epistar corporation 2019 annual general shareholders

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EPISTAR CORPORATION

2019 Annual General Shareholders’ Meeting

MINUTES

(Translation)

Time：：：：9:00 a.m., Thursday, June 20, 2019

Place: Conference Room 101, Association of Industries in Hsinchu Science Park (No.2, Zhanye 1st

Rd., Hsinchu City, Taiwan)

Attendants: All shareholders and their proxy holders, representing 736,186,118 shares (amongst

them, 428,442,750 shares voted via electronic transmission), or 68.27% of the total

1,078,336,655 outstanding shares (10,364,755 non-voting shares have been deducted

according to the second paragraph of Section 179 in Company Act).

Board Members Present: Biing-Jye Lee, Nan-Yang Wu, Wei-Min Sheng and Feng-Shang Wu.

Attendees: Ya-Huei Cheng CPA of PricewaterhouseCoopers, Taiwan, Li, Lin- Sheng Attorney of

Lee Hsu & Wang Attorney-at-Law

Chairperson: Biing-Jye Lee Chairman Minute Recorder: Belle Lu

ⅠⅠⅠⅠ. Chairman announced commencement.

ⅡⅡⅡⅡ. Chairman’s Address (omitted)

Ⅲ. Report Items

(1) The 2018 Business Report. (see Attachment 1, page 15~16.)

(Acknowledged)

(2) Audit Committee's report of 2018 audited financial report. (see Attachment 2, page 17.)

(Acknowledged)

(3) Implementation Report on the Issuance of the Common Stocks through Private Placement

which approved by the 2018 Annual General Shareholders' Meeting.

Explanation:

Capital injection by issuance of 160 million shares of common stocks through private

placement had been terminated by the resolution of the Board of Directors meeting on

March 14th, 2019 due to lack of qualified strategic investor can be found before the expiry

date on June 20th, 2019.

(Acknowledged)

(4) Implementation Report on the repurchase of the Company’s common stocks.

Explanation:

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A. In order to encourage its employees, the Board of Directors meeting on November 12,

2018 resolved the share repurchase and transfer to employees. The Rules for the

Repurchase of Shares and Transfer to Employees is attached hereto as Attachment 3

(page 18~19).

B. Status of repurchases are listed below:

The period November 13, 2018 ~ January 12, 2019

Repurchased price range NT$25~NT$40. When the Company's stock price

is below the set floor price, the Company will

continue its exercise plan.

The actual number of shares

repurchased

7,800,000 shares.

Ratio of the shares to be repurchased to total

issued shares of the Company is 0.72%

The actual total monetary amount

of the share repurchased

NT$ 190,327,325

Average repurchase price NT$ 24.4

The status of transferred 0 share.

(Acknowledged)

(5) Amendments to the Rules for the Conduct of the Board of Directors' Meeting.

Explanation:

A. It is resolved by the Board of Directors to revise part of the articles of 「the Rules for the

Conduct of the Board of Directors' Meeting」of the Company to comply with the

amendment of Company Act and the amendment of Article 15 and Article 20 of Taiwan

Stock Exchange Corporation Operation Directions for Compliance with the

Establishment of Board of Directors by TWSE Listed Companies and the Board’s

Exercise of Powers.

B. The Company hereby proposes to amend the Rules for the Conduct of the Board of

Directors' Meeting. Comparison Table for Amendments is attached hereto as Attachment

4 (page 20~29).

(Acknowledged)

(6) Status of Endorsements and Guarantees as of the End of 2018.

Explanation:

A. The Company provided endorsements and guarantees for the finance of its wholly owned

subsidiary, Episky Corporation (Xiamen) Ltd. The balance of endorsements and

guarantees amounted to US$83,000,000 and RMB$72,000,000 as of December 31st,

2018.

B. The Company provided endorsements and guarantees for the finance of its 86.97% owned

subsidiary, Jiangsu Canyang Optoelectronics Ltd. The balance of endorsements and

guarantees amounted to US$13,000,000 as of December 31st, 2018.

(Acknowledged)

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Summary of the proceedings:

1. Shareholder account #3095: How the Company will transform the R&D expense into

revenue and profit and what is the schedule of it? What is your countermeasures to

overcome difficulties from the trade war between China and the USA? What is your

schedule for importing the mini LED and Micro LED to supply chain?

2. Shareholder account #151517: what is the yield rate and schedule for mass production of

Mini LED and Micro LED?

The questions above have been clarified to shareholders by the Chairman and the designated

person.

Ⅳ. Approval Items

(1) 2018 Business Report and Financial Statements.

(Proposed by the Board of Directors)

Explanation:

A. The 2018 Business Report and Financial Statements were approved by the Board of

Directors’ Meeting on March 14, 2019 and reviewed by the Audit Committee. The Audit

Committee’s report was issued accordingly.

B. The 2018 Business Report, Audit Report from the Certified Public Accountant (CPA) and

Financial Statements are attached hereto as Attachments 1 and 5 (pages 15~16 and pages

30~57).

Voting Results:

Shares represented at the time of voting: 736,186,118

Voting Results % of the total represented share present

Votes in favor: 586,696,247 votes

(279,032,899 votes) 79.69%

Votes against: 40,614 votes

(40,614 votes) 0.01%

Votes invalid: 0 votes

(0 votes) 0.00%

Votes abstained: 149,449,257 votes

(149,369,237 votes) 20.30%

* including votes casted electronically (numbers in brackets)

Resolution:

The above proposal be and hereby was approved as proposed.

Summary of the proceedings:

Shareholder account #3095: How does the Company improve gross profit? What is the

auditing procedures for those re-investment companies? How is the account receivable and

the allowance to reduce inventory to market? It is proposed to improve the debit ratio and to

accelerate the schedule for new product development and application.

The questions above have been clarified to shareholders by the Chairman and the designated

person.

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(2) Proposal for 2018 Deficit Compensation.


Explanation:

A. The 2018 net loss after tax was approximately NT$ 456,146 thousand.

B. The Deficit Compensation Statement is attached hereto as Attachment 6 (page 58).

Voting Results:




(281,154,528 votes) 79.98%


(77,297 votes) 0.01%


(0 votes) 0.00%


(147,210,925 votes) 20.01%


Resolution:


Ⅴ. Election Item

(1) To elect 9 directors of the 10th term of the Board of Directors.( including 5 independent

directors)


Explanation:

A. The Company will elect the 10th term of Directors during the 2019 Annual General

Shareholders’ Meeting. Nine directors will be considered for the Board. The term for

elected Directors is three years, starting from June 20th, 2019 to June 19th, 2022.

B. The Company have established an Audit Committee pursuant to the R.O.C. Securities and

Exchange Act. The Audit Committee is composed of all independent directors.

Voting Results:

The list of the newly elected directors with votes received follows:

Title Name Votes Received

Director Biing-Jye Lee 700,080,858

Director Chih-Yuan Chen 632,868,000

Director Nan-Yang Wu 632,380,000

Director Chin-Yung Fan 631,008,000

Independent Director Wei-Min Sheng 348,451,428

Independent Director Feng-Shang Wu 346,108,000

Independent Director Chi-Yen Liang 345,348,000

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Title Name Votes Received

Independent Director Yu-Te Houng 345,278,005

Independent Director Wei-Kuo Chen 344,095,738

Ⅵ. Discussion Items

(1) Cash Distribution of the Capital Surplus to Shareholders.


Explanation:

A. Pursuant to Article 241 of the Company Act, the Company plans to distribute

NT$324,270,423 as dividend in cash. It shall be allocated from the capital surplus derived

from the capital increase in which the new shares were issued with the amount exceeding

the par value. It shall be distributed in accordance with the share amounts held by the

shareholders as registered in the roster of shareholders on the record date of the dividend

distribution. The distribution calculation shall be rounded up to the nearest NT dollar.

B. As calculated on the basis of the number of shares issued by the Company as of March 6th,

2019, eligible share for distribution was 1,080,901,410 in total, the cash dividend shall be

NT$0.3 per share.

C. It is proposed that shareholders’ meeting resolve to authorize chairman to set up the date

of ex-dividends and other relevant issues. If the dividend ratio is affected by the change

of the numbers of outstanding shares of the Company, the chairman of the Board of

Directors is fully authorized to conduct necessary process.

Voting Results:




(281,225,422 votes) 80.00%


(35,849 votes) 0.00%


(0 votes) 0.00%


(147,181,479 votes) 20.00%


Resolution:


(2) Amendments to the Articles of Incorporation.


Explanation:

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A. To comply with the amendments of the Company Act amended by the Republic of China

on August 1st, 2018 and operational requirements of the Company, the Company hereby

proposes to amend the Articles of Incorporation.

B. Comparison Table for Amendments is attached hereto as Attachment 7 (page 59~70).

Voting Results:




(281,201,253 votes) 79.99%


(22,606 votes) 0.00%


(0 votes) 0.00%


(147,218,891 votes) 20.01%


Resolution:


(3) To amend "Acquisition or Disposal Procedures of Asset".


Explanation:

A. Pursuant to the amendments of Regulations Governing the Acquisition and Disposal of

Assets by Public Companies issued per the Order No. 10703410725 of The Financial

Supervisory Commission dated on November 26th, 2018, and to slightly revise crossing

check Investment quota, authorization level and an execution unit in the “management

procedure of the long-term and short-term investment of the company” according to

business operation situation and merge into “Acquisition or Disposal Procedures of

Asset”, then the “management procedure of the long-term and short-term investment of

the company” is abolished.


Voting Results:




(281,216,676 votes) 79.99%


(23,712 votes) 0.00%


(0 votes) 0.00%

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(147,202,362 votes) 20.01%


Resolution:


(4) To amend "Procedures for Loaning Funds to Other Parties".


Explanation:

A. The amendment is based on the amendments of the Regulations Governing Loaning of

Funds and Making of Endorsements/Guarantees by Public Companies promulgated by

Financial Supervisory Commission on March 7th, 2019 (Ref. 1080304826)


Voting Results:




(281,183,909 votes) 79.99%


(26,371 votes) 0.00%


(0 votes) 0.00%


(147,232,470 votes) 20.01%


Resolution:


(5) To amend "Procedures of Endorsement and Guarantee".


Explanation:

A. The amendment is based on the amendments of the Regulations Governing Loaning of

Funds and Making of Endorsements/Guarantees by Public Companies promulgated by

Financial Supervisory Commission on March 7th, 2019 (Ref. 1080304826)


Voting Results:




(281,185,017 votes) 79.99%

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(31,362 votes) 0.00%


(0 votes) 0.00%


(147,226,371 votes) 20.01%


Resolution:


(6) To approve issuance of new common shares for cash to sponsor issuance of the global

depositary receipt and/or issuance of new common shares for cash in private placement.


Explanation:

A. Because the issuance of new common shares for cash to sponsor DR Offering and/or

Issue Private Placement Shares which are approved by Annual General Shareholders’

Meeting convened on June 21st, 2018 are not executed within 12 months from the date of

approval on the last Annual General Shareholders’ Meeting, the plan of fundraising is

canceled. The Company proposes the plan of fundraising to be approved at Annual

General Shareholders’ Meeting in 2019.

B. In order to purchase machines and equipment, repay bank loans, enrich working capital,

have sound financial structure and/or finance the Company's long term development

plans, the Company plans to introduce strategic investors and diversify its fund-raising

channels so as to achieve financial flexibility, by taking into account the capital market

condition, timeliness and feasibility of fundraising, issuance cost, and/or the development

of the Company. It is hereby proposed at the shareholders’ meeting to authorize the Board

of Directors ("Board"), within the limit of 120,000,000 common shares in total,

depending on the market conditions and the Company’s capital needs, to choose

appropriate timing and fund raising method(s):

Ⅰ. To issue new common shares for cash to sponsor DR Offering and/or

Ⅱ. To issue Private Placement Shares

The number of 120,000,000 common shares represents 11.02% of the total issued shares

and 9.93% of the enlarged share capital.

C. If the method of issuing new common shares for cash to sponsor DR Offering is adopted:

Ⅰ. It will be proposed at the shareholders’ meeting to authorize the Board, within the limit

of 120,000,000 common shares, depending on the market conditions, to choose

appropriate timing and fund raising method(s), to issue new commons shares for cash

to sponsor DR Offering and/or issue Private Placement Shares.

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Ⅱ. Except for 10% of the new common shares which shall be allocated for the employees'

subscription in accordance with the applicable law, it is proposed at the shareholders’

meeting to approve the waiver of current shareholders’ rights on subscribing the

remaining shares and such remaining shares will be offered to the public under

Article 28-1 of the Securities and Exchange Act as the underlying shares of the global

depositary shares to be sold in the DR Offering. Any new common shares not

subscribed by employees of the Company shall be determined by the Chairman,

depending on the market needs, to be allocated as underlying shares of the global

depositary shares or to be subscribed by the designated person(s).

Ⅲ. The actual issue price of the new common shares for cash to sponsor DR Offering

will be decided in accordance with the relevant provisions of the Taiwan Securities

Association Regulations Governing Underwriters’ assistance in Offering and Issuance

of Securities by Issuing Companies. The price shall not be less than 90% of the

reference price (The average of the closing price of the Company’s common shares

for either 1, 3 or 5 consecutive trading days prior to the pricing date after adjustment

for bonus shares issued as stock dividends, shares cancelled in connection with

capital reduction and the cash dividends). If the relevant domestic laws and

regulations are changed, the pricing mechanism will be adjusted accordingly. In view

of the fluctuant share prices in the domestic stock market, the actual issue price of the

common shares in accordance with the preceding set mode, will be determined by the

chairman by taking reference to international practice, international capital markets,

the domestic market price and the purchase situation summary circle etc., and by

discussion with the underwriters.

Ⅳ. The common stock issuance through new commons shares for cash to sponsor DR

Offering and/or Private Placement Shares are planned to be no more than

120,000,000 shares. If the new common share issuance for cash to sponsor DR

Offering and/or Private Placement Shares is conducted, the maximum of issued

shares will amount for 9.93% of the enlarged share capital. The share issuance is

expected to improve the Company's competitiveness which will then increase

shareholders' value. Because the issue price of the new common shares will be

decided with reference to fair market value of the common shares in the form of

centralized domestic market as the basis, the existing shareholders will be able to

purchase common shares in the domestic stock market with the price close to the

issue price of the GDR without bearing exchange rate risk and liquidity risk. It should

not cause a significant impact on the existing shareholders' value.

Ⅴ. After the shareholders meeting approves the resolution of issuance of new common

shares to sponsor the DR Offering, it is proposed at the shareholders’ meeting to

authorize the Board to determine and amend, at the Board’s sole discretion, the terms

and condition of the new common shares to be issued for the DR Offering, the plan

for the use of proceeds, the schedule and projected benefits and all matters in

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connection therewith, in accordance with the Company’s actual needs, market

conditions and relevant regulations and if any amendment thereto is required by the

regulatory changes or required by the regulator’s instruction or based on the

Company’s operation evaluation or change of the market conditions, the Board is

authorized to make the required amendments at the Board’s sole discretion.

Ⅵ. To complete the fund raising, the Chairman or the Chairman's designee is authorized,

on behalf of the Company, to handle all matters relating to, and sign all agreements

and documents in connection with, issuance of the new common shares to sponsor the

DR Offering.

Ⅶ. The Board is authorized to handle all matters which are not addressed herein in

accordance with the applicable laws and regulations.

D. If the method of issuing Private Placement Shares is adopted:

Ⅰ. In accordance with Article 43-6 of the Securities and Exchange Act, the Company

proposes to process capital increase in cash to issue common stocks through private

placement at appropriate timing. On the basis of the following principles and the

actual fundraising status, the Board of Directors requests to be authorized to process

the common stock issuance through private placement. The issuance shall be

processed in one or two installments within twelve months after the resolution is

approved at the Annual General Shareholders’ Meeting. The Board of Directors will

be authorized to determine the issuance amounts in each installment.

Ⅱ. The upper limit of the common share issuance through Private Placement

a. Shares issued through new commons shares for cash to sponsor DR Offering

and/or Private Placement: The number of issued shares shall not exceed

120,000,000 shares.

b. Par value per share: NT$10.

c. Total private placement amounts: To be calculated according to the final share

issue price.

Ⅲ. The Pricing Basis of Private Placement and its Reasonableness

The private placement price of the Company shall be no less than 80% of the higher

of the following two calculation bases prior to the price determination date:

a. The simple average closing price of the common stock of either the one, three or

five consecutive business day period immediately before the price determination

date, after adjustment for any distribution of stock dividends, cash dividends, or

capital reduction.

b. The simple average closing price of the common stock of the thirty consecutive

business day period immediately before the price determination date, after

adjustment for any distribution of stock dividends, cash dividends, or capital

reduction.

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The determination of the actual price determination date and common stock prices

through private placement is to be authorized to the Board of Directors. The actual

price shall be no less than the price set by the resolution proposed at the Annual

General Shareholders' Meeting, and in accordance with the future market status. The

determination of the price is to be reasonable, and have no significant influence on

the value of shareholders' equities.

Ⅳ. Selection of Specific Investors

The Board of Directors proposes to be authorized the sole discretion to handle the

selection process by the Annual General Shareholders’ Meeting.

a. Selection Method

The premise of the selection of common share subscribers is to be in compliance

with Article 43-6 of the Securities and Exchange Act and related letter issued by

the Financial Supervisory Commission, R.O.C., and the share issuance will not

cause significant changes on the management control of the company. The

common share subscriber shall meet the abovementioned criteria and shall be a

strategic investor who is able to benefit the Company on business development.

b. Selection Purpose

The selection purpose is in order to upgrade technology, expand the Company's

business as its main purpose.

c. Necessity and Effects

To enhance competitiveness and develop long-term operation capacities, it is

necessary for the Company to adopt strategic investors. The Company expects to

expand its product marketing channel and benefit its business growth by

introducing strategic investors.

The Company will select the strategic investors who could bring synergies to the

company.

Ⅴ. Reasons for the Necessity of the Private Placement

The LED upstream industry chip market suffered from oversupply and it has affected

revenue and profitability, the Company will launch foundry business such as VCSEL,

GaN on Si and new product line Mini-LED this year and will consider forming

strategic cooperation with downstream industry players. As such, the Company

requests shareholders’ approval on the mandate of issuing shares by private placement

so as to introduce strategic investors who can bring synergies to our technology and

product development and overall corporate growth.

