000, 000, the same shall be

submitted to the General Manager for review and approval and be reviewed by and filed with the board meeting. In case the amount is

over 3,000,000, the board meeting shall approve the same.

(B) The acquisition or disposal of intangible assets, except computer software which shall refer to the equipment’s authorization of article 7,

the others shall make reference to the evaluation report rendered by the professional appraiser, fair market value, proposed conditions for

transaction and the dealing price and subsequent an analysis report shall be made and submitted to the board meeting for approval.

II Evaluation Report on membership and intangible assets

(A) This company shall obtain evaluation Report prepared by professional appraisals prior to acquisition and disposal of intangible assets.

(B) If and whenever the acquisition and disposal of membership or intangible assets by this company has the following circumstances, or the

amount thereof has reached 20% of the paid-in capital of the company or NTD 0.3 billion, except in transaction with government agency,

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the accountant shall be invited to give opinions on the reasonableness of the dealing price prior to the date of occurrence of the event in

accordance with the Statement of Financial Audit Standards, No. 20 announced by the Accounting R&D Foundation

(C) In case the assets acquired or disposed by this company through the auction procedures held by a court, the certificates issued by the

court may substitute the evaluation report or the opinion of an accountant.

III Unit in charge of execution

The acquisition and disposal membership or intangible assets by this company shall, in accordance with the first subparagraph, be submitted

by the Finance & Shared Services Division for review and approval prior to the conduction thereof.

Article 9-1 The calculation of the transaction amounts referred to in the preceding articles besides Article 8, paragraph 2 shall be done in accordance with

Article 12, paragraph 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 for which an appraisal report from a professional appraiser or a CPA's opinion has been obtained need not be counted toward the

transaction amount.

The calculation of the transaction amounts referred to in the Paragraph 2, Article 8, shall be done in accordance with Article 12, paragraph 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 which

have been first approved by the Audit Committee, and then by the Board of Directors need not be counted for toward the transaction amount.

Article 10 Handling Procedures for Acquisition and Disposal of Derivative Products

I Principles and Guidelines for transaction (A) Type of transaction

(a) The derivative products of this Corporation may deal in refers to the items specified in Article 3.1 hereof.

(b) The so-called “for the purpose of transaction” shall mean for the purpose of activities of business transactions whereby the holding and

issuing of derivative products is aimed at making profit from variance in prices of dealings, including measuring and identifying the

current losses and gains in terms of fair price, whereas the so-called “not for the purpose of transaction” shall mean for the purpose of

activities other than stated herein above.

(B) Strategies for operation or hedging

(a) For the purpose of transactions: adopting flexible strategies in operation

(b) Not for the purpose of transactions: adopting prudent and conservative strategies in operation


(a) Signing of contracts and relevant documents for dealings: The chairman or the person designated thereof shall sign the aforesaid

documents for and on behalf of this Corporation.

(b) Execution of the transaction and the evaluation of losses and gains:

(i) The Finance & Shared Services Division– Procurement shall be responsible for the products relating to the materials whereas the

Finance & Shared Services Division – Treasury & Credit Management responsible for matters relating to finance.

(ii) Opening account, transaction, confirmation, split: The supervisor of each relevant department shall be responsible for authorization

thereof.

(iii) The certificate for transaction, request of payment and deposit of income shall be made by the operator and the supervisor at all

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levels shall take charge the review thereof. Meanwhile, the same shall be submitted to the Finance & Shared Services Division -

Accounting and Treasury & Credit Management.

(iv) The assistant director from each relevant department shall conduct the evaluation of losses and gains and the statement thereof

shall be submitted to Audit Department.

(c) Accounting: The Accounting Division shall be responsible for reconciling various certificates to the book by making vouchers and

preparing relevant statement according to the accounting periods.

(d) Audit: The Audit Division shall be responsible for internal auditing conducted on a periodical and non-periodical basis.

(e) Legal affairs: The personnel above the level of legal professional shall be responsible for the review of the contract for dealings.

(f) Unless otherwise stipulated, the transactions of derivative products shall be executed by the personnel above the level of specialist.

(D) Evaluation of performance

The evaluation of performance shall be based on the net value of loss and gain at the end of the year. (E) Total amount of contract and authorization

(a) For the purpose of transactions: The total amount of contract for each individual object at any time shall not exceed 10% of the net

amount of this Corporation in the previous year. Where the amount thereof is less than 5%, the same may be determined by supervisors

in each relevant department and shall be reviewed by and filed with the board meeting after transaction. In case the amount is over 5%

the same shall be approved by the board meeting.