In addition, the Company expects to expand its product marketing channel and benefit

its business growth by introducing strategic investors.

The purpose of each share issuance is to finance the collaboration on patent,

technology, and business strategy, and strengthen working capital to meet the

requirement of the Company’s operation needs.

The strategic plan will support the Company to develop new business and eventually

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improve the Company’s profitability and competitive position.

We believe that it is in the best interest of the shareholders of the Company.

a. Reasons for Conducting Non-public Offerings

The company will take into account the capital market condition, timeliness and

feasibility of fundraising, issuance cost, and/or the development of the Company

when introducing strategic investors. Because the lock-up limitation of

transferring privately placed shares can ensure the long-term cooperation

between the Company and the strategic investors, and strengthen the stability of

the Company’s operation, the method of fundraising is proposed by private

placement.

b. Purposes of the Private Placement Capital and Estimated Effects

Common stock issuance through private placement is planned to be processed in

one or two installments. The purpose of each issuance is to finance the

collaboration on patent, technology, and business strategy, and strengthen

working capital to meet the requirement of the Company’s operation needs. The

proceeds of the fund will be used within three years after the completion of

fundraising. The purpose of each installment is to achieve the business growth of

the Company, lower the risk of running the Company, and increase the value of

the shareholders' equities.

Ⅵ. The Company believes that the corporate governance structure of the Board is

sufficient and comprehensive for overseeing the Company’s substantial actions and

protecting shareholders’ value. The Company has established the Audit Committee

which is exclusive for independent directors and the number of committee member

should not be less than three. The Audit Committee is currently consisted of three

independent directors. The independent directors have reviewed and agreed every

resolution to be proposed at the upcoming Annual General Shareholders’ Meeting,

including the share issue resolution. Annual General Shareholders' Meeting of 2019

will elect five(5) independent directors who constituted more than half of the seats of

the Board. The independent rate of the Board of the Company is 55.6%. We believe

the Company has sufficient independence to reduce the potential risk of abuse of

share issuance mandate by insiders to benefit themselves. The Audit Committee will

review the qualifications of potential strategic investors and assess their capacities of

creating synergies to the Company.

Ⅶ.Whether any material change in the Company’s management control occurs after

introducing strategic investors

The common stock issuance through new commons shares for cash to sponsor DR

Offering and/or Private Placement Shares are planned to be no more than

120,000,000 shares. If the new common share issuance for cash to sponsor DR

Offering and/or Private Placement Shares is conducted, the maximum of issued

shares will amount for 9.93% of the enlarged share capital. In order to enhance the

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possibility of introducing diversified strategic investors, the Company plans to issue

common stocks through private placement in two installments. The diversification of

investors through this private placement will reduce the possibility of changing the

management control and protect current shareholders’ interests.

The Company will communicate with the potential share subscribers while seeking

strategic investors in accordance with the principle of not causing significant changes

in the Company’s management control.

Ⅷ. Rights and obligations of the common stock through this private placement

Rights and obligations of common stocks through private placement are generally

the same with common stocks issued by the Company. However, pursuant to Article

43-8 of the Securities and Exchange Act, with the exception of special conditions,

common stocks issued through private placement will not be freely transferred until

three years after the settlement date. An application for the public offering of

common stocks through private placement and listing on the Taiwan Stock Exchange

shall be made at least three years after the settlement date under related laws and

regulations.

Ⅸ. Should any revision to major matters regarding common stocks through private

placement be made due to a competent authority or a change of the objective

circumstance, excluding the price determination ratio, but including the issuance

terms and conditions, the issuance price, the issuance shares, the total raising capital,

the project items and progress, the expected use of funds, the expected efficacy and

any other related matters, it shall be fully authorized to the Board of Directors to deal

with.

Ⅹ. Pursuant to the letter No. 1080001050 dated on March 26, 2019, from Securities and

Futures Investors Protection Center, the Company explains as below:

The main purpose of this private placement is that because of the fierce competition

in the global LED industry and the rapidly change of the overall operating

environment, the use of the core technologies of the Company to develop existing

LEDs and other III-V semiconductor products will enable the Company to expand in

different fields then to enhance profitability of the Company. Adopting the private

placement to introducing strategic investors is not only because the need of funds, it

will also enhance the Company's competitiveness and maintaining the Company's

stable growth to achieve a sustainable business by cooperating with the Company's

product-related application customers from the perspectives of patenting, technical or

strategic cooperation and enriching working capital of the Company, it also

accelerate the virtual vertical integration of the industry and expanding product

marketing channels through jointly develop products and markets. After the private

placement has been approved by the shareholders' meeting to authorize the Board,

the board of directors will assess the introduction of strategic investors at an

appropriate time and in a synergistic manner, thereby increasing the return on equity.

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Voting Results:




(248,717,489 votes) 75.58%

Votes against: 32,542,183 votes

(32,542,183 votes) 4.42%


(0 votes) 0.00%


(147,183,078 votes) 20.00%


Resolution:


(7) To release the newly elected directors from non-competition restrictions.


Explanation:

A. According to Article 209, Company Act.

B. Propose to approve to release the list of Company’s directors from non-competition

restrictions as attached hereto as Attachment 11 (page 122~125).

Voting Results:




(250,061,077 votes) 75.76%


(203,093 votes) 0.03%


(0 votes) 0.00%


(178,178,580 votes) 24.21%


Resolution:


Ⅶ. Extemporary Motions: None.

Ⅷ. Adjournment: Meeting ended at 10:31 am

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Attachment 1

EPISTAR Corporation

2018 Business Report

In 2018, other companies in the LED business have completed expansion of their production

capacity, resulting in fierce competition and overcapacity of the global nitride-based LED business.

Although our entire staff and workforce has dedicated all our effort into lowering operating

costs and increasing product mix optimization, our product prices continue to decrease rapidly.

In 2018, the Company’s individual net Sales was about NTD 17.19 billion, decreased 21.7%

from 2017. Our Net Operating Loss was NTD 0.407 billion and Net Loss after tax was NTD 0.456

billion.

In order to accommodate the launch of new products, upgrade product specification and

improve competitiveness, we acquired new process equipment, clean room, RD equipment, and

equipment upgrades. We also invested in increasing environmental protection and work safety

facilities; therefore this year’s capital expenditure is around NTD 2.746 billion.

Our company continues to invest in research and development. In 2018 our research and

development cost was NTD 1.828 billion, which were primarily invested to develop new products

and increase cost-performance ratio, all with good results. Asides from winning the 2018 Taiwan

International Lighting Show (TILS) Innovative Product award, we also have considerable progress

in acquiring of patents. We acquired 265 patents last year and now have a total of 4,017 patents. Our

company has earned recognition in implementation of corporate social responsibility. In addition to

“The British Standards Association CSR certification statement” issued to us, we also obtained the

2018 Taiwan Enterprise Sustainability Report Award and BSI Award.

Prospecting the upcoming year of 2019 in the LED industry, the market is still over supplied

and competition is intense. However due to global issues on energy-saving and emphasis on

environmental protection, as well as luminous efficiency has improved over the years and

miniaturization of LED chips, many more new applications of LED are emerging and the LED

market has potential to continue to grow. For example, the applications and demand of Mini LED in

various kinds of display has increased, LED High efficiency tube and filament LED light bulb

demand has grown over the years, and LED application in lighting and automobile and other

applications has continued to permeate throughout other fields of applications. LED application in

Horticulture has gradually gained importance and IR LED in security control, smart phone sensor,

and so on.

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In 2019, our expected shipment of LED chip is estimated at 626,221 million pcs.

In response to market promotion of our VCSEL foundry business, in addition to significant

increase in sales of data transfer VCESL epitaxy wafer, we set up the subsidiary Unikorn

Semiconductor Corporation in Oct., 2018 so as to start to promote the foundry business and

development of VCSEL in sensor device products and the 5G application this year.

In reaction to the demands toward intelligentization and digitalization of applications and

price–performance ratio in the upcoming future, we still need to constantly put our effort in research

and development, improve our technique and lower our costs. Our company will continue to launch

new products, improve efficiency of resource operations, increase product’s additional value and

product mix optimization and compete for more high quality orders in order to achieve the goal of

out of the red in this year.

Chairman Biing-Jye Lee

President Chin-Yung Fan

Accounting Personnel Shih-Shien Chang

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Attachment 2

Audit Committee’s Review Report To: EPISTAR Corporation Annual General Shareholders’ Meeting of 2019 The board of directors has prepared and submitted the Company’s 2018 Business Report, Financial

Statements and Proposal for 2018 Deficit Compensation. Ya-Huei Cheng CPA and Chin-Cheng

Hsieh CPA of PricewaterhouseCoopers have also audited the financial statements and issued the

auditors’ report. The Business Report, Financial Statements and Proposal for 2018 Deficit

Compensation have been reviewed and determined to be correct and accurate by the Audit

Committee members of Epistar Corporation. According to article 14-4 of the Securities and

Exchange Act and Article 219 of the Company Act, we hereby submit the report.

EPISTAR Corporation

Chairman of the Audit Committee: Mr. Wei-Min Sheng

Date: March 14th, 2019

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Attachment 3

Epistar Corporation Rules for the Repurchase of Shares and Transfer to Employees at the first round of

Year 2018

Article 1

In order to care for and encourage its employees, Epistar adopts these Rules for the Repurchase of Shares and Transfer to Employees in accordance with Article 28-2, paragraph 1, subparagraph 1 of the Securities and Exchange Act and the provisions of the Regulations Governing Share Repurchase by Exchange-Listed and OTC-Listed Companies issued by the Financial Supervisory Commission, Executive Yuan. Any repurchase of shares and transfer to employees by Epistar, in addition to complying with related laws and regulations, will be carried out in accordance with these Rules.

Article 2 Type of shares to be transferred, a description of the rights attaching thereto, and any restrictions on such rights. The shares in the present transfer of shares to employees will be common shares, and the rights and obligations associated with those shares, unless otherwise provided by applicable laws and regulations or these Rules, will be the same as other outstanding common shares of Epistar.

Article 3 Transfer period. In accordance with these Rules, the shares in the present share repurchase may be transferred to employees in a single transfer or multiple transfers within three years from the date of the share repurchase.

Article 4 Eligibility requirements for transferees. All regular employees of Epistar and employees of subsidiaries owed over 50% by Epistar directly or indirectly.

Article 5 Transfer allocation 1. The number of shares to which employees may subscribe will be determined

based on their salary, seniority, and performance evaluations with further considering factors such as, at the base date of shares purchasing, the total number of shares bought back by the company and the upper limit of the single employee's subscription.

2. Other than the number of shares that can be subscribed in Article 5.1, the chairman is authorized to allocate additional share subscriptions to employees with special contributions to the company based on their respective contribution levels. As to the managers, additional share subscriptions should be first proposed by the salary & compensation committee and then be submitted for Board's discussion and approval.

3. The chairman is authorized to approve the number of shares, record date, payment deadline and related matters in accordance with related regulation. A list of employees and the number of shares to which they may subscribe will be drawn up according to the approval of the chairman of the board.

4. Employees who have not subscribed and completed payment at the conclusion of the designated subscription and payment period will be deemed to have waived their subscription rights. In the event of an insufficient number of subscriptions, the chairman may contact other employees regarding subscription to the remaining shares.

~19~

Article 6 Repurchase and Procedures for transfer of shares. Procedures for the present repurchase of shares and transfer to employees: 1. The repurchase of Epistar shares will be publicly announced, reported, and carried

out during the implementation period in accordance with a resolution of the board of directors.

2. To publicly announce operating procedures relating to the record date for employee subscriptions, the standards for numbers of shares to which employees may subscribe, the period for payment for subscriptions, and the rights associated with share subscriptions.

3. Statistics will be compiled on the numbers of shares actually subscribed and paid for, and the registration of share transfers will be carried out.

Article 7 Agreed transfer price per share The share transfer price for the present repurchase of shares and transfer to employees will be the average of the actual share repurchase prices, (The transfer price is calculated round up to one decimal place.) provided that if, prior to the transfer, there is either an increase in the number of issued shares of Epistar common stock, the transfer price may be adjusted within a range proportional to the increase. Transfer price adjustment formula: Adjusted transfer prices (Note 1)= Actual Average repurchase price (Note 2) x (The total number of ordinary shares on the date which repurchase completion(Note 3) ÷The total number of ordinary shares before the record date which transfer to employees (Note 3)) Note 1: The adjusted transfer price is calculated round up to one decimal place. Note 2: Actual average repurchase price is calculated round up to one decimal place. Note 3: The total number of ordinary shares is determined according to the registration of the Ministry of Economy of the total issued shares.

Article 8 Except otherwise provided, the rights and obligations associated with the transferred shares, following the transfer of shares in the present share repurchase to employees and registration of share transfer, will be the same as those originally associated with the shares.

Article 9 When Epistar transfers to employees treasury stock it has repurchased, the related tax should be paid. But in the future, in case of any amendment to the relevant tax laws and regulations of the ROC, all tax matters shall be construed in accordance with the then prevailing laws.

Article 10 These Rules will be adopted and take effect following a resolution of the board of directors, and may be amended by submission to the board of directors for a resolution.

Article 11 These Rules, and any amendments hereto, shall be reported to the shareholders meeting.

~20~

Attachment 4

Epistar Corporation

Rules for the Procedures of the Board of Directors’ Meeting

Comparison Table for Amendments

Article No. Original Articles Amended Articles Reasons for Amendments

Article 4 Agenda

The Treasury Department and Financial

Management Division of the Company (the “TFM

Division”) is appointed by the BOD of the

Company to act as the secretariat of the meeting

(the “Secretariat”).

The Secretariat shall draft the agenda items to be

discussed in a meeting prior to the commencement

of BOD meeting, prepare sufficient materials for

the meeting, and deliver them to the members of the

BOD together with the meeting notice.

If any director of the BOD deems materials for a

discussion item insufficient, they may request for

supplements. If more than 50% of the directors

share the same view, such discussion item may be

postponed to another meeting subject to the

respective resolution adopted by the BOD.

Agenda and related document

The financial and accounting center of the

Company is appointed by the BOD of the Company

to act as the secretariat of the meeting (the

“Secretariat”).

The Secretariat shall draft the agenda items to be

discussed in a meeting prior to the commencement

of BOD meeting, prepare sufficient materials for

the meeting, and deliver them to the members of the

BOD together with the meeting notice.

If any director of the BOD deems materials for a

discussion item insufficient, they may request for

supplements then the financial and accounting

center should provide it within three working days.

If more than 50% of the directors share the same

view, such discussion item may be postponed to

another meeting subject to the respective resolution

adopted by the BOD.

To add the new title and

amend the content by

complying with the

amendment of article 15 of

Taiwan Stock Exchange

Corporation Operation

Directions for the

Appointment of

Independent Directors by

TWSE Listed Companies.

~21~


Article 4-1 (New item) Set up Corporate Governance Director

The company shall set up a specific (part-time) unit

and a corporate governance supervisor of the

company to be the supreme director in charge of

corporate governance related matters. The authority

scope, qualifications and training for the director

shall be set and exercised by following the

provisions of “Taiwan Stock Exchange Corporation

Operation Directions for the Appointment of

Independent Directors by TWSE Listed

Companies”.

All directors of the company should be able to

obtain the assistance of the corporate governance

supervisor to ensure that the board procedures and

all applicable laws and regulations are followed,

and to ensure good information exchange between

board members and between the directors and the

manager.

The corporate governance supervisor is responsible

for handling the requirements of the directors. The

principle of promptly and effectively assisting the

directors in performing their duties should be

handled within three working days, unless

otherwise required by the law. If the processing

time may exceed three working days, the directors

To add by complying with

the amendment article 20

of Taiwan Stock Exchange

Corporation Operation

Directions for the

Appointment of

Independent Directors by

TWSE Listed Companies.

~22~


shall negotiate with the directors as soon as

possible.

Article 7 Chairman and proxy of the chair for BOD

The Chairman of the BOD of the Company shall

call and preside over the meeting. Nevertheless, the

director who receives votes representing the largest

portion of voting rights at the shareholders’ meeting

of the Company shall call and chair the first

meeting of each newly elected BOD of the

Company. If there are 2 or more directors who are

entitled to convene the above-mentioned initial

meeting, theses directors shall elect one person by

and from among themselves to call and preside over

the first meeting.

If the Chairman is on leave, or cannot execute his or

her authority of office for any reason, the vice

Chairman shall preside over the meeting. If the

vice Chairman is also on leave, or cannot execute

his or her authority of office for any reason, the

Chairman shall designate one of the directors to

Chairman and proxy of the chair for BOD

The Chairman of the BOD of the Company shall

call and preside over the meeting. Nevertheless, the

director who receives votes representing the largest

portion of voting rights at the shareholders’ meeting

of the Company shall call and chair the first

meeting of each newly elected BOD of the

Company. If there are 2 or more directors who are

entitled to convene the above-mentioned initial

meeting, theses directors shall elect one person by

and from among themselves to call and preside over

the first meeting.

In case the meeting is convened by half or more

directors according to Article 203 (4) or Article

203-1 (1) of Company Act, the directors shall elect

a chairman of the meeting from among the directors

to preside the meeting.

If the Chairman is on leave, or cannot execute his or

her authority of office for any reason, the vice

Chairman shall preside over the meeting. If the

vice Chairman is also on leave, or cannot execute

his or her authority of office for any reason, the

Chairman shall designate one of the directors to

To amend by comply with

the amendment of Article

203 and Article 203-1 of

the company Act

published at Nov. 1st 2018.

~23~


preside over the meeting. If the Chairman does not

designate any proxy to preside over the meeting on

his or her behalf, the directors shall elect one from

among themselves to preside over the meeting.

preside over the meeting. If the Chairman does not

designate any proxy to preside over the meeting on

his or her behalf, the directors shall elect one from

among themselves to preside over the meeting.

Article 8 Meeting materials, participants and meeting

commencement

Before and during a meeting, the designated

division shall prepare relevant materials for the

directors present at the meeting to review at any

time.