(b) Not for the purpose of transaction: The activities with the amount under the value of assets or liabilities held or to be transacted may be

determined by supervisors in each relevant department and shall be reviewed by and filed with the board meeting after transaction. (F) The upper limit of losses

(a) For the purpose of transaction: The upper limit of losses of individual contract is less than 5% of that contract amount. The upper

limit of losses of all the contracts is less than 5% of aggregate amount of all contracts.

(b) Not for the purpose of transactions: The upper limit of losses of individual contract is less than 25% of that contract notional amount.

The upper limit of losses of all the contracts is less than 25% of total notional amount of all contracts.


(A) Credit risk of the dealing counterpart: the counterpart shall be a financial institution with good credit rating.

(B) The market risk of price reversion: see the subparagraph 1.6 of this article.

(C) Risk of market liquidity: any commodity shall be quoted to at least two financial institutions before transaction thereof.

(D) Risk of cash flows: The fair market price of the financial derivatives shall be disclosed on a periodical basis so as to properly indicate the

prospective cash flows thereof.

(E) The risk of internal operation: see the subparagraph 1.3 of this article.

(F) Legal risks involved in signing contracts and relevant documents: The Legal & Regulatory Division shall provide necessary legal

opinion thereof.

(G) The operator for dealing in derivative products shall not engaged in confirmation or split, etc. concurrently.

(H) The personnel for measuring, supervising and controlling of risks shall be in the different department from those described herein above

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and shall report to the board meeting or the senior director not in charge of transactions or positions.

(I) The positions held by a derivatives exchange shall be assessed at least once a week except that the hedge transactions needed in the

business operation shall be evaluated at least twice a month. The evaluation reports thereof shall be submitted to the senior executives

authorized by the board meeting.

III. Internal audit

The internal auditor of the Corporation shall make out the appropriateness of internal control on the derivative products on a periodical basis

and the audit department shall make an audit report on the compliance of The Procedures each month. In case of any major violations, the

same shall be notified in writing to Audit Committee.

V. Ways of periodical evaluation and handling of abnormal conditions

(A) The board meeting shall designate a supervisor of the audit department to see to supervision and control of risks involved in the

transactions of derivative products at any time.

(B) The board meeting shall designate persons especially in charge of periodical of whether the performance of transactions of derivative

products is in compliance with the strategies for operation and whether the risks involved are bearable for the Corporation.

(C) The supervisor of the audit department shall conduct periodical evaluation of whether the measures on risk management is appropriate

and dealt with according to handling procedures prescribed herein and shall supervise the transaction and the losses and gains. In case of

any abnormal circumstances, the supervisor shall take necessary corresponding measures and report immediately to the board meeting.

And the same shall attend the board meeting and be entitled to express its opinions.

(D) The Corporation shall, when dealing in derivative products, establish a reference book, in which the type, amount of the transaction of

derivative products, date of approval by board meeting, matters to be evaluated prudently in accordance with the ninth subparagraph of

the second paragraph and the second and third subparagraph of this paragraph, shall be specified in detail.

Article 11 Handling Procedures for Merger, Division, Acquisition or Stock transfer

I. Evaluation and Operation Process (A)The accounts, attorneys or underwriters shall be invited, before the decision of the board meeting by Finance & Shared Services Division

give their opinions on reasonableness of swap rate, price of purchase or cash distributed to the shareholders or other properties prior to

the merger, division, acquisition or stock transfer by this company. The said opinions shall be submitted to the board meeting for

discussion and approval.

(B) The public companies engaged in merger, division or acquisition shall, prior to the shareholders meeting, make written document of

important and related matters thereof and deliver the same together with opinions of the aforesaid professionals and the notices of

meeting to shareholders for the latter’s reference in determining whether approval will be given thereof except where the law stipulates

that no decision of shareholders meeting is needed therein.

(C) In case of the failure of any company participating in merger, division or acquisition to hold the shareholders meeting due to the

inadequacy in attendance, number of votes or other restrictions imposed by laws or that the proposal thereof has been declined thereby,

the company concerned shall announce the reasons thereof in public and follow-up measures and estimated date for shareholders

meeting.

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II. Matters needing attention (A) Unless otherwise required by laws or due to special conditions which render necessary prior approval of FSC, the company participating in

merger, division or acquisition shall hold the board meeting and shareholders meeting on the same day to determine matters relating

thereto. Unless otherwise required by laws or due to special conditions, which render necessary prior approval of FSC, the company

participating in transfer of stock shall hold the board meeting on the same day.