While convening a meeting, subject to the contents

of the discussion items, the Company may request

the staff of the relevant departments or subsidiaries

to attend the meeting. The Company may also

invite its accountants, lawyers or other relevant

specialists to attend the meeting and make a

statement, if necessary. But such attendees shall

leave the meeting when the discussion items are

being conducted and resolved.

Meeting materials, participants and meeting

commencement

Before and during a meeting, the designated

division shall prepare relevant materials for the

directors present at the meeting to review at any

time.

While convening a meeting, subject to the contents

of the discussion items, the Company may request

the staff of the relevant departments or subsidiaries

to attend the meeting.

The Company may also invite its accountants,

lawyers or other relevant specialists to attend the

meeting and make a statement, if necessary. But

such attendees shall leave the meeting when the

discussion items are being conducted and resolved.

Separate the second half of

the original second

paragraph into the third

paragraph. The original

third paragraph was

moved to the fourth

paragraph, and the original

fourth paragraph was

moved to the fifth

paragraph.

~24~


The chairman of a meeting shall call the meeting

according to the schedule, provided that 50% of the

total directors are present. If at the scheduled

starting time of the meeting, the number of directors

present at the meeting has not yet reached 50% of

the total directors, the chairman may postpone the

starting time of the meeting. The postponements

shall be limited to twice at most. The chairman shall

reconvene the meeting, according to the procedures

set forth in Paragraph 2 of Article 3 of the Rules, if

the number of directors present at the meeting has

still not yet reached 50% of the total directors after

the meeting has been postponed twice.

The total number of directors referred to in the

preceding paragraph shall mean the directors who

are currently assuming their duties as directors.

The chairman of a meeting shall call the meeting

according to the schedule, provided that 50% of the

total directors are present. If at the scheduled

starting time of the meeting, the number of directors

present at the meeting has not yet reached 50% of

the total directors, the chairman may postpone the

starting time of the meeting. The postponements

shall be limited to twice at most. The chairman shall

reconvene the meeting, according to the procedures

set forth in Paragraph 2 of Article 3 of the Rules, if

the number of directors present at the meeting has

still not yet reached 50% of the total directors after

the meeting has been postponed twice.

The total number of directors referred to in the

preceding paragraph shall mean the directors who

are currently assuming their duties as directors.

Article 11 Procedure of meeting

A meeting shall proceed in accordance with the

agenda, unless otherwise resolved by the BOD of

the Company with affirmative vote of at least 50%

of all directors present at the meeting.

Unless otherwise resolved by the BOD of the

Company with affirmative vote of at least 50% of

all directors present at the meeting, the chairman

shall not adjourn the meeting.

Procedure of meeting

A meeting shall proceed in accordance with the

agenda, unless otherwise resolved by the BOD of

the Company with affirmative vote of at least 50%

of all directors present at the meeting.

Unless otherwise resolved by the BOD of the

Company with affirmative vote of at least 50% of

all directors present at the meeting, the chairman

shall not adjourn the meeting.

To amend the paragraph 4.

~25~


During a meeting, the chairman of the meeting shall

suspend the meeting if a motion is brought up by a

director, in the event that the number of the

directors present in the meeting is less than 50% of

the directors present at the meeting. Under such

circumstance, Paragraph 3 of Article 8 of the Rules

shall apply.

During a meeting, the chairman of the meeting shall

suspend the meeting if a motion is brought up by a

director, in the event that the number of the

directors present in the meeting is less than 50% of

the directors present at the meeting. Under such

circumstance, Paragraph 4 of Article 8 of the Rules

shall apply.

Article 15 Withdrawal from discussion as an interested party

At a meeting in which a director or the juristic

person that the director represents is an interested

party and his or her participation is likely to

prejudice the interest of the Company, such director

shall state significant respects regarding the conflict

of interest at said Board of Directors’ meeting. This

director is prohibited from participating in

discussion of or voting on a matter, and shall

physically withdraw himself or herself from

participating in the discussion or voting on such

matter, and likewise is prohibited from voting on

such matter as a proxy of another director.

Withdrawal from discussion as an interested party

At a meeting in which a director or the juristic

person that the director represents is an interested

party and his or her participation is likely to

prejudice the interest of the Company, such director

shall state significant respects regarding the conflict

of interest at said Board of Directors’ meeting. This

director is prohibited from participating in

discussion of or voting on a matter, and shall

physically withdraw himself or herself from

participating in the discussion or voting on such

matter, and likewise is prohibited from voting on

such matter as a proxy of another director.

Where the spouse, a blood relative within the

second degree of kinship of a director, or any

company which has a controlling or subordinate

relation with a director has interests in the matters

under discussion in the meeting of the preceding


the amendment of article

206 of the company Act

published at Nov. 1st 2018.

~26~


Under the circumstance set forth in the preceding

paragraph of this Article, pursuant to Paragraph 3 of

Article 206 of the Company Act, Paragraph 2 of

Article 180 of the Company Act shall apply to the

resolution adopted by the BOD of the Company.

paragraph, such director shall be deemed to have a

personal interest in the matter.

Under the circumstance set forth in the preceding

two paragraphs of this Article, pursuant to

Paragraph 4 of Article 206 of the Company Act,

Paragraph 2 of Article 180 of the Company Act

shall apply to the resolution adopted by the BOD of

the Company.

Article 16 Meeting minutes

Resolutions adopted at the meeting shall be

recorded in the meeting minutes. The meeting

minutes shall fully and accurately record the items

as follows:

1. The identification number of the meeting (or the

year), meeting time and venue;

2. The name of the chairman of the meeting;

3. Attendance status, including the names and

number of the directors who were present, on a

leave and absent, respectively;

4. The names and positions of the persons present

as guest at the meeting;

5. The name of the secretary of the meeting;

6. Reporting items;

7. Discussion items: the voting method adopted

for each resolution and each resolution adopted

Meeting minutes

Resolutions adopted at the meeting shall be

recorded in the meeting minutes. The meeting

minutes shall fully and accurately record the items

as follows:

1. The identification number of the meeting (or

the year), meeting time and venue;

2. The name of the chairman of the meeting;

3. Attendance status, including the names and

number of the directors who were present, on a

leave and absent, respectively;

4. The names and positions of the persons present

as guest at the meeting;

5. The name of the secretary of the meeting;

6. Reporting items;

7. Discussion items: the voting method adopted

for each resolution and each resolution adopted


the amendment of Article

206 of the Company Act

published at Nov. 1st 2018,

and Article 14-3 and

Article 14-5 of Securities

and Exchange Act.

~27~


at the meeting, summary of speeches made by

the directors and supervisors of the Company,

the name of any director that is an interested

party as referred to in Section 1 of the

preceding Article, explanations for important

respects of the conflict of interest, the reasons

why a director shall be required or not required

to enter recusal, the recusal status, specialists

and other persons, any dissenting or qualified

opinions on the discussion items with records or

written statements, and any written opinion

issued by an independent director (if any) under

Section 5 of Article 12.

8. Extraordinary motions: the name of the person

who proposed the motion, the voting method

adopted for each motion and the resolution

adopted for each motion at the meeting,

summary of speeches by the directors and

supervisors of the Company, specialists and

other persons, the name of any director that is

an interested party as referred to in Section 1 of

the preceding Article, explanations for

important respects of the conflict of interest, the

reasons why the director shall be required or

at the meeting, summary of speeches made by

the directors and supervisors of the Company,

the name of any director that is an interested

party as referred to in Section 1 and section 2 of

the preceding Article, explanations for

important respects of the conflict of interest, the

reasons why a director or the one who has a

personal interest shall be required or not

required to enter recusal, the recusal status,

specialists and other persons, any dissenting or

qualified opinions on the discussion items with

records or written statements, and any written

opinion issued by an independent director (if

any) under Section 4 of Article 12.

8. Extraordinary motions: the name of the person

who proposed the motion, the voting method

adopted for each motion and the resolution

adopted for each motion at the meeting,

summary of speeches by the directors and

supervisors of the Company, specialists and

other persons, the name of any director that is

an interested party as referred to in Section 1

and Section 2 of the preceding Article,

explanations for important respects of the

conflict of interest, the reasons why the director

~28~


not be required to enter recusal, and the recusal

status, and any dissenting or qualified opinions

on the motions with records or written

statements.

9. Other required items.

The attendance register of the meeting shall be part

of the meeting minutes and shall be kept safely

during the existence of the Company.

The meeting minutes shall be signed or sealed by

the chairman and the secretary of the meeting and

shall be distributed to all of the directors and

Supervisors of the Company within 20 days after

or the one who has conflict of interest shall be

required or not be required to enter recusal, and

the recusal status, and any dissenting or

qualified opinions on the motions with records

or written statements.

9. Other required items.

If there is any of the followings, the board of

directors shall, in addition to state in the meeting

minutes, file an announcement to Market

Observation Post System designated by the

Financial Supervisory Commission within two days

from the date of the board meeting:

1. An independent director has a dissenting

opinion or qualified opinion.

2. It has not been approved by the audit committee

of the Company but has been undertaken upon

the consent of two-thirds or more of all

directors.

The attendance register of the meeting shall be part

of the meeting minutes and shall be kept safely

during the existence of the Company.

The meeting minutes shall be signed or sealed by

the chairman and the secretary of the meeting and

shall be distributed to all of the directors and

Supervisors of the Company within 20 days after

~29~


the date on which the meeting is held. The meeting

minutes shall be categorized as one of the material

records or files of the Company and shall be safely

kept during the existence of the Company.

Preparation and distribution of the meeting minutes

mentioned in Paragraph 1 of this Article may be

made by electronic form.

the date on which the meeting is held. The meeting

minutes shall be categorized as one of the material

records or files of the Company and shall be safely

kept during the existence of the Company.

Preparation and distribution of the meeting minutes

mentioned in Paragraph 1 of this Article may be

made by electronic form.

~30~

Attachment 5

Report of independent accountants translated from Chinese.

REPORT OF INDEPENDENT ACCOUNTANTS

PWCR18000406

To the Board of Directors and Shareholders of Epistar Corporation

Opinion

We have audited the accompanying consolidated balance sheets of Epistar Corporation and its

subsidiaries (the “Epistar Group”) as at December 31, 2018 and 2017, and the related consolidated

statements of comprehensive income, of changes in equity and of cash flows for the years then

ended, and notes to the consolidated financial statements, including a summary of significant

accounting policies.

In our opinion, based on our audits and the reports of other independent accountants, as described in

the Other matters section of our report, the accompanying consolidated financial statements present

fairly, in all material respects, the consolidated financial position of Epistar Group as at December

31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for

the years then ended in accordance with the “Regulations Governing the Preparations of Financial

Reports by Securities Issuers” and the International Financial Reporting Standards, International

Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial

Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation

of Financial Statements by Certified Public Accountants” and generally accepted auditing standards

in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further

described in the Independent Accountant’s Responsibilities for the Audit of the Consolidated

Financial Statements section of our report. We are independent of Epistar Group in accordance with

the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the

“Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based

on our audits and the report of the other independent accountants, we believe that the audit evidence

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

~31~

Key audit matters

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

our audit of the consolidated financial statements of the current period. These matters were

addressed in the context of our audit of the consolidated financial statements as a whole and, in

forming our opinion thereon, we do not provide a separate opinion on these matters.

The key audit matters in relation to consolidated financial statements for the year ended December

31, 2018 are outlined as follows:

Evaluation of Impairment Losses of Property, Plant and Equipment, and Goodwill

Description

Please refer to Note 4(18) of the consolidated financial statement for the accounting policy on

impairment losses on non-financial assets, Note 5(2) for the accounting estimates and assumptions

in relation to impairment losses on non-financial assets, Note 6(10) for the explanations regarding

impairment losses on non-financial assets. As of December 31, 2018, the balances of property, plant

and equipment, and goodwill were NT$22,435,949 thousand and NT$6,324,659 thousand,

respectively.

Epistar Group evaluates the recoverable amounts of idle property, plant and equipment through

assessing the fair values after deducting the disposal costs, and of property, plant and equipment,

and intangible assets through value in use. Epistar Group evaluates whether impairment losses will

be provided for property, plant and equipment, and goodwill utilizing the aforementioned

recoverable amounts. The evaluation of value in use for operational property, plant and equipment

and intangible assets consists of the estimation of future cash flows and the determination of

discount rates. Since the assumptions adopted in the estimation of future cash flows and the results

of the estimation would have significant impact on value in use of operational property, plant, and

equipment, and intangible assets, it was identified as one of the key audit matters.

How our audit addressed the matter

We have obtained the appraisal report of idle property, plant and equipment prepared by

independent valuers from Epistar Group and assessed the reasonableness of evaluation methods and

fair values utilized. For value in use of operational property, plant and equipment, and goodwill, the

following procedures were conducted:

~32~

1. Interviewed with management and obtained an understanding of Epistar Group’s operational

procedures in estimating future cash flows and verified the consistency to operation plans

approved by the Board of Directors.

2. Discussed operation plans with management to understand the product strategies and their

respective executions status.

3. Assessed the reasonableness for assumptions utilized in estimating future cash flows, including

projected sales volumes, unit prices and unit costs. Assessed the parameters adopted in

determining discount rates, including calculating and comparing the weighted average cost of

capital at risk-free rates, the industrial risk premium and the long-term rates of returns.

Evaluation of Inventories

Description

Please refer to Note 4(12) of the consolidated financial statement for the accounting policy on

inventory valuation, Note 5(2) for the accounting estimates and assumptions in relation to inventory

valuation, Note 6(5) for the explanations regarding inventory valuation. As of December 31, 2018,

the balances of inventories and the allowance for valuation loss were NT$5,631,815 thousand and

NT$926,624 thousand, respectively.

Epistar Group is primarily engaged in manufacturing and sales of LED wafers and chips. Due to

rapid technological developments, short product lifespans and frequent fluctuations of market prices,

the risk of decline in market value and obsolescence for inventories is high. Epistar Group evaluates

net realized values for inventories which aged over a specific period of time and specific obsolete

inventories in order to provide allowance for valuation loss. Since the identification of the above

obsolete inventories and their respective net realizable values are subject to management’s judgment,

it was identified as one of the key audit matters.


Our key audit procedures performed in respect of the above included the following:

1. Obtained an understanding of Epistar Group’s operations and the nature of its industry and

interviewed with management to understand the probability of future sales for those out-of-date

inventories and to evaluate the reasonableness of allowance for valuation loss.

~33~

2. Obtained and validated the accuracy of the detailed listings of inventories aged over a specific

period of time and specific obsolete inventories. Validated information of historical sales and

discounts for those obsolete inventories to assess the reasonableness of policies in providing

allowance for inventory valuation loss.

Other matter – Audited by other Independent Accountants

We did not audit the financial statements of certain consolidated subsidiaries. Those financial

statements were audited by other independent accountants, whose reports thereon have been

furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included in the

financial statements and the information on the consolidated subsidiaries disclosed in Note 13 was

based solely on the reports of other independent accountants. Total assets of those consolidated

subsidiaries amounted to NT$812,777 thousand and NT$1,045,560 thousand, constituting 1.29%

and 1.56% of the consolidated total assets as at December 31, 2018 and 2017, respectively, and total

operating revenues of NT$0 thousand and NT$0 thousand, constituting 0% and 0% of the

consolidated total operating revenues for the years then ended. Furthermore, we did not audit the

2018 and 2017 financial statements of certain equity investments accounted for under the equity

method. Those financial statements were audited by other independent accountants whose reports

thereon were furnished to us and our opinion expressed herein, insofar as it relates to the amounts

included in the consolidated financial statements and certain information disclosed in Note 13

relative to these investments, is based solely on the reports of the other independent accountants.

These equity investments amounted to NT$849,968 thousand and NT$802,377 thousand,

representing 1.35% and 1.19% of the consolidated total assets as of December 31, 2018 and 2017,

respectively, and their comprehensive income (loss) (including share of loss of associates and joint

ventures accounted for under equity method and share of other comprehensive income/(loss) of

associates and joint ventures accounted for under equity method) amounted to NT$78,078 thousand

and (NT$485,632) thousand, representing (7.08%) and (33.58%) of the consolidated comprehensive

income for the years then ended.

Other matter – Parent company only financial reports

We have also and expressed an unmodified opinion on the parent company only financial

statements of Epistar Corporation as of and for the years ended December 31, 2018 and 2017.

~34~

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 Preparations of Financial Reports by

Securities Issuers” and the International Financial Reporting Standards, International Accounting

Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory

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

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

due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the

Epistar 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 Epistar 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

Epistar Group’s financial reporting process.

Independent accountant’s responsibilities for the audit of the consolidated financial

statements

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

statements as a whole are free from material misstatement, whether due to fraud or error, and to

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

a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material

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

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

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

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and

maintain professional skepticism throughout the audit. We also:

~35~

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 Epistar 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 Epistar Group’s ability to

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

to draw attention in our report to the related disclosures in the consolidated financial

statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are

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

conditions may cause Epistar Group to cease to continue as a going concern.

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

including the disclosures, and whether the consolidated financial statements represent the

underlying transactions and events in a manner that achieves fair presentation.

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

or business activities within Epistar Group to express an opinion on the consolidated financial

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

audit. We remain solely responsible for our audit opinion.

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

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

internal control that we identify during our audit.

~36~

We also provide those charged with governance with a statement that we have complied with

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

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

where applicable, related safeguards.

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

that were of most significance in the audit of the consolidated financial statements of the current

period and are therefore the key audit matters. We describe these matters in our report unless law or

regulation precludes public disclosure about the matter or when, in extremely rare circumstances,

we determine that a matter should not be communicated in our report because the adverse

consequences of doing so would reasonably be expected to outweigh the public interest benefits of

such communication.

Cheng, Ya-Huei Hsieh, Chih-Cheng

For and on behalf of PricewaterhouseCoopers, Taiwan

March 14, 2019

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

EPISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2018 and 2017 (Expressed in thousands of New Taiwan dollars)

~37~

December 31, 2018 December 31, 2017 Assets AMOUNT % AMOUNT %

Current assets

1110 Cash and cash equivalents $ 5,532,509 9 $ 6,836,697 10 1110 Financial assets at fair value through profit or loss

- current

726,406 1 410,766 1 1150 Notes receivable, net 1,495,653 2 1,886,532 3 1170 Accounts receivable, net 7,583,934 12 6,623,059 10 1180 Accounts receivable - related parties, net 1,281,006 2 2,779,105 4 1200 Other receivables 249,964 - 823,277 1 1210 Other receivables - related parties 305 - 24,785 - 130X Inventories, net 4,705,191 7 4,815,378 7 1410 Prepayments 1,126,558 2 1,192,436 2 1460 Non-current assets held for sale - net 390,042 1 468,142 1 1470 Other current assets 431,118 1 183,474 - 11XX Current Assets 23,522,686 37 26,043,651 39 Non-current assets

1517 Non-current financial assets at fair value through

other comprehensive income

3,265,125 5 - - 1523 Available-for-sale financial assets - non-current - - 1,957,093 3 1550 Investments accounted for under equity method 1,117,708 2 2,819,665 4 1600 Property, plant and equipment, net 22,435,949 36 24,348,881 36 1780 Intangible assets 7,683,928 12 7,846,962 12 1840 Deferred income tax assets 3,911,132 6 3,021,330 5 1900 Other non-current assets 802,114 2 948,087 1 15XX Non-current assets 39,215,956 63 40,942,018 61 1XXX Total assets $ 62,738,642 100 $ 66,985,669 100

(Continued)

EPISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2018 and 2017 (Expressed in thousands of New Taiwan dollars)

~38~

December 31, 2018 December 31, 2017

Liabilities and Equity AMOUNT % AMOUNT %

Current liabilities

2100 Short-term borrowings $ 1,874,876 3 $ 700,000 1 2110 Short-term notes and bills payable 357,717 1 376,791 1 2150 Notes payable 129,942 - 74,172 - 2170 Accounts payable 2,301,209 4 2,413,925 4 2180 Accounts payable - related parties 285,825 1 754,847 1 2200 Other payables 3,820,103 6 4,037,486 6 2230 Current income tax liabilities - - 168,527 - 2320 Long-term liabilities, current portion 165,306 - 977,277 1 2399 Other current liabilities - others 178,857 - 165,789 - 21XX Current Liabilities 9,113,835 15 9,668,814 14 Non-current liabilities

2540 Long-term borrowings 409,808 1 2,120,859 3 2570 Deferred income tax liabilities 1,402,901 2 1,097,797 2 2600 Other non-current liabilities 904,188 1 1,114,287 2 25XX Non-current liabilities 2,716,897 4 4,332,943 7 2XXX Total Liabilities 11,830,732 19 14,001,757 21 Equity attributable to owners of parent company

Share capital

3110 Share capital - common stock 10,887,014 18 10,887,014 16 Capital surplus

3200 Capital surplus 39,515,679 62 39,970,967 59 Retained earnings

3310 Legal reserve 161,423 - - - 3320 Special reserve 703,607 1 - - 3350 Unappropriated retained earnings (accumulated

deficit)

( 385,142) - 1,614,226 3 Other equity interest

3400 Other equity interest ( 1,317,990) ( 2) ( 684,243) ( 1) 3500 Treasury stocks ( 211,008) - ( 408,783) - 31XX Equity attributable to owners of the parent 49,353,583 79 51,379,181 77 36XX Non-controlling interest 1,554,327 2 1,604,731 2 3XXX Total equity 50,907,910 81 52,983,912 79 3X2X Total liabilities and equity $ 62,738,642 100 $ 66,985,669 100

EPISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2018 and 2017 (Expressed in thousands of New Taiwan dollars, except for earning (loss) per share amounts)

~39~

Year ended December 31

2018 2017

Items AMOUNT % AMOUNT %

4000 Sales revenue $ 20,306,412 100 $ 25,270,616 100

5000 Operating costs ( 17,651,741) ( 87 ) ( 19,786,497) ( 79)

5900 Operating margin 2,654,671 13 5,484,119 21

5910 Unrealized loss (profit) from sales 2,795 - ( 21,083) -

5920 Realized profit (loss) from sales 21,083 - ( 2,409) -

5950 Net operating margin 2,678,549 13 5,460,627 21

Operating expenses

6100 Selling expenses ( 280,781) ( 1 ) ( 231,959) ( 1)

6200 General & administrative expenses ( 1,328,003) ( 6 ) ( 1,559,394) ( 6)

6300 Research and development expenses ( 1,959,743) ( 10 ) ( 1,576,283) ( 6)

6450 Expected credit losses ( 9,814) - - -

6000 Total operating expenses ( 3,578,341) ( 17 ) ( 3,367,636) ( 13)

6500 Other income and expenses - net 220,949 1 214,159 1

6900 Operating loss ( 678,843) ( 3 ) 2,307,150 9

Non-operating income and expenses

7010 Other income 290,378 2 252,335 1

7011 Insurances income from disaster 206,785 1 400,000 3

7020 Other gains and losses ( 538,050) ( 3 ) ( 729,284) ( 3)

7023 Disaster loss - - ( 57,172) -

7050 Finance costs ( 175,678) ( 1 ) ( 198,788) ( 1)

7055 Reveral of expected credit losses 4,121 - - -

7060 Share of loss of associates and joint ventures

accounted for under equity method 24,146 - ( 50,851) -

7000 Total non-operating income and expenses ( 188,298) ( 1 ) ( 383,760) ( 1)

7900 Loss before income tax ( 867,141) ( 4 ) 1,923,390 8

7950 Income tax benefit (expense) 361,277 2 ( 237,177) ( 1)

8200 (Loss) profit for the year ($ 505,864) ( 2 ) $ 1,686,213 7

(Continued)

EPISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2018 and 2017 (Expressed in thousands of New Taiwan dollars, except for earning (loss) per share amounts)

~40~


2018 2017


Other comprehensive income 8311 Gains(Losses) on remeasurements of defined benefit plans $ 31,823 - ($ 42,790) - 8316 Unrealised gains (losses) from investments in equity

instruments measured at fair value through other

comprehensive income

( 674,074) ( 3) - - 8320 Share of other comprehensive income of associates and

joint ventures accounted for using equity method,

components of other comprehensive income that will not

be reclassified to profit or loss

57,284 - ( 171) - 8349 Income tax related to components of other comprehensive

income that will not be reclassified to profit or loss

111,198 1 7,274 - 8310 Components of other comprehensive income that will

not be reclassified to profit or loss

( 473,769) ( 2) ( 35,687) - Components of other comprehensive income that will be

reclassified to profit or loss

8361 Cumulative translation differences of foreign operations ( 238,892) ( 1) ( 206,586) ( 1) 8362 Unrealized gain(loss) on valuation of available-for-sale

financial assets

- - ( 66,753) - 8370 Share of other comprehensive income of associates and

joint ventures accounted for using equity method,

components of other comprehensive income that will be


65,149 - 24,125 - 8399 Income tax related to components of other comprehensive

income that will be reclassified to profit or loss

50,281 - 44,743 - 8360 Components of other comprehensive income that will

be reclassified to profit or loss

( 123,462) ( 1) ( 204,471) ( 1) 8300 Other comprehensive (loss)income for the year ($ 597,231) ( 3) ($ 240,158) ( 1) 8500 Total comprehensive (loss)income for the year ($ 1,103,095) ( 5) $ 1,446,055 6 Profit (loss), attributable to: 8610 Equity holders of the parent company ($ 456,146) ( 2) $ 1,649,913 7 8620 Non-controlling interest ($ 49,718) - $ 36,300 - Comprehensive (loss) income attributable to: 8710 Equity holders of the parent company ($ 1,022,814) ( 5) $ 1,435,353 6 8720 Non-controlling interest ($ 80,281) - $ 10,702 - Basic earnings (loss) per share 9750 Total basic earnings (loss) per share ($ 0.42) $ 1.55 Diluted earnings (loss) per share 9850 Total diluted earnings (loss) per share ($ 0.42) $ 1.53

EPISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED DECEMBER 31, 2018 AND 2017 (Expressed in thousands of New Taiwan dollars)

Equity attributable to owners of the parent

Retained Earnings Other equity interest

Share capital - common stock

Capital surplus

Legal reserve

Special reserve

Unappropriated retained

earnings(accumulated deficit)

Cumulative translation

differences of foreign

operations

Unrealised gains (losses) from

financial assets measured at fair

value through other comprehensive

income

Unrealized gain or loss on

available-for-sale financial assets

Treasury stocks

Total

Non-controlling interest

Total

~41~

2017 Balance at January 1, 2017 $ 10,915,492 $ 43,016,259 $ 241,512 $ - ($ 3,545,028 ) ($ 228,527 ) $ - ($ 276,843 ) ($ 848,721 ) $ 49,274,144 $ 1,709,852 $ 50,983,996Profit for the year - - - - 1,649,913 - - - - 1,649,913 36,300 1,686,213Other comprehensive income (loss) for the year - - - - ( 35,687 ) ( 187,423 ) - 8,550 - ( 214,560 ) ( 25,598 ) ( 240,158 )Total comprehensive income (loss) for the year - - - - 1,614,226 ( 187,423 ) - 8,550 - 1,435,353 10,702 1,446,055Appropriations of 2016 Legal reserve used to offset accumulated

deficits - - ( 241,512 ) - 241,512 - - - - - - - Capital surplus used to offset

accumulated deficits - ( 3,303,516 ) - - 3,303,516 - - - - - - -Change in investees interest accounted for under equity method - 168,908 - - - - - - - 168,908 - 168,908Difference between consideration and carrying amount of subsidiaries acquired and disposed - 105,930 - - - - - - - 105,930 ( 178,366 ) ( 72,436 )Treasury stock transferred to employees - 110,919 - - - - - - 257,681 368,600 - 368,600Compensation cost of share-based payments - 27,906 - - - - - - - 27,906 - 27,906Retirement of treasury share ( 28,478 ) ( 153,779 ) - - - - - - 182,257 - - -Cash paid for acquisition of non-controlling interests in subsidiaries - - - - - - - - - - 60,883 60,883Changes in ownership interests in subsidiaries accounted for using equity method - ( 1,660 ) - - - - - - - ( 1,660 ) 1,660 -Balance at December 31, 2017 $ 10,887,014 $ 39,970,967 $ - $ - $ 1,614,226 ($ 415,950 ) $ - ($ 268,293 ) ($ 408,783 ) $ 51,379,181 $ 1,604,731 $ 52,983,912

(Continued)

EPISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


Equity attributable to owners of the parent



Capital surplus

Legal reserve

Special reserve

Unappropriated retained

earnings(accumulated deficit)

Cumulative translation

differences of foreign

operations


financial assets measured at fair

value through other comprehensive

income



Treasury stocks

Total

Non-controlling interest

Total

~42~

2018 Balance at January 1, 2018 $ 10,887,014 $ 39,970,967 $ - $ - $ 1,614,226 ($ 415,950 ) $ - ($ 268,293 ) ($ 408,783 ) $ 51,379,181 $ 1,604,731 $ 52,983,912 Effects of retrospective application and

retrospective restatement - - - - 46,946 3,595 ( 320,348 ) 268,293 - ( 1,514 ) ( 1,651 ) ( 3,165 ) Balance at January 1 after adjustments 10,887,014 39,970,967 - - 1,661,172 ( 412,355 ) ( 320,348 ) - ( 408,783 ) 51,377,667 1,603,080 52,980,747 Loss for the year - - - - ( 456,146 ) - - - - ( 456,146 ) ( 49,718 ) ( 505,864 ) Other comprehensive income(loss) for

the year - - - - 25,129 ( 92,899 ) ( 498,898 ) - - ( 566,668 ) ( 30,563 ) ( 597,231 ) Total comprehensive income - - - - ( 431,017 ) ( 92,899 ) ( 498,898 ) - - ( 1,022,814 ) ( 80,281 ) ( 1,103,095 )Appropriations of 2017 Legal reserve used to offset accumulated

deficits - - 161,423 - ( 161,423 ) - - - - - - - Special reserve appropriated - - - 703,607 ( 703,607 ) - - - - - - - Cash dividends - - - - ( 749,196 ) - - - - ( 749,196 ) - ( 749,196 )Cash dividends distributed from capital surplus - ( 121,765 ) - - - - - - - ( 121,765 ) - ( 121,765 )Adjustments of capital surplus for company’s cash dividends received by subsidiaries - 2,052 - - - - - - - 2,052 - 2,052Cash paid for acquisition of non-controlling interests in subsidiaries - - - - - - - - - - ( 29,329 ) ( 29,329 )Change in investees interest accounted for under equity method - ( 458,095 ) - - - - - - - ( 458,095 ) - ( 458,095 )Difference between consideration and carrying amount of subsidiaries acquired and disposed - ( 732 ) - - - - - - - ( 732 ) - ( 732 )Treasury stock transferred to employees - 117,780 - - - - - - 273,620 391,400 - 391,400Purchase of treasury shares - - - - - - - - ( 75,845 ) ( 75,845 ) - ( 75,845 )Changes in ownership interests in subsidiaries accounted for using equity method - 5,472 - - - - - - - 5,472 60,857 66,329Proceeds from disposal of financial assets at fair value through other comprehensive income - - - - ( 1,071 ) - 1,071 - - - - -Proceeds from disposal of investments accounted for using equity method - - - - - 5,439 - - - 5,439 - 5,439Balance at December 31, 2018 $ 10,887,014 $ 39,515,679 $ 161,423 $ 703,607 ($ 385,142 ) ($ 499,815 ) ($ 818,175 ) $ - ($ 211,008 ) $ 49,353,583 $ 1,554,327 $ 50,907,910

~43~

EPISTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Years ended December 31

2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) profit before tax ( $ 867,141 ) $ 1,923,390 Adjustments Adjustments to reconcile profit (loss) Depreciation 4,758,265 4,839,803 Amortization(long-term prepaid rents) 274,152 360,721 Expected credit gain 5,693 - Provision for doubtful accounts - ( 18,534 ) Net loss on financial assets at fair value through profit or loss ( 12,382 ) ( 99,581 ) Net loss on financial liability at fair value through profit or loss - 6,572 Interest expense 185,417 234,607 Interest income ( 50,650 ) ( 56,221 ) Dividend income ( 13,940 ) ( 1,448 ) Compensation cost of share-based payment - 27,906 Effect of exchange rate on bonds payable and long-term loans ( 471 ) ( 49,210 ) Share of loss of associates and joint ventures accounted for under the equity method ( 24,146 ) 50,851 Impairment loss on non-financial assets 659,774 377,682 Loss (gain) on disposal of property, plant and equipment 113,219 ( 9,766 ) Gain on disposal of investments ( 310,915 ) ( 32,015 ) Gain on disposal of intangible assets 141 - Other income from recognition of long-term deferred revenues ( 161,436 ) ( 166,205 ) Impairment loss of financial assets - 16,651 Property, plant and equipment transferred to expenses 5,858 7,017 Prepayment for business facilities transferred to other disbursements - 8,524 Intangible assetts transferred to expenses - 410 Payable on machinery and equipment transferred to other income - ( 121,680 ) Realized (profit) loss from sales ( 21,083 ) 2,409 Unrealised (loss) profit from sales ( 2,795 ) 21,083 Disaster loss - 57,172 Changes in operating assets and liabilities Changes in operating assets Financial assets held for trading ( 209,576 ) 381,518 Notes receivable 369,378 ( 992,632 ) Accounts receivable 451,896 202,942 Other receivables 633,939 706,642 Inventories ( 49,252 ) ( 548,599 ) Prepayments 55,776 85,413 Other non-current assets 74,329 ( 40,577 ) Changes in operating liabilities Notes payable 58,144 38,732 Accounts payable ( 575,610 ) 58,459 Other payables ( 515,383 ) 171,732 Other current liabilities 42,405 ( 30,298 ) Other non-current liabilities ( 24,080 ) ( 36,628 ) Cash inflow generated from operations 4,849,526 7,376,842 Income tax paid ( 211,363 ) ( 245,836 ) Interest received 51,284 54,674 Interest paid ( 173,884 ) ( 229,498 ) Dividend received 40,649 13,959 Net cash flows from operating activities 4,556,212 6,970,141

(Continued)

~44~

EPISTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS




2018 2017 CASH FLOWS FROM INVESTING ACTIVITIES Decrease in other financial assets ( $ 254,105 ) ($ 18,301 ) Acquisition of available-for-sale financial assets - ( 2,045 ) Proceeds from disposal of available-for-sale financial assets - 125,425 Acquisition of Non-current financial assets at fair value through other


( 396,196 ) - Proceeds from Non-current financial assets at fair value through other


3,052 - Proceeds from liquidation of financial assets 12,923 - Acquisition of investments accounted for under the equity method ( 128,423 ) ( 70,312 ) Proceeds from disposal of investments accounted for under the eauity method 273,064 - Proceeds from liquidation of investment accounted for using equity method - 14,631 Acquisition for property, plant and equipment ( 3,168,197 ) ( 2,206,021 ) Proceeds from disposal of property, plant and equipment 76,272 153,690 Acquisition of intangible assets ( 131,521 ) ( 228,929 ) (Increase) decrease in refundable deposits paid ( 76,295 ) 1,702 Net cash flows used in investing activities ( 3,789,426 ) ( 2,230,160 ) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term loans 1,203,014 ( 1,456,318 ) (Decrease)increase in short-term notes and bill payable ( 11,614 ) 304,287 Repayment of long-term loans ( 3,693,038 ) ( 8,518,326 ) Proceeds from long-term loans 1,160,000 5,300,000 Increase in guarantee deposits received 22,251 45,467 Purchase of treasury share ( 75,845 ) - Cash dividends distributed to non-controlling interest ( 29,329 ) - Proceed from treasury share transferred to employees 286,897 260,930 Increase in cash paid for acquisition of non-controlling interests 66,328 60,883 Payment of cash dividends (included distribated from capital surplus) ( 870,961 ) - Net cash flows used in financing activities ( 1,942,297 ) ( 4,003,077 ) Effects of foreign currency exchange ( 128,677 ) 98,363 Net (decrease) increase in cash and cash equivalents ( 1,304,188 ) 835,267 Cash and cash equivalents at beginning of year 6,836,697 6,001,430 Cash and cash equivalents at end of year $ 5,532,509 $ 6,836,697

~45~

REPORT OF INDEPENDENT ACCOUNTANTS

PWCR18000405

To the Board of Directors and Shareholders of EPISTAR CORPORATION

Opinion

We have audited the accompanying parent company only balance sheets of Epistar Corporation (the

“Company”) as at December 31, 2018 and 2017, and the related parent company only statements of

comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the

parent company only financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other independent accountants, as described in the

Other matters section of our report, the accompanying parent company only financial statements present

fairly, in all material respects, the parent company only financial position of the Company as at December

31, 2018 and 2017, and its parent company only financial performance and its parent company only cash

flows for the years then ended in accordance with the “Regulations Governing the Preparation of

Financial Reports by Securities Issuers”.