When participating in a merger, de-merger, acquisition, or transfer of another company's shares, the Company shall prepare a full written

record of the following information and retain it for five years for reference:

(a)Basic identification data for personnel: Including the occupational titles, names, and national ID numbers (or passport numbers in the

case of foreign nationals) of all persons involved in the planning or implementation of any merger, de-merger, acquisition, or transfer of

another company's shares prior to disclosure of the information.

(b)Dates of material events: Including the signing of any letter of intent or memorandum of understanding, the hiring of a financial or legal

advisor, the execution of a contract, and the convening of a board of directors meeting.

(c)Important documents and minutes: Including merger, de-merger, acquisition, and share transfer plans, any letter of intent or

memorandum of understanding, material contracts, and minutes of board of directors meetings.

When participating in a merger, de-merger, acquisition, or transfer of another company's shares, the Company shall, within two days

commencing immediately from the date of passage of a resolution by the board of directors, report (in the prescribed format and via the

Internet-based information system) “Basic identification data for personnel” and “Dates of material events” to the FSC for recordation. Where any of the companies participating in a merger, de-merger, acquisition, or transfer of another company's shares is neither listed on an

exchange nor has its shares traded on an OTC market, the Company shall sign an agreement with such company and comply with

regulations prescribed.

(B) Prior commitment of confidentiality: All the persons participating in or informed of the programs of merger, division, acquisition or

transfer of stock shall make commitment of confidentiality in writing and shall not disclose it to the outside or buy or sell in his or her own

name or have others buy or sell on his or her behalf stocks or securities in the nature of stock equity of all the company relating thereto.

(C) Conclusion of swap proportion or the price of purchase: In case of merger, division, acquisition or transfer of stock by this company, he

swap proportion or purchase price shall not be modified and the conditions for modifications thereof shall be specified in the contract

thereof unless the following provisions apply thereto.

(a) Handling capital increase in cash, issuing convertible corporate debentures, gratuitous rationed shares, corporate debentures with share

warrant, preferred stock with share warrant, share warrant and other marketable securities in the nature of stock equity.

(b) Behaviors affecting the financial status of the company such as disposal of major assets, etc.

(c) Circumstances affecting the rights and interests of the shareholders or price of securities such as major calamities, significant

innovation in technology, etc.

(d) Adjustment of buyback of treasury stock in accordance with laws by any one party participating in merger, division, acquisition or

stock transfer.

(e) Alteration, addition or reduction of the subjects participating in merger, division, acquisition or stock transfer or of the number thereof.

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(f) The conditions for modification have been specified in the contract and disclosed to the outside. (D) Necessary items in the contract: The contract for merger, division, acquisition or stock transfer shall be in compliance with Article 317.1 of

Company Act and Article 22 of Law on Merger And Acquisition of Enterprises with the following matters specified therein:

(a) Settlement of breach.

(b) Principles on the handling of treasury stock bought back or the marketable securities in the nature of stock equity issued by the

company merged or divided.

(c) The number and handling of treasury stock bought back in accordance with laws by any participating company after calculation of the

benchmark of swap proportion.

(d) Methods for handling alteration, addition or reduction of the participating subjects or the number thereof.

(e) Schedule of the program and estimated date of completion.

(f) Relating handling procedures on scheduled date of shareholders meeting in case of delay in the completion of the program.

(E) Any company participated in merger, division, acquisition or transfer of stock may be exempted from decision of shareholders meeting in

case the same intends to be involved in merger, division, acquisition or transfer of stock with another company after the disclosure of

information of the former actions unless the participants have been decreased and the board meeting has been authorized by shareholders

meeting to make appropriate changes whereas the procedures or legal acts completed in the formal actions should be redone by all the

participants.

(F) This company shall form an agreement with the company participated in merger, division, acquisition or stock transfer who is not a public

company in accordance with the first, second, fifth subparagraph of this paragraph hereof.

Article 12 Procedures for Disclosure of Information

I. Items for public announcement and declaration and its standard

(A) Acquisition or disposal of real property from or to a related party, or acquisition or disposal of assets other than real property from or to a

related party where the transaction amount reaches 20 percent or more of paid-in capital, 10 percent or more of the company's total assets,

or NT$300 million or more; provided, this shall not apply to trading of government bonds or bonds under repurchase and resale

agreements, or subscription or redemption of domestic money market funds.

(B) Merger, division, acquisition or stock transfer

(C) The loss incurred in the dealing of derivatives reach the upper limit of losses of all or individual contracts specified in Subparagraph 5 of

Paragraph 1 of Article 10.

(D) The amount of transactions other than those stated in the preceding three subparagraphs or an investment in the mainland China reach 20%

of paid-in capital of this company or NTD0.3 billion. The following circumstances shall be excluded therein.

(a) Transactions of public bond.

(b) Transactions of debentures with conditions for redemption and selling off, or subscription or redemption of domestic money market

funds.

(c) The assets acquired or disposed are equipment for business use and the counter part of the transaction are not associated persons and

amount thereof is under NTD 0.5 billion.

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(d) 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.

(E) The calculations for the dealing amount in the preceding four subparagraph


(b) Cumulative amount of acquisition or disposal of the objects of the same nature with the same counterpart within a year

(c) Cumulative amount of acquisition or disposal of the objects of the same nature with the same counterpart within a year

(d) Respective cumulative amount of acquisition and disposal of the same security within a year

(F) "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.


In case of any circumstances specified in Subparagraph 1 to 4 of Paragraph 1, the same shall be handled for public announcement and

declaration within two (2) days commencing immediately from the date of the event.

III. Procedures for public announcement and declaration (A) This company shall handle public announcement and declaration of relating information in the website designated by the FSC.

(B) This company shall, within first ten (10) days in each month, input the information about the dealings in derivatives as of the end of last

month by this company and the subsidiaries, which are not affiliated to domestic public companies, into the website designated by the

FSC.

(C) In case of any mistakes or omissions of necessary items therein, appropriate corrections shall be made and the entire items shall be

re-announced publicly and re-declared.

(D) This company shall, within two (2) days commencing immediately from the date of the events, handle public announcement and

declaration of relating information in the website designated by FSC after the transaction announced and declared as required.

(a) Termination or cancellation of, alteration to relevant contracts to the original transactions.

(b) Failure to complete merger, division, acquisition or stock transfer in accordance with contracts.

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

IV. Format of Public Announcements

The necessary items and contents of public announcement which the Company shall comply with are referred to the appendixes of

“Regulations Governing the Acquisition or Disposition of Assets by Public Companies”.

Article 13 Deposit and preservation of material relating to acquisition or disposal of assets

The contracts, memorandum, reference books, evaluation reports, opinions rendered by accountants, attorneys or underwriters relating to the

acquisition or disposal of assets by this company shall be deposited with this company and preserved for at least five (5) years unless otherwise

required by other laws.

Article 14 The following provisions apply to the subsidiary of the Corporation:

I. The subsidiaries shall, in accordance with Guidelines for Handling Acquisition and Disposal of Assets of Public Companies, establish and

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execute the Procedures of Acquisition or disposal of Assets, which shall be approved by the board meeting and shareholders meeting and

subsequently reviewed by and deposited with the board meeting of the Corporation. The same procedures shall apply to the amendments

thereto.

II. The limit of amount for individual purchase of real estate for non-business use or securities or investment in each individual security by the

subsidiaries, shall be determined in the board meeting.

III. In case of acquisition or disposal of assets by the subsidiary, which is not domestic public Corporation, reach the standard stipulated in

Guidelines for Handling Acquisition and Disposal of Assets of Public Companies, the same shall be handled by the Corporation for public

announcement or declaration.

IV. “Reach 20% of paid-in capital” or 10% of the Corporation's total assets as mentioned in the public announcement or declaration shall be

based on the paid in capital or total assets of the Corporation.

V. Each subsidiary of the Corporation shall examine and check whether its procedure related to the acquisition or disposition of assets is in

compliance with the “Regulations Governing the Acquisition or Disposition of Assets by Public Companies”. The Corporation’s auditor shall

examine and check report made by each subsidiary of the Corporation.

Article 15 Penalties

In case of any major damages or serious acts on the part of the employees in this company who have violated relevant regulations on acquisition

and disposal of assets, the employees concerned shall be punished by this company in accordance with relevant regulations on human affairs or

the rules on reward and punishment of employees.

Article 16 The amendments of the Procedures shall, to be first approved by the Audit Committee, and then Board of Directors, and then submitted to

Shareholders’ Meeting for approval. In case of any descent raised by any director, made in written form or been recorded, the same descanting

information shall be delivered to the Audit Committee.