Basis for opinion

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

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

Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the

Independent Accountant’s Responsibilities for the Audit of Parent Company Only Financial Statements

section of our report. We are independent of the Company in accordance with the Code of Professional

Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our

other ethical responsibilities in accordance with the Code. Based on our audits and the reports of other

independent accountants, we believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

~46~

Key audit matters

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

audit of the parent company only financial statements of the current period. These matters were addressed

in the context of our audit of the parent company only financial statements as a whole and, in forming our

opinion thereon, we do not provide a separate opinion on these matters.

The key audit matters in relation to the parent company only financial statements for the year ended

December 31, 2018 are outlined as follows:

Evaluation of Impairment Losses of Property, Plant and Equipment, and Goodwill

Description

Please refer to Note 4(17) for accounting policies on impairment losses on non-financial assets, Note 5(2)

for the accounting estimates and assumptions in relation to non-financial assets valuation and note 6(9)

for the explanations regarding impairment losses on non-financial assets. As of December 31, 2018, the

balances of property, plant and equipment, and goodwill were NT$15,385,565 thousand and

NT$6,324,659 thousand, respectively.

The Company evaluates the recoverable amounts of idle property, plant and equipment through assessing

the fair values after disposal the disposal costs, and of property, plant and equipment, and intangible

assets through value in use. The Company evaluates whether impairment losses will be provided for

property, plant and equipment, and goodwill utilizing the aforementioned recoverable amounts. The

evaluation of value in use for operational property, plant and equipment and intangible assets consists of

the estimation of future cash flows and the determination of discount rates. Since the assumptions adopted

in the estimation of future cash flows and the results of the estimation would have significant impact on

value in use of operational property, plant, and equipment, and intangible assets, it was identified as one

of the key audit matters.


We have obtained the appraisal report of idle property, plant and equipment prepared by independent

valuers from the Company and assessed the reasonableness of evaluation methods and fair values utilized.

For value in use of operational property, plant and equipment, and goodwill, the following procedures

were conducted:

~47~

1. Interviewed with management and obtained an understanding of the Company’s operational

procedures in estimating future cash flows and verified the consistency to operation plans approved by

the Board of Directors.

2. Discussed operation plans with management to understand the product strategies and their respective

executions status.

3. Assessed the reasonableness for assumptions utilized in estimating future cash flows, including

projected sales volumes, unit prices and unit costs. Assessed the parameters adopted in determining

discount rates, including calculating and comparing the weighted average cost of capital at risk-free

rates, the industrial risk premium and the long-term rates of returns.

Evaluation of Inventories

Description

Please refer to Note 4(11) for accounting policies on inventory valuation, Note 5(2) for the accounting

estimates and assumptions in relation to inventory valuation and note 6(5) for the explanations regarding

inventories. As of December 31, 2018, the balances of inventories and the allowance for valuation loss

were NT$3,627,775 thousand and NT$743,240 thousand, respectively.

The Company is primarily engaged in manufacturing and sales of LED wafers and chips. Due to rapid

technological developments, short product lifespans and frequent fluctuations of market prices, the risk of

decline in market value and obsolescence for inventories is high. The Company evaluates net realized

values for inventories which aged over a specific period of time and specific obsolete inventories in order

to provide allowance for valuation loss. Since the identification of the above obsolete inventories and

their respective net realizable values are subject to management’s judgment, it was identified as one of the

key audit matters.


Our key audit procedures performed in respect of the above included the following:

1. Obtained an understanding of the Company’s operations and the nature of its industry and interviewed

with management to understand the probability of future sales for those out-of-date inventories and to

evaluate the reasonableness of allowance for valuation loss.

2. Obtained and validated the accuracy of the detailed listings of inventories aged over a specific period

of time and specific obsolete inventories. Validated information of historical sales and discounts for

those obsolete inventories to assess the reasonableness of policies in providing allowance for inventory

valuation loss.

~48~

Other matter – Audited by other Independent Accountants

We did not audit the 2018 and 2017 financial statements of certain subsidiaries and equity investments accounted

for under the equity method. These equity investments amounted to NT$1,329,419 thousand and NT$1,422,275

thousand, representing 2.32% and 2.30% of the total assets as of December 31, 2018 and 2017, respectively, and

their comprehensive loss (including share of income (loss) of associates and joint ventures accounted for under

equity method and share of other comprehensive income subsidiaries of associates and joint ventures accounted for

under equity method) amounted to NT$67,099 thousand and NT$92,972 thousand, representing 6.56% and (6.48%)

of the comprehensive income (loss) for the years then ended. The financial statements of the aforementioned

subsidiaries and investees were audited by other independent accountants whose reports thereon were furnished to

us and our opinion expressed herein, insofar as it relates to the amounts included in the financial statements is

based solely on the reports of the other independent accountants.

Responsibilities of management and those charged with governance for the parent

company only financial statements

Management is responsible for the preparation and fair presentation of the parent company only financial

statements in accordance with the “Regulations Governing the Preparation of Financial Reports by

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

preparation of parent company only financial statements that are free from material misstatement,

whether due to fraud or error.

In preparing the parent company only financial statements, management is responsible for assessing the

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

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

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

Those charged with governance, including audit committee, are responsible for overseeing the Company’s

financial reporting process.

Independent accountant’s responsibilities for the audit of the parent company only

financial statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial

statements as a whole are free from material misstatement, whether due to fraud or error, and to issue 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 ROC GAAS will always detect a material

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

individually or in the aggregate, they could reasonably be expected to influence the economic decisions of

users taken on the basis of these parent company only financial statements.

~49~

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain

professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the parent company only financial statements,

whether due to fraud or error, design and perform audit procedures responsive 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 auditor’s report

to the related disclosures in the parent company only financial statements or, if such disclosures are

inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the

date of our auditor’s report. However, future events or conditions may cause the Company to cease to

continue as a going concern.

5. Evaluate the overall presentation, structure and content of the parent company only financial

statements, including the disclosures, and whether the parent company only financial statements

represent the underlying transactions and events in a manner that achieves fair presentation.

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

business activities within the Company to express an opinion on the parent company only financial

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

~50~

We also provide those charged with governance with a statement that we have complied with relevant

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

matters that may reasonably be thought to bear on our independence, and where applicable, related

safeguards.

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

were of most significance in the audit of the parent company only financial statements of the current

period and are therefore the key audit matters. We describe these matters in our 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.

Cheng, Ya-Huei Hsieh, Chih-Cheng

For and on behalf of PricewaterhouseCoopers, Taiwan

March 14, 2019

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

~51~

EPISTAR CORPORATION PARENT COMPANY ONLY BALANCE SHEETS

DECEMBER 31 2018 AND 2017 (Expressed in thousands of New Taiwan dollars)

December 31, 2018 December 31, 2017

Assets AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents $ 3,012,708 5 $ 5,310,043 9 1110 Financial assets at fair value through profit or loss - current 40,923 - - - 1150 Notes receivable, net 521,031 1 195,064 - 1170 Accounts receivable, net 4,076,544 7 4,136,510 7 1180 Accounts receivable - related parties, net 3,100,860 5 4,502,953 7 1200 Other receivables 191,748 - 563,629 1 1210 Other receivables - related parties 326,576 1 1,093,895 2 130X Inventory 2,884,535 5 3,245,355 5 1410 Prepayments 267,343 1 340,814 - 1460 Non-current assets held for sale - net 388,500 1 468,142 1 1470 Other current assets 97,552 - 97,166 - 11XX Current Assets 14,908,320 26 19,953,571 32 Non-current assets

1517 Non-current financial assets at fair value through other


1,097,917 2 - - 1523 Available-for-sale financial assets - noncurrent - - 1,183,025 2 1550 Investments accounted for under equity method 14,376,759 25 12,878,833 21 1600 Property, plant and equipment 15,385,565 27 17,010,006 27 1780 Intangible assets 7,556,713 13 7,684,157 12 1840 Deferred income tax assets 3,764,894 7 2,873,564 5 1900 Other non-current assets 194,741 - 385,518 1 15XX Non-current assets 42,376,589 74 42,015,103 68 1XXX Total assets $ 57,284,909 100 $ 61,968,674 100

(Continued)

~52~

EPISTAR CORPORATION PARENT COMPANY ONLY BALANCE SHEETS

DECEMBER 31 2018 AND 2017 (Expressed in thousands of New Taiwan dollars)

December 31, 2018 December 31, 2017 Liabilities and Equity AMOUNT % AMOUNT %

Current liabilities

2100 Short-term borrowings $ 449,295 1 $ 700,000 1 2150 Notes payable 9,421 - 24,793 - 2170 Accounts payable 1,565,828 3 1,679,044 3 2180 Accounts payable - related parties 538,248 1 858,269 2 2200 Other payables 2,852,214 5 3,040,775 5 2230 Current income tax liabilities - - 125,287 - 2320 Long-term liabilities, current portion 165,306 - 863,928 1 2399 Other current liabilities - others 290,033 - 107,843 - 21XX Current Liabilities 5,870,345 10 7,399,939 12 Non-current liabilities

2540 Long-term borrowings 409,808 1 1,781,905 3 2570 Deferred income tax liabilities 1,383,631 2 1,065,314 2 2600 Other non-current liabilities 267,542 1 342,335 - 25XX Non-current liabilities 2,060,981 4 3,189,554 5 2XXX Total Liabilities 7,931,326 14 10,589,493 17 Equity

Share capital

3110 Share capital - common stock 10,887,014 19 10,887,014 18 Capital surplus

3200 Capital surplus 39,515,679 69 39,970,967 64 Retained earnings

3310 Legal reserve 161,423 - - - 3320 Special reserve 703,607 1 - - 3350 Unappropriated retained earnings (accumulated deficit) ( 385,142) ( 1) 1,614,226 3 Other equity interest

3400 Other equity interest ( 1,317,990) ( 2) ( 684,243) ( 1) 3500 Treasury stocks ( 211,008) - ( 408,783) ( 1) 3XXX Total equity 49,353,583 86 51,379,181 83 3X2X Total liabilities and equity $ 57,284,909 100 $ 61,968,674 100

~53~

EPISTAR CORPORATION PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2018 and 2017 (Expressed in thousands of New Taiwan dollars, except for earnings (loss) per share amounts)


2018 2017


4000 Sales revenue $ 17,189,772 100 $ 21,954,472 100

5000 Operating costs ( 14,773,356) ( 86) ( 17,589,165) ( 80)


5910 Unrealized loss (profit) from sales 85,787 1 ( 29,111) -

5920 Realized profit on from sales 29,111 - 28,104 -


Operating expenses

6100 Selling expenses ( 234,788) ( 1) ( 221,065) ( 1)

6200 General & administrative expenses ( 999,512) ( 6) ( 1,162,016) ( 5)

6300 Research and development expenses ( 1,827,561) ( 11) ( 1,529,115) ( 7)

6450 Expected credit losses ( 2,758) - - -

6000 Total operating expenses ( 3,064,619) ( 18) ( 2,912,196) ( 13)

6500 Other income and expenses - net 126,123 1 155,687 -

6900 Operating loss ( 407,182) ( 2) 1,607,791 7

Non-operating income and expenses

7010 Other income 339,338 2 269,803 1

7011 Insurances income from disaster 206,785 1 400,000 2

7020 Other gains and losses ( 689,718) ( 4) ( 598,273) ( 3)

7023 Disaster loss - - ( 57,172) -

7050 Finance costs ( 28,022) - ( 97,359) -

7055 Reveral of expected credit losses 4,121 - - -

7070 Share of loss of subsidiaries, associates

and joint ventures accounted for using

equity method, net

( 248,225) ( 2) 204,619 1

7000 Total non-operating revenue and

expenses

( 415,721) ( 3) 121,618 1

7900 (Loss) profit before income tax ( 822,903) ( 5) 1,729,409 8

7950 Income tax benefit (expense) 366,757 2 ( 79,496) -

8200 (Loss) profit for the year ($ 456,146) ( 3) $ 1,649,913 8

(Continued)

~54~

EPISTAR CORPORATION PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2018 and 2017 (Expressed in thousands of New Taiwan dollars, except for earnings (loss) per share amounts)

Year ended December 31 2018 2017


Other comprehensive income

8311 Gain (loss) on remeasurements of defined

benefit plans

$ 31,823 - ($ 42,790 ) -

8316 Unrealised gains (losses) from investments

in equity instruments measured at fair value

through other comprehensive income

( 468,008 ) ( 3) - -

8330 Share of other comprehensive income of

subsidiaries, associates and joint ventures

accounted for using equity method,

components of other comprehensive income

that will not be reclassified to profit or loss

( 148,782 ) ( 1) ( 171 ) -

8349 Income tax related to components of other

comprehensive income that will not be


111,198 1 7,274 -

8310 Components of other comprehensive

income that will not be reclassified to

profit or loss

( 473,769 ) ( 3) ( 35,687 ) -

8362 Unrealized gain (loss) on valuation of


- - ( 23,168 ) -

8380 Total Share of other comprehensive income

of subsidiaries, associates and joint ventures

accounted for using equity method,

components of other comprehensive income

that will be reclassified to profit or loss

( 143,180 ) ( 1) ( 200,448 ) ( 1)

8399 Income tax related to the components of

other comprehensive income that will be

reclssified to profit or loss

50,281 1 44,743 -

8360 Components of other comprehensive

income that will be reclassified to profit

or loss

( 92,899 ) - ( 178,873 ) ( 1)

8300 Other comprehensive loss for the year ($ 566,668 ) ( 3) ($ 214,560 ) ( 1)

8500 Total comprehensive (loss) income for the

year

($ 1,022,814 ) ( 6) $ 1,435,353 7

Basic (loss) earnings per share

9750 Total basic (loss) earnings per share ($ 0.42) $ 1.55

9850 Total diluted (loss) earnings per share ($ 0.42) $ 1.53

~55~

EPISTAR CORPORATION PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY




Capital surplus

Legal reserve

Special reserve

Unappropriated retained earnings

(accumulated deficit)

Financial statements translation

differences of foreign operations


financial assets measured at fair value through

other comprehensive

income



Treasury stocks

Amount

2017 Balance at January 1, 2017 $ 10,915,492 $43,016,259 $ 241,512 $ - ($ 3,545,028 ) ($ 228,527 ) $ - ($ 276,843 ) ($ 848,721 ) $49,274,144 Profit for the year - - - - 1,649,913 - - - - 1,649,913 Other comprehensive income (loss) for the year - - - - ( 35,687 ) ( 187,423 ) - 8,550 - ( 214,560 ) Total comprehensive income (loss) for the year - - - - 1,614,226 ( 187,423 ) - 8,550 - 1,435,353Appropriations of 2016 Legal reserve used to offset accumulated deficits - - ( 241,512 ) - 241,512 - - - - - Capital surplus used to offset accumulated deficits - ( 3,303,516 ) - - 3,303,516 - - - - -Change in investees interest accounted for under equity method - 168,908 - - - - - - - 168,908Difference between consideration and carrying amount of subsidiaries acquired and disposed - 105,930 - - - - - - - 105,930Treasury stock transferred to employees - 110,919 - - - - - - 257,681 368,600Compensation cost of share-based payments - 27,906 - - - - - - - 27,906Retirement of treasury share ( 28,478 ) ( 153,779 ) - - - - - - 182,257 -Changes in ownership interests in subsidiaries accounted for using equity method - ( 1,660 ) - - - - - - - ( 1,660 ) Balance at December 31, 2017 $ 10,887,014 $39,970,967 $ - $ - $ 1,614,226 ($ 415,950 ) $ - ($ 268,293 ) ($ 408,783 ) $51,379,1812018 Balance at January 1, 2018 $ 10,887,014 $39,970,967 $ - $ - $ 1,614,226 ($ 415,950 ) $ - ($ 268,293 ) ($ 408,783 ) $51,379,181 Effects of retrospective application and retrospective restatement - - - - 46,946 3,595 ( 320,348 ) 268,293 - ( 1,514 ) Balance at January 1 after adjustments 10,887,014 39,970,967 - - 1,661,172 ( 412,355 ) ( 320,348 ) - ( 408,783 ) 51,377,667 Profit for the year - - - - ( 456,146 ) - - - - ( 456,146 ) Other comprehensive income (loss) for the year - - - - 25,129 ( 92,899 ) ( 498,898 ) - - ( 566,668 ) Total comprehensive loss for the year - - - - ( 431,017 ) ( 92,899 ) ( 498,898 ) - - ( 1,022,814 )Appropriations of 2017 Legal reserve appropriated - - 161,423 - ( 161,423 ) - - - - - Special reserve appropriated - - - 703,607 ( 703,607 ) - - - - - Cash dividends - - - - ( 749,196 ) - - - - ( 749,196 )Cash dividends distributed from capital surplus - ( 121,765 ) - - - - - - - ( 121,765 )Adjustments of capital surplus for company’s cash dividends received by subsidiaries - 2,052 - - - - - - - 2,052Purchase of treasury shares - - - - - - - - ( 75,845 ) ( 75,845 )Change in investees interest accounted for under equity method - ( 458,095 ) - - - - - - - ( 458,095 )Difference between consideration and carrying amount of subsidiaries acquired and disposed - ( 732 ) - - - - - - - ( 732 )Treasury stock transferred to employees - 117,780 - - - - - - 273,620 391,400Changes in ownership interests in subsidiaries accounted for using equity method - 5,472 - - - - - - - 5,472Proceeds from disposal of financial assets at fair value through other comprehensive income - - - - ( 1,071 ) - 1,071 - - -Proceeds from disposal of investments accounted for using equity method - - - - - 5,439 - - - 5,439 Balance at December 31, 2018 $ 10,887,014 $39,515,679 $ 161,423 $ 703,607 ($ 385,142 ) ($ 499,815 ) ($ 818,175 ) $ - ($ 211,008 ) $49,353,583