When a matter is submitted for discussion by the board of directors pursuant to the preceding paragraph, the board of directors shall take into full

consideration each independent director's opinions. If an independent director objects to or expresses reservations about any matter, it shall be

recorded in the minutes of the board of directors meeting.

Article 17 Others

Any matters unspecified herein shall be handled in accordance with relevant laws, decrees and other regulations of this company.

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Far EasTone Telecommunications Co., Ltd

Regulations Governing the Conduct of Shareholders’ Meetings Approved by Annual Shareholder’s Meeting on 2014/6/11

Article 1 These Regulations governing all affairs of the Company’s shareholders’ meetings.

Article 2 The Company’s Shareholders’ meeting shall be held at a place where the Company is headquartered or a place facilitating and appropriate to

shareholders (or proxies thereof), and shall be held not earlier than 9:00 the morning or later than 3:00 in the afternoon.

The meeting notice of the Shareholders’ meeting shall state the registration time, location and other important information. The aforesaid registration

time shall start at least thirty minutes before the beginning of the meeting. The registration location shall bear clear indication and staffed with

sufficient and competent personnel.

When calling a Shareholders’ meeting, the Company shall adopt electronic transmission as one of the methods for exercising voting power, and such

exercise shall be specified in the meeting notice. Shareholders who exercise their voting power via electronic transmission shall be deemed as

attending the shareholders' meeting in person, but they shall be deemed as having waived their exercise of voting power with respect to any

temporary motions and amendments/alternates to original motions, proposed at the Shareholders’ meeting.

Shareholders (or by proxies) shall attend the Meeting carrying attendance card, sign-in card or other certificate of attendance. The proxy solicitor

shall provide Citizen ID for verification purpose. While attending the Shareholders’ Meeting, Shareholders (or by proxies) may submit sign-in cards

rather than personal registration with signatures.

The attendance at a Shareholders' meeting shall be counted based on the quantity of shares. The number of shares shall be counted based on the

certificate of attendance as furnished plus the quantity of shares for which the voting power is exercised via electronic transmission.

The Company may appoint the retained Attorneys-at-Law, CPAs or other people concerned to attend a Shareholders’ meeting as an observer.

The Shareholders’ meeting staff shall wear identity certificates or sashes.

A Shareholders’ meeting shall be chaired by the chairman if it is called by the chairman. In absence of the Chairman or his being unable to exercise

his functions, the Vice Chairman shall act in his place. In absence of a Vice Chairman or while the Vice Chairman is unable to exercise his functions,

the Chairman shall appoint a Director to act in the place otherwise a Director shall be elected from among themselves to act in the place. Where the

Board of Directors meeting is called by a person beyond the Board of Directors, the meeting shall be chaired by the convener. Where there are two or

more qualified conveners, one shall be elected from among themselves to chair the meeting. To be eligible to substitute to chair a Shareholder’s

Meeting, it requires a Director having been serving with a tenure for more than six months, and with a familiarity of both the daily operation and

finance condition of the company. The same requirements apply to representative of an institutional Director.

The Company shall record in sound or videotape the Shareholders’ meeting throughout the process and shall keep the videotape or record for a

minimum of one year. If a shareholder files a lawsuit pursuant to Article 189 of the Company Law, the video and audio records shall be conserved

until the conclusion of the litigation.

Article 3 The chairman may call to order to the meeting where a shareholders’ meeting is attended by shareholders (or proxies thereof) representing a majority

of the total issued shares. The chairman may announce extension of the time if the attendance is below the specified quorum within the specified time

limit. The chairman may announce two extensions in maximum and the total period of extension shall not exceed an hour. In the event the total

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attendance is still below the specified quorum with two extensions but represents up to one-third of the total issued shares through shareholders (or

proxies thereof), decision may be resolved on ordinary issues through a quasi-resolution by a majority vote of the attending shareholders (or proxies

thereof).

In the event the total number of shares represented by shareholders (or proxies thereof) is up to the specified quorum after the quasi-resolution is

made, the chairman shall bring the quasi-resolution to the shareholders’ meeting for acknowledgement retroactively.

Article 4 The shareholders’ meeting’s agenda shall be determined by the board of directors if the meeting is called by the board of directors. The meeting shall

be handled according to the established agenda, which shall not be changed unless resolved by the shareholders’ meeting. The preceding provision is

applicable mutatis mutandis to a shareholders’ meeting called by another person entitled to call the shareholders’ meeting beyond the board of

directors

The chairman shall not announce adjournment of the meeting until the issues set forth in the two preceding paragraphs (including occasional motion)

unless duly resolved.