~56~

EPISTAR CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS




2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) profit before tax ( $ 822,903 ) $ 1,729,409 Adjustments Adjustments to reconcile profit (loss) Depreciation 3,499,184 3,488,145 Amortization 253,705 334,510 Provision for doubtful accounts - ( 21,198 ) Expected credit gain ( 1,363 ) - Net gain on financial assets at fair value through profit or loss ( 4,504 ) ( 1,063 ) Interest expense 28,278 97,359 Interest income ( 31,680 ) ( 58,751 ) Dividend income ( 12,910 ) ( 161 ) Compensation cost of share-based payment - 27,906 Share of loss (profit) of subsidiaries and associates accounted for using

equity method

248,225 ( 204,619 ) Impairment loss on non-financial assets 615,949 104,963 Loss on disposal of property, plant and equipment 126,690 3,658 Gain on disposal of investments ( 100,804 ) ( 30,442 ) Other income from recognition of long-term deferred revenues ( 23,647 ) ( 24,494 ) Impairment loss of financial assets - 8,774 Property, plant and equipment transferred to expenses 5,858 2,584 Intangible assetts transferred to expenses - 410 Prepayment for business facilities transferred to the expenditure - 8,524 Disaster loss - 57,172 Realized loss (profit) loss from sales ( 29,111 ) ( 28,104 ) Unrealised loss from sales ( 85,787 ) 29,111 Changes in operating assets and liabilities Changes in operating assets Financial assets held for trading ( 301,363 ) 151,074 Notes receivable ( 325,967 ) ( 154,614 ) Accounts receivable 1,463,422 2,254,227 Other receivables 1,246,730 721,909 Other current financial assets ( 386 ) ( 28,938 ) Inventories 213,393 ( 424,269 ) Prepayments 59,421 74,782 Other non-current assets 4,135 ( 2,923 ) Changes in operating liabilities Notes payable ( 15,372 ) 1,851 Accounts payable ( 433,237 ) ( 777,464 ) Other payables ( 402,911 ) 242,296 Other current liabilities 175,704 ( 59,079 ) Other non-current liabilities 22,624 40,514 Cash inflow generated from operations 5,371,373 7,563,059 Income tax paid ( 157,529 ) ( 22,711 ) Interest received 33,297 59,934 Interest paid ( 29,388 ) ( 88,606 ) Dividend received 55,084 10,340 Net cash flows from operating activities 5,272,837 7,522,016

(Continued)

~57~

EPISTAR CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS




2018 2017

CASH FLOWS FROM INVESTING ACTIVITIES

Increase in other receivables from related parties ( $ 1,007,840 )

( $ 873,770 )

Decrease in other receivables from related parties 1,013,300

873,770

Proceeds from disposal of available-for-sale financial assets -

70,017

Acquisition for property, plant and equipment ( 2,745,833 )

( 1,499,565 )

Proceeds from disposal of property, plant and equipment 98,355

146,667

Acquisition of intangible assets ( 155,153 )

( 228,103 )

(Increase) decrease in refundable deposits paid 13,654

1,331

Acquisition of subsidiaries and investment of associates ( 1,443,106 )

( 179,616 )

Proceeds from liquidation of investment accounted for using equity method -

14,631

Proceeds from disposal of intangible assets 7,844

-

Cash flows used in spinoff transition ( 360,172 )

-

Net cash flows used in investing activities ( 4,578,951 )

( 1,674,638 )

CASH FLOWS FROM FINANCING ACTIVITIES

Decrease in short-term loans ( 250,705 )

( 1,300,000 )

Repayment of long-term loans ( 3,239,824 )

( 8,433,928 )

Proceeds from long-term loans 1,160,000

5,300,000

(Decrease) increase in guarantee deposits received ( 783 )

3,245

Cash dividends distribnted from capital surplus ( 121,765 )

-

Cash dividends paid ( 749,196 )

-

Purchase of treasury shares ( 75,845 )

-

Proceed from treasury share transferred to employees 286,897

260,930

Net cash flows used in financing activities ( 2,991,221 )

( 4,169,753 )

Net (decrease) increase in cash and cash equivalents ( 2,297,335 )

1,677,625

Cash and cash equivalents at beginning of year 5,310,043

3,632,418

Cash and cash equivalents at end of year $ 3,012,708

$ 5,310,043

~58~

Attachment 6

EPISTAR CORPORATION Deficit Compensation Statement

Year 2018 Unit: NTD

Item Amount

Subtotal Total

Unappropriated Retained Earnings of previous years 0

Adjustments under the adoption of new issuances of IFRS 46,945,740

Other comprehensive income adjustments 24,057,620

Adjusted unappropriated Retained Earnings 71,003,360

Less : 2018 net loss (456,145,814)

Deficit yet to be compensated – at the end of 2018 (385,142,454)

Items for compensating deficit:

Special Reserve 385,142,454

To make up for the amount Subtotal 385,142,454

Deficit yet to be compensated 0

Chairman: President: Accounting Supervisor:

Biing-Jye Lee Chin-Yung Fan Shih-Shien Chang

~59~

Attachment 7

Epistar Corporation Articles of Incorporation



Article 5 The Company is headquartered in Hsinchu

Science-based Industrial Park, Taiwan and may

have branches set elsewhere domestically and

abroad as resolved by the Board of Directors.

The Company is headquartered in Hsinchu

Science Park, Taiwan and may have branches

set elsewhere domestically and abroad as

resolved by the Board of Directors.

To comply with the

amendment of the name of

science park.

Article 7-3 (New item) The object of treasury shares bought back by the

Company may include the employees of parents

or subsidiaries of Company who meet certain

conditions.

The object of issue of employee stock option

Certification of the Company may include the

employees of parents or subsidiaries of the

Company who meet certain conditions.

The object of issue of restricted stock for

employees may include the employees of

parents or subsidiaries of the Company who

meet certain conditions.

The object of subscription of new shares of the

Company may include the employees of parents

or subsidiaries of the Company who meet

To comply with the

amendment of Company

Act and meet the needs of

the Company’s operations.

~60~


certain conditions.

The term of “certain conditions” in this Article

is authorized to be set by Board of Director.

Article 8 All share certificates of this Company shall be

issued with numbering in nomination manner,

indicating the items provided in Art.162 of the

Company Act, duly sealed and signed by more

than 3 directors, and affixed with the

Company’s seal in accordance with legal

certification procedures. At the request of the

depository corporation, the Company may print

share certificates based on the total number of

shares or choose not to print share certificates.

All share certificates of this Company shall be

issued with numbering in nomination manner,

indicating the items provided in Art.162 of the

Company Act, duly sealed and signed by the

director who are authorized to represent the

Company, and affixed with the Company’s seal

in accordance with legal certification

procedures. At the request of the depository

corporation, the Company may print share

certificates based on the total number of shares

or choose not to print share certificates.

To comply with the


Act.

Chapter 4 Directors and Supervisors Directors To comply with the

amendment of article 15-1.

Article 15 The Company shall have 9 to 15 directors and 3

supervisors to be elected at a shareholder’s

meeting through nominating system from

persons of legal capacity to serve a term of three

years. A director or supervisor may be

re-elected. The Company shall buy liability

insurance for all directors and supervisors, to

The Company shall have 7 to 15 directors to be

elected at a shareholder’s meeting through

nominating system from persons of legal

capacity to serve a term of three years. A

director may be re-elected. The Company

shall buy liability insurance for all directors, to

the extent of the compensation responsibility

To adjust the numbers of

seats of directors and to

replace the supervisors by

audit committee.

~61~


the extent of the compensation responsibility

assumed in business execution in their term of

office according to law. Remunerations to

directors and supervisors shall be determined by

the Board of Directors based on the level of

their participation in business operation and the

value of their contribution, and taking into

account the common remuneration level in the

same industry.

The number of qualified candidates for

independent directors within the above

mentioned numbers of directors should not be

less than 2 people nor less than one fifth of the

seats in the board of directors. The qualification,

shares of holding, pluralism limitation,

independency definition, ways of nomination

and acting and any other regulations related to

the independent director have to be in

accordance with relevant rules.

assumed in business execution in their term of

office according to law. Remunerations to

directors shall be determined by the Board of

Directors based on the level of their

participation in business operation and the value

of their contribution, and taking into account the

common remuneration level in the same

industry.

The number of qualified candidates for

independent directors within the above

mentioned numbers of directors should not be

less than 3 nor less than one fifth of the seats in

the board of directors. The qualification, shares

of holding, pluralism limitation, independency

definition, ways of nomination and acting and

any other regulations related to the independent

director have to be in accordance with relevant

rules.

Article 15-1 The establishment of Auditing committee is

determined by the board of director. If the

establishment of auditing committee is resolved,

the rules of Company Law regarding supervisor

The Company set up an Auditing committee.

To comply with the

administrative order to

replace the supervisors by

audit committee.

~62~


will cease applying during the term of office of

the auditing committee.

The constitution, authority of office, the rules of

procedure and any other related regulations of

Epistar’s auditing committee will be proceeded

in accordance with the regulations of official

authorities.

The constitution, authority of office, the rules of

procedure and any other related regulations of

the auditing committee will be proceeded in

accordance with the regulations of official

authorities.

Article 17 The Board of Directors’ (hereinafter “BOD”)

meeting should be convened at least once every

quarter. Each BOD director and supervisor is

entitled to be informed with the agenda 7 days

prior to the meeting. However, an ad-hoc

meeting may occur in the case of emergency

and notification can be made in written, via

email or facsimile to each director and

supervisor under such circumstances. The duties

and powers of the board of directors are as

follows:

1. Propose amending the Company’s articles

of incorporation

2. Approve operation guidelines and mid-term

and long-term development plans

The Board of Directors’ (hereinafter “BOD”)

meeting should be convened at least once every

quarter. Each BOD director is entitled to be

informed with the agenda 7 days prior to the

meeting. However, an ad-hoc meeting may

occur in the case of emergency and notification

can be made in written, via email or facsimile to

each director under such circumstances. The

duties and powers of the board of directors are

as follows:

1. Propose amending the Company’s articles

of incorporation

2. Approve operation guidelines and mid-term

and long-term development plans

To comply with the

amendment of article 15-1.

~63~


3. Examine and supervise the performance of

the annual business plan

4. Examine budget and accounting settlement

5. Determine important contracts with

external entities and other important

matters

6. Approve important capital expenditure

plans

7. Approve the endorsement, guarantee and

acceptance in the name of the Company for

others

8. Dispose important properties of the

Company

9. Appoint and dismiss President and Vice

President

10. Approve the Company’s reinvestments in

other businesses and transfer or sale of

shares

11. Prepare the regulations governing the

important transactions between the

Company and related parties (including

affiliated enterprises)

3. Examine and supervise the performance of

the annual business plan

4. Examine budget and accounting settlement

5. Determine important contracts with

external entities and other important

matters

6. Approve important capital expenditure

plans

7. Approve the endorsement, guarantee and

acceptance in the name of the Company for

others

8. Dispose important properties of the

Company

9. Appoint and dismiss President and Vice

President

10. Approve the Company’s reinvestments in

other businesses and transfer or sale of

shares

11. Prepare the regulations governing the

important transactions between the

Company and related parties (including

affiliated enterprises)

~64~


12. Establish and dissolve branches

13. Employ and dismiss CPAs of the Company

14. Other duties and powers provided in laws

and rules and given at shareholders’

meeting.

12. Establish and dissolve branches

13. Employ and dismiss CPAs of the Company

14. Other duties and powers provided in laws

and rules and given at shareholders’

meeting.

Article 18 The Company shall have one President and

several vice President and managers whose

appointment, discharge and remuneration shall

be handled according to Article 29 of the

Company Act.

The Company shall have one President and

several vice President whose appointment,

discharge and remuneration shall be handled

according to Article 29 of the Company Act.

To amend it pursuant to

organization adjustment.

Article 19 The Company’s fiscal year starts from January 1

and ends on December 31. At the end of every

year, the board of directors shall prepare the

following statements and records of accounts in

compliance with the Company Act and pass

them on to supervisors 30 days prior to

shareholders' general meeting for audit.

Supervisors shall issue a report and submit it to

shareholders’ general meeting for recognition.

1. Business report

2. Financial statements

3. Proposal for allocation of surplus or making

good of past loss.

The Company’s fiscal year starts from January 1

and ends on December 31. At the end of every

year, the board of directors shall prepare the

following statements and records of accounts in

compliance with the Company Act and submit it

to shareholders’ general meeting for recognition.

1. Business report

2. Financial statements

3. Proposal for allocation of surplus or making

good of past loss.

To comply with the

amendment of the Law

and Regulations.

~65~


Article 20 (New item)

The surplus earning distribution or loss

offsetting of the Company may be made after

the end of each quarter. If there is a surplus after

each quarter's final accounting, it shall first be

used to pay the taxes, offset the accumulated

losses, retain for the employee's compensation,

and then allocate ten (10) percent of the surplus

as legal reserve unless the total legal reserve has

reached the total amount of capital of the

Company. The Company may then allocate or

reverse a certain amount as special reserve or

return earnings, if necessary. The remaining

balance after aforesaid allocation with the

accumulated undistributed surplus in the

previous quarter will be the shareholders’ bonus

and the distribution of earnings shall be

proposed by the Board of Directors. If the

proposal is to distribute by issuing new shares, it

shall be submitted to the shareholders’ meeting

for resolution; if the proposal is to distribute by

cash, it shall be resolved by the board of

directors.

To comply with the


Act and meet the needs of

the Company’s operations.

~66~


The Company shall distribute the after-tax profit

after annual accounting settlement, shall first

make up for the losses, then allocate 10% as

legal reserve. However such legal reserve

amounts to the total authorized capital, this

provision shall not apply and, if necessary,

allocate or reverse special reserve. Balance plus

the previous cumulative undistributed earnings

to be allocated surplus, in addition to discretion

of reservations, which dispatched proportion of

shares held by each shareholder shall base on

the ratio.

(New item)

The Company shall distribute the after-tax profit

after annual accounting settlement, shall first

make up for the losses, then allocate 10% as

legal reserve. However such legal reserve

amounts to the total authorized capital, this

provision shall not apply and, if necessary,

allocate or reverse special reserve. Balance plus

the previous cumulative undistributed earnings

to be allocated surplus, in addition to discretion

of reservations, the distribution shall be

proposed by the Board, if the proposal is to

distribute by issuing new shares, it shall be

submitted to shareholders’ meeting for

resolution; if the proposal is to distributed by

cash, it shall be resolved by the Board of

directors and the distribution ratio shall base on

the proportion of shares held by each

shareholder.

Pursuant to the provisions of paragraph 5,

Article 245 of the Company Act, the Company

authorizes the Board of Directors to distribute

dividends or bonuses by cash under the

resolution which has been adopted by a majority

~67~


The Company is in the growing phase in respect

of business development. For agreeing with

present and future development plans,

investment environment, fund demand, and

competition from domestic and foreign regions,

the distribution of earnings shall be executed in

compliance with the above regulations, for

which shareholders’ interest and capital

adequacy ratio shall be also taken into account.

Besides, for shareholders’ dividends to be

distributed for the year, the ratio of the cash

dividends to be distributed shall not be less than

10% of the total dividends to be distributed.

vote at a meeting of the board of directors

attended by more than two-thirds of all the

directors, and the distribution shall be reported

to the shareholders’ meeting after resolved.

The Company is in the growing phase in respect

of business development. For agreeing with

present and future development plans,

investment environment, fund demand, and

competition from domestic and foreign regions,

the distribution of earnings shall be executed in

compliance with each of the above regulations,

for which shareholders’ interest and capital

adequacy ratio shall be also taken into account.

Besides, for shareholders’ dividends to be

distributed for the year, the ratio of the cash

dividends to be distributed shall not be less than

10% of the total dividends to be distributed.

Article 20-1 Company should dispatch 10% ~20% of the

“annual profit” to the employee remuneration

and 2% to directors. But the company shall

compensate the accumulated deficit.

Company should dispatch 10% ~20% of the

“annual profit” to the employee remuneration

and no more than 2% to directors. But the

company shall compensate the accumulated

deficit.

To comply with the

amendment of the

Company Act and the

Instruction letter #

10402427800 dated on

20151015 from Ministry

~68~


Employee remuneration could be stock or cash.

the object of the issue of shares or cash

including the employees of subsidiaries who

compliance with certain conditions.

The “annual profit” in first paragraph means the

current year pre-tax profit (excluding other

benefits or losses, such as the put option right,

the call option rights, the conversion rights and

the redeem of overseas convertible bonds)

before the deduction of the staff remuneration

and director remuneration.

Dispatched remuneration of employees and

directors shall be decided by the board of

directors with more than a two-thirds majority

of the directors present and resolutions agreed

by half attending directors and report to

shareholder meeting.

Employee remuneration could be by stock or by

cash. The object of the issue of shares or cash

including the employees of subsidiaries or

parents of Company who meet certain

conditions. The term of “certain condition” is

authorized to be set by the Board of Directors.

The “annual profit” in first paragraph means the

current year pre-tax profit (excluding other

benefits or losses, such as the put option right,

the call option rights, the conversion rights and

the redeem of overseas convertible bonds)

before the deduction of the staff remuneration

and director remuneration.

Dispatched remuneration of employees and

directors shall be decided by the board of

directors with more than a two-thirds of the

directors present and resolved by majority of the

attended directors and report to shareholder

meeting.

of Economic Affairs, and

meet the needs of the

Company’s operations.

Article 20-2 (New item) Pursuant to the provisions of Article 241 of the

Company Act, the Company authorizes the

Board of Directors to distribute all or part of the

legal reserve and capital reserve by cash under

To comply with the

amendment of the

Company Act.

~69~


the resolution which has been adopted by a

majority vote at a meeting of the board of

directors attended by more than two-thirds of all

the directors, and the distribution shall report to

the shareholders’ meeting after resolved.