Where the Chairman announces adjournment against the aforementioned provision at a shareholders’ meeting, one may be elected by a majority vote

of the attending shareholders to chair and continue the meeting.

After the meeting is adjourned as resolved, shareholders shall not elect a new chairman to continue the shareholders’ meeting at the same location or

a location elsewhere.

Article 5 A shareholder (or proxy) shall submit floor requisition, bearing attendance certificate code, shareholder account number and subjects so that the

chairman will appoint the floor order before speaking in floor.

A shareholder (or proxy) who does not speak up shall be deemed having not spoken up even he has submitted the floor requisition. Where the

contents actually spoken are found differing from the entry in the floor requisition, only the contents of the verified speech shall govern.

Article 6 A proposal shall be posed in writing. Except the proposals enumerated on the agenda, a proposal posed by a shareholder to amend the provided

proposals, alternatives or other proposals by means of occasional motion shall be seconded by other shareholders (proxies). This same is applicable

to a proposal to change agenda, to adjourn. The total number represented by the proposing shareholder and seconding shareholders shall be up to

100,000 shares minimum.

Article 7 Explanation to a proposal shall not exceed five minutes. Speech as an inquiry or in reply shall not exceed three minutes per person and may be

extended for another three minuets if permitted by chairman.

The chairman may stop a shareholder (or proxy) from speaking if he speaks beyond the specified time limit, specified issues or permitted times.

When a shareholder (or proxy) speaks in floor, other shareholders (proxies) shall not interrupt unless agreed upon by the chairman and the speaking

shareholder (or proxy) otherwise the chairman shall stop the interruption. Article 15 shall apply if such shareholder (or proxy) objects the chairman

in stopping the interruption.

Article 8 On the same issue, each shareholder shall not speak more than twice.

Where a corporation is authorized to attend a shareholders’ meeting, such corporation shall appoint only one proxy to attend the meeting.

Where a corporation appoints more than two proxies to the meeting, only one proxy may speak in floor.

Article 9 After an attending shareholder (or proxy) speaks, the chairman may reply himself or by appointing another person. Amidst discussion of a

proposal, the chairman may, in due time, announce conclusion of the discussion or announce discontinuation of the discussion as necessary.

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Article 10 On a proposal the discussion process of which is announced concluded or discontinued, the chairman shall announce voting pursuant to the number

of shares represented.

The staff to monitor resolution and to tally votes shall be appointed by the chairman and shall be subject to consent by attending shareholders

(proxies). The staff to monitor voting shall only be shareholders.

Article 11 Unless otherwise provided for in law or Articles of Incorporation, decisions in the shareholders' meeting shall be resolved by a majority vote of the

attending shareholders (proxies).

Where any shareholder who exercises voting power via electronic transmission does not object to the motion, and neither does the other present

shareholders upon the chairperson’s inquiry, the motion shall be deemed as ratified as validly as if voted by ballot.

Where any shareholder objects to the motion, a vote by ballot shall be applied, and the chairperson may decide to vote on a case by case basis, or

adopt a package vote or split vote against various motions (including the motion for election), and count votes separately.

In case of an amendment or alternative to a same proposal, the chairman will determine the order of voting. Where one among them is resolved, all

others shall be deemed vetoed and call for no more voting process.

The results of voting and election shall be announced on the spot after the vote counting and be kept for records.

Article 12 During the process of the meeting, the chairman may announce an intermission as the actual situation may justify.

Article 13 In case of an air-raid alarm during process of a meeting, the meeting shall be discontinued forthwith for evacuation. The meeting may be resumed an

hour after the “all-clear” announcement.

Article 14 The chairman may command security guards or discipline personnel to help maintain the order of the meeting. Such security guards or discipline

personnel shall wear armbands to identify their capacity while on duty to maintain the order.

Article 15 The shareholders (proxies) shall accept instructions by the chairman, the security guards or discipline personnel in maintaining the order. The

chairman, the security guards or discipline personnel may expel those who interfere with the shareholders’ meeting.

Article 16 Any matters insufficiently provided for herein shall be subject to the Company Law, Securities Trading Law and other laws concerned.

Article 17 These Regulations and amendment hereof shall come into enforcement after binge resolved in the shareholders’ meeting.

Documents

Far EasTone Telecommunications Co., Ltd. 2017 Annual ... · 0 Far EasTone Telecommunications Co., Ltd. 2017 Annual Shareholders’ Meeting Handbook June 23, 2017 Taipei City, R.O.C