Article 22 The Articles of Incorporation was set up at the

meeting of the founders on September 9, 1996.

The 1st amendment was made on June 4, 1997.

The 2nd amendment was made on July 24, 1998.

The 3rd amendment was made on April 20,

1999. The 4th amendment was made on May 9,


2001. The 6th amendment was made on June 19,




2005. The 10th amendment was made on

October 4, 2005. The 11th amendment was made

on March 2, 2006. The 12th amendment was

made on November 21, 2006. The 13th

amendment was made on June 13, 2008. The

14th amendment was made on June 10, 2009.

The 15th amendment was made on June 15,

The Articles of Incorporation was set up at the

meeting of the founders on September 9, 1996.

The 1st amendment was made on June 4, 1997.

The 2nd amendment was made on July 24, 1998.

The 3rd amendment was made on April 20,







2005. The 10th amendment was made on

October 4, 2005. The 11th amendment was made

on March 2, 2006. The 12th amendment was

made on November 21, 2006. The 13th

amendment was made on June 13, 2008. The

14th amendment was made on June 10, 2009.

The 15th amendment was made on June 15,

Added the latest

amendment date.

~70~


2010. The 16th amendment was made on June

27, 2012. The 17th amendment was made on

June 14, 2013. The 18th amendment was made

on June 19, 2014. The 19th amendment was

made on June 29, 2015.

2010. The 16th amendment was made on June

27, 2012. The 17th amendment was made on

June 14, 2013. The 18th amendment was made

on June 19, 2014. The 19th amendment was

made on June 29, 2015. The 20 th amendment

was made on June 20, 2019.

~71~

Attachment 8

Epistar Corporation Acquisition or Disposal Procedures of Asset


Article No. Original Articles Amended Articles Reasons for

Amendments

Article 2 Definition of assets

1. Investment in securities (including stocks, government

bonds, corporate bonds, financial bonds, depository

receipt, call/put warrants, beneficiary securities and

asset-based securities etc)

2. Real estate (including land, houses and buildings,

investment property, rights to use land, and

construction enterprise inventory) and equipment.

3. Membership certificates

4. Intangible assets such as patents, copyrights,

trademarks, concession and so on.

5. Derivatives

6. Assets acquired or disposed as a result of legal

merging, division, acquisition or share selling.

7. Other important assets

Definition of assets

1. Investment in securities (including stocks, government

bonds, corporate bonds, financial bonds, depository

receipt, call/put warrants, beneficiary securities and

asset-based securities etc)

2. Real estate (including land, houses and buildings and

investment property) and equipment.

3. Membership certificates

4. Intangible assets such as patents, copyrights,

trademarks, concession and so on.

5. Right-of-use assets.

6. Derivatives

7. Assets acquired or disposed as a result of legal

merging, division, acquisition or share selling.

8. Other important assets

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission

Article 3 Decision-making approaches on pricing and references

1. Securities

Decision-making approaches on pricing and references

1. Securities

Revised in

accordance with

~72~


Amendments

Other than complying with the following regulations

when acquiring or disposing securities, Epistar should

receive the most recent audited CPA report/financial

statement from the target company as the reference for

evaluating trading price before the day of occurrence.

Moreover, any trading exceeding 20% of the paid-in

capital or above NT$300 million requires CPAs’

comment on the rationality of trading price. before the

day of occurrence. If it is necessary for the CPAs to

adopt the professional report, SAS No. 20 issued by

the ROC Accounting Research and Development

Foundation (ARDF)has to be followed:

(1) In compliance with “Company Act”, Securities

acquired by cash as a result of initiation or

collection, which should make the recognition of

rights equivalent to the proportion of contribution.

(2) Securities issued at par with the participation of the

target company via capital injection by cash based

on related regulations.

(3) Securities issued by the 100% invested company

participating in the subscription via

recapitalization in cash.

Other than complying with the following regulations

when acquiring or disposing securities, Epistar should

receive the most recent audited CPA report/financial

statement from the target company as the reference for

evaluating trading price before the day of occurrence.

Moreover, any trading exceeding 20% of the paid-in

capital or above NT$300 million requires CPAs’

comment on the rationality of trading price. before the

day of occurrence. If it is necessary for the CPAs to

adopt the professional report, SAS No. 20 issued by

the ROC Accounting Research and Development

Foundation (ARDF)has to be followed:

(1) In compliance with “Company Act”, Securities

acquired by cash as a result of initiation or

collection, which should make the recognition of

rights equivalent to the proportion of contribution.

(2) Securities issued at par with the participation of the

target company via capital injection by cash based

on related regulations.

(3) Securities issued by the invested company of

which Epistar directly or indirectly holds 100% of

the shares to participating in the subscription via

recapitalization in cash, or the subsidiaries of

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~73~


Amendments

(4) Securities traded in the security exchange house or

listed/OTC securities in business areas of security

companies.

(5) Government bonds and repo/resell bonds.

(6) Domestic and offshore mutual funds.

(7) Acquired or disposed stocks of listed/OTC

companies based on the regulations of subscribing

to securities stipulated by stock exchange house,

subscription rules of OTC center, or policies

related to selling stocks.

(8) Securities acquired via participating the

recapitalization or via domestic Corporate bonds

(including Bank Debentures) and not via private

placement in cash of listed companies.

(9) According to Paragraph 1 Article 11 of the

“Securities Investment Trust and Consulting Act”,

Subscribed domestic private Mutual funds prior to

establishment of the funds , or purchased domestic

private placement funds, including those with the

which Epistar directly or indirectly holds 100% of

the shares to invest each other by issuing securities

via cash injection

(4) Securities traded in the security exchange house or

listed/OTC securities in business areas of security

companies.

(5) Local Government bonds and repo/resell bonds.

(6) Mutual funds.

(7) Acquired or disposed stocks of listed/OTC

companies based on the regulations of subscribing

to securities stipulated by Taiwan stock exchange

house or Taipei Exchange (TPEx), subscription

rules of OTC center, or policies related to selling

stocks.

(8) Domestic Securities acquired via participating the

recapitalization or via domestic Corporate bonds

(including Bank Debentures) and not via private

placement in cash of listed companies.

(9) According to Paragraph 1 Article 11 of the

“Securities Investment Trust and Consulting Act”,

Subscribed domestic private Mutual funds prior to

establishment of the funds , or purchased domestic

private placement funds, including those with the

~74~


Amendments

same investment scope with public placement

funds except definitive description in the trust

contract stating that investment strategy has

excluded trading for security credit and related

position of uncovered securities.

2. Real estate or equipment.

Before the day of occurrence, any real estate or

equipment acquired or disposed by Epistar with

trading value more than 20% of paid-in capital or

above NT$300 million are required to obtain the

quotation from professionals except trading with

government sectors, outsourcing construction projects

for self-owned/rented properties, or

acquiring/disposing equipment/facilities for business

use. And the following regulations must be followed:

(1) Any transaction requiring a limited price, specific

or special price as reference for any special reason

should be submitted to the Board of Directors (the

“BOD”) for review and approval. Any change in

the conditions for such cases should also be

approved by the BOD.

(2) Any case above NT$1 billion is required to request

same investment scope with public placement

funds except definitive description in the trust

contract stating that investment strategy has

excluded trading for security credit and related

position of uncovered securities.

2. Real estate, equipment or right-of-use assets.

Before the day of occurrence, any real estate,

equipment or right-of-use assets acquired or disposed

by Epistar with trading value more than 20% of

paid-in capital or above NT$300 million are required

to obtain the quotation from professionals except

trading with domestic government sectors, outsourcing

construction projects for self-owned/rented properties,

or acquiring/disposing equipment/facilities or

right-of-use assets for business use. And the following

regulations must be followed:

(1) Any transaction requiring a limited price, specific

or special price as reference for any special reason

should be submitted to the Board of Directors (the

“BOD”) for review and approval. Any change in

the conditions for such cases should also be

approved by the BOD.

(2) Any case above NT$1 billion is required to request

~75~


Amendments

more than 2 professional agencies for appraisal.

(3) An appraisal report is required to state the

following contents:

A. All the items required by the rules of

appraising real estate.

B. Related items for the appraiser and

professional.

(a) The name, total capital, organization

structure and employment structure of the

professional appraising company.

(b) The appraiser’s name, age, education (with

related evidence), the number of years

working in appraisal and period, number

of cases undertaken by the appraiser.

(c) The relationship between the professional

appraising company, the appraiser and

outsourced company.

(d) A statement of “No fraud or concealment

in any statement of the appraisal report”.

(e) The date of issuing the report.

C. The basic profile of the appraised target should

at least include the name, feature, location and

area etc.

more than 2 professional agencies for appraisal.

(3) An appraisal report is required to state the

following contents:

A. All the items required by the rules of

appraising real estate.

B. Related items for the appraiser and

professional.

(a) The name, total capital, organization

structure and employment structure of the

professional appraising company.

(b) The appraiser’s name, age, education (with

related evidence), the number of years

working in appraisal and period, number

of cases undertaken by the appraiser.

(c) The relationship between the professional

appraising company, the appraiser and

outsourced company.

(d) A statement of “No fraud or concealment

in any statement of the appraisal report”.

(e) The date of issuing the report.

C. The basic profile of the appraised target should

at least include the name, feature, location and

area etc.

~76~


Amendments

D. An actual case compared with other real estate

in the same area of the target.

E. For cases with limited or specific price range,

the appraiser should evaluate whether the

current conditions are still consistent with such

limitation. The appraiser is also required to

state the rationales and reasonability of the

difference between the target and normal price,

and comment on whether the limited/specific

price is rationale to be the basis for transaction

price.

F. If the target is a contract of joint construction,

the reasonable proportion of both parties

should be noted.

G. Estimate the value-added tax for lands.

H. When the same appraiser concludes a price

with more than 20% difference of the same

period, whether the appraiser complies with

Article 41 of Real Estate Appraisal Act is

required to be investigated.

I. The attachments should include the details of

the appraisal, registration information of

ownership, a copy of situated area, a brief

D. An actual case compared with other real estate

in the same area of the target.

E. For cases with limited or specific price range,

the appraiser should evaluate whether the

current conditions are still consistent with such

limitation. The appraiser is also required to

state the rationales and reasonability of the

difference between the target and normal price,

and comment on whether the limited/specific

price is rationale to be the basis for transaction

price.

F. If the target is a contract of joint construction,

the reasonable proportion of both parties

should be noted.

G. Estimate the value-added tax for lands.

H. When the same appraiser concludes a price

with more than 20% difference of the same

period, whether the appraiser complies with

Article 41 of Real Estate Appraisal Act is

required to be investigated.

I. The attachments should include the details of

the appraisal, registration information of

ownership, a copy of situated area, a brief

~77~


Amendments

summary of urban renewal, the map of the

target where it is located, the usage certificate

of different sections of the land, the photos of

the current status of the target.

(4) Except for all of the evaluation results of acquired

asset made by the professional appraisers are

higher than the trading value or all of the

evaluation results of disposed asset made by the

professional appraisers are lower than the trading

value.

If a professional appraiser comes up with any of

the following result, the Company should consult

with CPAs and study SFAS No. 20 prorogated by

Accounting Research and Development

Foundation. The CPAs should issue definitive

comments on the reasons of the difference and

reasonability of the transaction price:

A. The appraisal result has more than 20%

difference from the actual transaction price.

B. The appraisal price from 2 professional

appraising companies has more than 10%

difference.

(5) The issue date of the report made by professional

summary of urban renewal, the map of the

target where it is located, the usage certificate

of different sections of the land, the photos of

the current status of the target.

(4) Except for all of the evaluation results of acquired

asset made by the professional appraisers are

higher than the trading value or all of the

evaluation results of disposed asset made by the

professional appraisers are lower than the trading

value.

If a professional appraiser comes up with any of

the following result, the Company should consult

with CPAs and study SFAS No. 20 prorogated by

Accounting Research and Development

Foundation. The CPAs should issue definitive

comments on the reasons of the difference and

reasonability of the transaction price:

A. The appraisal result has more than 20%

difference from the actual transaction price.

B. The appraisal price from 2 professional

appraising companies has more than 10%

difference.

(5) The issue date of the report made by professional

~78~


Amendments

appraisers should not be more than three months

ahead of the contract date. However, if the publicly

announced land value of the target is applicable

within 6 months, the original professional

appraiser may still issue a letter of comments.

The “professional appraisers” refer to real estate

appraiser, or other appraisers permitted by law to

conduct appraising for real estate and equipment.

3. Membership certificates or intangible assets

When Epistar acquires or disposes membership

certificates or intangible assets above 20% of the

paid-in capital or NT$300 million or more, except in

transactions with a government agency, Epistar should

engage CPAs to issue comments on the rationality of

the transaction price before the day of occurrence.

Accordingly, the CPAs should comply with the

regulations in SFAS No. 20 prorogated by Accounting

Research and Development Foundation.

4. The calculation of the trading amount in the first three

paragraphs should be proceeded according to the

regulations stated in the paragraph 2 of Act. 6. It is

not necessary to be recognized if the appraisal report

made by the professional appraiser or the CPAs’

appraisers should not be more than three months

ahead of the contract date. However, if the publicly

announced land value of the target is applicable

within 6 months, the original professional

appraiser may still issue a letter of comments.

The “professional appraisers” refer to real estate

appraiser, or other appraisers permitted by law to

conduct appraising for real estate and equipment.

3. Intangible assets or right-of-use assets.

When Epistar acquires or disposes intangible assets or

right-of-use assets above 20% of the paid-in capital or

NT$300 million or more, except in transactions with

a government agency, Epistar should engage CPAs to

issue comments on the rationality of the transaction

price before the day of occurrence. Accordingly, the

CPAs should comply with the regulations in SFAS

No. 20 prorogated by Accounting Research and

Development Foundation.

4. The calculation of the trading amount in the first three

paragraphs should be proceeded according to the

regulations stated in the paragraph 2 of Act. 6. It is

not necessary to be recognized if the appraisal report

made by the professional appraiser or the CPAs’

~79~


Amendments

comments is provided within one year after the

occurrence date.

5. Derivatives

Comply with related regulations of Section 3 in

“ Acquisition or Disposal Procedures of Assets” by the

Company.

6. Assets acquired or disposed based on legal merging,

division, procurement or receiving stocks

Assets acquired or disposed as a result of legal

merging, spin-off, acquisition or transfer of shares

should comply with related regulations of Section 4 in

“ Acquisition or Disposal Procedures of Assets” by the

Company.

Any professional appraising company and their

appraisers, any accountants, legal consults, or security

underwriters and transaction counterparties issuing

comments or appraisal report should not be the related

parties of the clients pertinent to the transaction.

comments is provided within one year after the

occurrence date.

5. Derivatives

Comply with related regulations of Section 3 in

“ Acquisition or Disposal Procedures of Assets” by

the Company.

6. Assets acquired or disposed based on legal merging,

division, procurement or receiving stocks

Assets acquired or disposed as a result of legal

merging, spin-off, acquisition or transfer of shares

should comply with related regulations of Section 4 in

“ Acquisition or Disposal Procedures of Assets” by

the Company.

Any professional appraising company and their

appraisers, any accountants, legal consults, or security

underwriters and transaction counterparties issuing

comments or appraisal report should not be the related

parties of the clients pertinent to the transaction and shall

in comply with following regulations :

1. No violation of the Securities Exchange Act, the

Company Law, the Banking Law, the Insurance Law,

the Financial Holding Company Law, the Commercial

Accounting Law, or the fraud, breach of trust,

~80~


Amendments

encroachment, falsification of documents or business

crimes, been declared of more than one year

imprisonment. However, it is not limited to who if the

execution is completed, the probation period expired

or the pardon has been completed for three years.

2. The counterparty should not be a related person or a

person with a substantive relationship.

3. If two or more appraisal report shall be obtained,

professional valuers or appraisers may not be related

to each other or have substantive relationships.

When issuing the appraisal report or opinion , the

personnel of the preceding paragraph shall comply with

the following matters:

1. Professional ability, practical experience and

independence should carefully assess before

undertaking a case.

2. A case should be checked by appropriate operational

procedures and should be properly planned and

implemented to reach a conclusion for the basis of a

report or opinion accordingly; the procedures, data

collected and conclusions shall be carried out with

details in the working paper of the case.

3. The data source, parameters and information used

~81~


Amendments

When acquiring or disposing assets by means of the

auction procedure of the court house, Epistar may

provide documents of the court house to substitute the

appraisal report or CPA’s comments.

shall be evaluated item by item for completeness,

correctness and reasonableness as the basis for the

issuance of appraisal reports or opinions.

4. The statement shall include the professionalism and

independence of the relevant personnel, the

information used for evaluation is reasonable and

correct, and the relevant laws and regulations are

followed.

When acquiring or disposing assets by means of the

auction procedure of the court house, Epistar may

provide documents of the court house to substitute the

appraisal report or CPA’s comments.

Article 4 Transaction cap

1. If the asset acquired or disposed by Epistar and any

subsidiary belongs to lands, real estate and equipment

for business use, there will not be any limitation on the

cap of transaction.

Transaction cap

1. If the asset acquired or disposed by Epistar and any

subsidiary belongs to lands, real estate and equipment

or right-of-use assets for business use, there will not

be any limitation on the cap of transaction. If the

business scope of a subsidiary is in business

investment category, the amount of securities

To comply with

the amendment

of the provisions

of “Regulations

Governing the

Acquisition and

Disposal of

~82~


Amendments

2. For all real estate for non business use purchased by

Epistar and any subsidiary, the transaction amount

should not exceed 20% of paid-in capital.

3. Any long-term and short-term investment of Epistar

and subsidiaries shall be subject to the “Rules of

Management for long-term and short-term

investments”.

investment is not limited.

2. For all real estate and right-of-use assets t for non

business use purchased by Epistar and any subsidiary,

the transaction amount should not exceed 10% of the

net value of the most recent financial statement.

3. The transaction cap of Security investment of Epistar

and subsidiaries is limited to 100% and 60%

respectively of the net value of the most recent

financial statement.

4. The amount of investment in individual securities of

the Company and its subsidiaries is limited to 50% and

30% respectively of the company's most recent

financial statements.

The amount of securities investment mentioned above

should be calculated in accordance with initial

investment cost.

Assets by Public

Companies” by

Financial

supervisory

commission

R.O.C. (Taiwan)

and to

incorporate in

the “Long-term

and Short-term

Investment

Management

Measures” of the

Company to

these

procedures.

Article 5 Delegation, execution unit and decision-making

procedure of transaction conditions

1. Acquisition procedures of real estate and equipment:

the acquisition of the Company’s real estate and

equipment should be authorized to the responsible

managers within their delegation after the execution

unit proposes a budget and approved by the BOD. In

Delegation, execution unit and decision-making

procedure of transaction conditions

1. Acquisition procedures of real estate and equipment or

right-of-use assets : the acquisition of the Company’s

real estate and equipment and right-of-use assets

should be authorized to the responsible managers

within their delegation after the execution unit

To comply with

the amendment

of the provisions

of “Regulations

Governing the

Acquisition and

Disposal of

~83~


Amendments

the case of emergency, any case under NT$30 million

is authorized by the Chairman to review and approve.

Any case from NT$30 million to NT$100 million

should be reviewed and approved by the chairman and

submitted to the next nearest BOD meeting for report.

Any case more than NT$100 million is required to be

submitted to the BOD for deliberation and approval.

2. Procedure of disposing real estate and equipment: Any

discarding or selling of real estate and equipment by

Epistar require a statement of reasons via special

project from the original user. Any case with on-par

value or appraisal value under NT$10 million after

quoting, price comparison and negotiation by the

manager of the assets should be approved by the

Chairman. For cases from NT$10 million to NT$30

million, the Chairman should review and approve. Any

application above NT$30 million requires the BOD’

review and approval.

3. Acquisition and disposal procedure for long-term

equity investment and short-term investment on

securities:

proposes a budget and approved by the BOD. In the

case of emergency, any case under NT$30 million is

authorized by the Chairman to review and approve.

Any case from NT$30 million to NT$100 million

should be reviewed and approved by the chairman and

submitted to the next nearest BOD meeting for report.

Any case more than NT$100 million is required to be

submitted to the BOD for deliberation and approval.

2. Procedure of disposing real estate and equipment and

right-of-use assets: Any discarding or selling of real

estate and equipment and right-of-use assets by Epistar

require a statement of reasons via special project from

the original user. Any case with the higher of on-par

value and appraisal value under NT$10 million after

quoting, price comparison and negotiation by the

manager of the assets should be approved by the

Chairman. For cases from NT$10 million to NT$30

million, the Chairman should review and approve. Any

application above NT$30 million requires the BOD’

review and approval.

3. Acquisition and disposal procedure for investment on

securities:

Assets by Public

Companies” by

Financial

supervisory

commission

R.O.C. (Taiwan)

and to

incorporate in

the “Long-term

and Short-term

Investment

Management

Measures” of the

Company to

these

procedures.

~84~


Amendments

All the acquisition and disposal of Epistar’s long-term

equity investment and short-term investment on

securities comply with the internal rules and

delegation policies.

(1) Authority Matrix

Items Amount

per time

Authorized signer

President Chairman BOD

Strategic

long-term

securities

below 50

millions review approve

exceed 50


Short-term

securities *

below 50

millions approve

exceed 50


Strategic

short-term

securities

(Investmen

t other than

above

items)

below 10

millions approve

10

millions to

50

millions

review approve

exceed

50millions review approve

~85~


Amendments

4. The acquisition and disposal procedures of

membership cards, intangible assets:

The execution unit is required to prepare related

information and submit to the BOD for deliberation

and approval.

5. Assets acquired or disposed via legal merging,

division, procurement or share selling and other

important assets:

The BOD should be entitled to deliberate and approve.

When Epistar acquires or disposes any asset compliant

with the afore-stated regulation or other laws that require

approval from the BOD but some directors express

objection with record or written statement, Epistar should

send this information to each supervisor.

When Epistar has independent director in place, Epistar

should consider each independent director’s comment

*: The purpose of short-term security is for Short-term

fund transfer, it includes buy/sell short-term notes,

repo/resell bounds, bound fund, currency fund and

Structured/linked deposits with a principle

guaranteed.

(2) Executive unit : Financial and accounting center

4. The acquisition and disposal procedures of intangible

assets, right-of-use assets or membership cards:

The execution unit is required to prepare related

information and submit to the BOD for deliberation

and approval.

5. Assets acquired or disposed via legal merging,

division, procurement or share selling and other

important assets:

The BOD should be entitled to deliberate and approve.

When Epistar acquires or disposes any asset compliant

with the afore-stated regulation or other laws that require

approval from the BOD but some directors express

objection with record or written statement, Epistar should

send this information to each supervisor.



~86~


Amendments

when submitting any application of acquiring and

disposing assets to the BOD for discussion in compliance

with paragraphs 1 to 5. In case of any objection or

comment to put hold of the application, the meeting

notes of the BOD should be noted.

When Epistar has formulated the Audit Committee, any

major transaction of assets or derivatives should receive

approval from 50% of the Audit Committee and submit

to the BOD for approval.

The afore-stated cases should obtain concurrence of 2/3

members from the BOD’ directors if they do not receive

the approval from 50% members in Audit Committee.

And this situation, along with the resolution of Audit

Committee, should be noted in meeting notes.

The entire board of Audit Committee and afore-stated

“all directors” refer to those who are actually performing

duty currently.


disposing assets to the BOD for discussion in compliance

with paragraphs 1 to 5. In case of any objection or

comment to put hold of the application, the meeting

notes of the BOD should be noted.











“all directors” refer to those who are actually performing

duty currently.

Article 6 Procedure of promulgation and declaration

Epistar is liable to announce and declare on websites

appointed by regulators in regulated format within 2 days

after the occurrence of any of the following incident

(hereinafter “the occurrence date”) when acquiring or

disposing assets:

Procedure of promulgation and declaration

Epistar is liable to announce and declare on websites

appointed by regulators in regulated format within 2 days

after the occurrence of any of the following incident

(hereinafter “the occurrence date”) when acquiring or

disposing assets:

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

~87~


Amendments

1. Obtain or dispose real estate from related parties;

obtain or dispose the assets not aside from real estate

with trading value of 20% of the Company’s paid-in

capital or that of 10% of total asset or more than

NT$300 million; 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 which is

issued by domestic security investment trust entity.

2. Merge with other companies, divide the company,

procure assets or sell stocks.

3. The loss incurred from derivatives transaction exceeds

the loss cap of the entire or individual contract based

on rules in the procedures.

4. Acquire or dispose equipment which for business use

and Trading partner is not related parties, transaction

amount is to one of the following requirements:

(1) Epistar paid-in capital is below NTD Ten (10)

billion, transaction amount is above NTD five

hundred (500) million.

(2) Epistar paid-up capital is above NTD Ten (10)

1. Obtain or dispose real estate or right-of-use assets

from related parties; obtain or dispose the assets not

aside from real estate or right-of-use assets with

trading value of 20% of the Company’s paid-in capital

or that of 10% of total asset or more than NT$300

million; provided, this shall not apply to trading of

domestic government bonds or bonds under

repurchase and resale agreements, or subscription or

redemption of domestic money market funds which is

issued by domestic security investment trust entity.

2. Merge with other companies, divide the company,

procure assets or sell stocks.

3. The loss incurred from derivatives transaction exceeds

the loss cap of the entire or individual contract based

on rules in the procedures.

4. Acquire or dispose equipment or right-of-use assets

which for business use and Trading partner is not

related parties, transaction amount is to one of the

following requirements:

(1) Epistar paid-in capital is below NTD Ten (10)

billion, transaction amount is above NTD five

hundred (500) million.

(2) Epistar paid-up capital is above NTD Ten (10)

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~88~


Amendments

billion, transaction amount is above NTD one (1)

billion.

5. Epistar acquires real estate via outsourcing

construction on self-owned lands or outsourcing

construction on leased lands, or joint construction and

separate the building/profit/sales with estimate

investment above NTD five-hundred (500) million.

6. Other than the above 5 types of transactions or

investment in China, or any other cases worth more

than 20% paid-in capital of the Company or NT$300

million, the following situations shall not be

applicable:

(1) Trading of government bonds.

(2) Trading of bonds under repurchase/resale

agreements, or subscription or redemption of

domestic money market funds which is issued by

domestic security investment trust entity.

Each of the above-stated transaction value is calculated

by any of the following formula:

1. Total of each individual transaction

2. The transaction total of the same person accumulated

in one year from acquiring or disposing the same type

billion, transaction amount is above NTD one (1)

billion.

5. Epistar acquires real estate, the counterparty should be

not a related party, via outsourcing construction on

self-owned lands or outsourcing construction on

leased lands, or joint construction and separate the

building/profit/sales with estimate investment above

NTD five-hundred (500) million.

6. Other than the above 5 types of transactions or

investment in China, or any other cases worth more

than 20% paid-in capital of the Company or NT$300

million, the following situations shall not be

applicable:

(1) Trading of domestic government bonds.

(2) Trading of bonds under repurchase/resale

agreements, or subscription or redemption of

domestic money market funds which is issued by

domestic security investment trust entity.

Each of the above-stated transaction value is calculated

by any of the following formula:

1. Total of each individual transaction

2. The transaction total of the same person accumulated

in one year from acquiring or disposing the same type

~89~


Amendments

of targets

3. The transaction total accumulated in one year from

acquiring or disposing (separately) on the same project

to develop real estate


acquiring or disposing (separately) the same security.

The above-stated “investment in China” stated in first

Paragraph of this Article refers to investments in the

mainland China area approved by the Ministry of

Economic Affairs Investment Commission or conducted

in accordance with the provisions of the Regulations

Governing Permission for Investment or Technical

Cooperation in the Mainland Area.

The above-stated “the occurrence date” stated in first

Paragraph of this Article, in principle, refers to the

contract signature date of transactions, payment date,

engaged transaction date, transmission date, resolution

date of the BOD, or the date confirming other transaction

counterparties or transaction price, whichever occurs

first. However, for the investments requiring regulators’

approval, “the occurrence date” refers to any of the above

dates or the date receiving regulator’s approval,

whichever happens first.

of targets


acquiring or disposing (separately) on the same project

to develop real estate or right-of-use assets.


acquiring or disposing (separately) the same security.

The above-stated “investment in China” stated in first

Paragraph of this Article refers to investments in the

mainland China area approved by the Ministry of

Economic Affairs Investment Commission or conducted

in accordance with the provisions of the Regulations

Governing Permission for Investment or Technical

Cooperation in the Mainland Area.

The above-stated “the occurrence date” stated in first

Paragraph of this Article, in principle, refers to the

contract signature date of transactions, payment date,

engaged transaction date, transmission date, resolution

date of the BOD, or the date confirming other transaction

counterparties or transaction price, whichever occurs

first. However, for the investments requiring regulators’

approval, “the occurrence date” refers to any of the above

dates or the date receiving regulator’s approval,

whichever happens first.

~90~


Amendments

The “within one year” mentioned in Paragraph B refers

to the one year before “the occurrence date”. The dates

already announced may be exempt from the calculation.

Epistar should update the status of derivatives transaction

of Epistar, and subsidiaries of non-listed companies in

Taiwan as of last month end to website appointed by

regulators in regulated format prior to 10th of every

month.

The “within one year” mentioned in Paragraph B refers

to the one year before “the occurrence date”. The dates

already announced may be exempt from the calculation.

Epistar should update the status of derivatives transaction

of Epistar, and subsidiaries of non-listed companies in

Taiwan as of last month end to website appointed by

regulators in regulated format prior to 10th of every

month.

Article 7 Procedure to control acquisition or disposal of assets by

subsidiaries

1. Epistar should supervise each subsidiary to formulate

a SOP regarding acquiring and disposing assets.

2. When each subsidiary acquire or dispose any asset,

they should provide related data to the mother

company and proceed with acquisition or disposal

process after taking reference from the comments of

related parties in the mother company.

3. For subsidiaries of Epistar that are not listed

companies and meeting the declaration requirements

stipulated in Article 6 of the SOP, unless investment is

their professional business and except for trading for

securities in domestic/overseas stock exchange house

or business areas of security companies, Epistar

Procedure to control acquisition or disposal of assets by

subsidiaries

1. Epistar should supervise each subsidiary to formulate

a SOP regarding acquiring and disposing assets.

2. When each subsidiary acquire or dispose any asset,

they should provide related data to the mother

company and proceed with acquisition or disposal

process after taking reference from the comments of

related parties in the mother company.

3. For subsidiaries of Epistar that are not listed

companies and meeting the declaration requirements

stipulated in Article 6 of the SOP, unless investment is

their professional business and except for trading for

securities in domestic/overseas stock exchange house

or business areas of security companies, Epistar

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~91~


Amendments

should take care of the announcement and declaration

details.

4. In the declaration requirements of Epistar and its

subsidiaries, the sentence “more than 20% of paid-in

capital or 10% of total asset of the Company” refers to

the paid-in capital or total asset of Epistar.

should take care of the announcement and declaration

details.

4. In the declaration requirements of Epistar and its

subsidiaries subject to the sentence “paid-in capital or

total asset of the Company” refers to the paid-in

capital or total asset of Epistar.

Article 10 Data retention

When Epistar acquires or disposes any asset, Epistar

should retain all related contracts, meeting notes, records,

appraisal reports, letter of comments by the CPAs,

lawyers or security underwriters in the Company. Unless

otherwise stipulated by laws, all the documents should be

preserved for at least 5 years.

Data retention

When Epistar acquires or disposes any asset, Epistar

should retain all related contracts, meeting notes, records,

appraisal reports, letter of comments by the CPAs,

lawyers or security underwriters in the Company. Unless

otherwise stipulated by laws, all the documents should be

preserved for at least 5 years.

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

Article 12 When acquisition or disposal of real estate occurs

between Epistar and related parties or the value of

trading the assets aside from real estate is 20% of the

When acquisition or disposal of real estate and

right-of-use assets occurs between Epistar and related

parties or the value of trading the assets aside from real

Revised in

accordance with

partial

~92~


Amendments

Company’s paid-in capital, 10% of total asset or more

than NT$300 million , except in trading of government

bonds or bonds under repurchase and resale agreements,

or subscription or redemption of domestic money market

funds which is issued by domestic security investment

trust entity. Epistar should submit the following

information to the BOD for approval and recognition by

the supervisors to before signing the contract and paying

the amount:

1. The purpose, necessity and estimated effectiveness

of such acquisition or disposal of assets

2. The reason(s) of choosing this related party for such

transaction.

3. Acquiring real estate from related parties, related data

on evaluating the estimated transaction conditions

based on Article 13 and 14.

4. The original acquisition date and price of the related

party, the relationship between the counterparty and its

company and related party etc.

5. An estimate table of cash revenue/expenditure for the

following 12 months after the estimate contract date,

and evaluation on the necessity of the transaction and

estate or right-of-use assets is 20% of the Company’s

paid-in capital, 10% of total asset or more than NT$300

million , except in trading of domestic government bonds

or bonds under repurchase and resale agreements, or

subscription or redemption of domestic money market

funds which is issued by domestic security investment

trust entity. Epistar should submit the following

information to the BOD for approval and recognition by

the supervisors to before signing the contract and paying

the amount:

1. The purpose, necessity and estimated effectiveness of

such acquisition or disposal of assets

2. The reason(s) of choosing this related party for such

transaction.

3. Acquiring real estate or right-of-use assets from

related parties, related data on evaluating the estimated

transaction conditions based on Article 13 and 14.

4. The original acquisition date and price of the related

party, the relationship between the counterparty and its

company and related party etc.

5. An estimate table of cash revenue/expenditure for the

following 12 months after the estimate contract date,

and evaluation on the necessity of the transaction and

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~93~


Amendments

reasonability of capital utilization.

6. The appraisal report made by the professional

appraiser or CPA’s comments as stated in the previous

paragraph.

7. The limitations of this transaction and other important

agreements.

The trading amount should be calculated in accordance

with paragraph 2 of Act. 6. The “within one year”

mentioned refers to the one year before “the occurrence

date”. The dates already submitted and approved by the

board of directors may be exempt from the calculation. If

the amount of acquisition or disposal of equipment

between Epistar and its subsidiaries is under

NTD1,000,000,000, the chairman is authorized to

determine the execution and then submitted to the board

meeting to have it approved.



reasonability of capital utilization.

6. The appraisal report made by the professional

appraiser or CPA’s comments as stated in the previous

paragraph.

7. The limitations of this transaction and other important

agreements.

The trading amount should be calculated in accordance

with paragraph 2 of Act. 6. The “within one year”

mentioned refers to the one year before “the occurrence

date”. The dates already submitted and approved by the

board of directors may be exempt from the calculation. If

Epistar and its subsidiaries or subsidiaries that directly or

indirectly hold 100% of the issued shares or total capital

engaged in the following transactions with each other is

under NTD1,000 million, the chairman is authorized to

determine the execution and then submitted to the board

meeting to have it approved.

1. Obtain or dispose of equipment for business use or its

right-of- use assets.

2. Acquiring or disposing of the real estate right-of-use

assets for business use.



~94~


Amendments


disposing assets to the BOD for discussion. In case of

any objection or comment to put hold of the application,

the meeting notes of the BOD should be noted.


matters requiring supervisors’ recognition per Paragraph

1 should receive approval from 50% of the Audit

Committee and submit to the BOD for approval.







“all directors” refer to those who are currently

performing their duties.






matters requiring supervisors’ recognition per Paragraph

1 should receive approval from 50% of the Audit

Committee and submit to the BOD for approval.









Article 13 Epistar should evaluate the reasonability of transaction

cost when acquiring real estate from related parties with

the following methods:

1. Other than the original transaction price, add all

necessary interest incurred from the capital and costs

liable for the buyer pursuance to related laws. The

“necessary interest cost of funding” is based on the

Epistar should evaluate the reasonability of transaction

cost when acquiring real estate or right-of-use assets

from related parties with the following methods:

1. Other than the original transaction price, add all

necessary interest incurred from the capital and costs

liable for the buyer pursuance to related laws. The

“necessary interest cost of funding” is based on the

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

~95~


Amendments

weighted average interest rate of the loan for assets

procured of the same year. However, it should not

exceed the highest interest rate among financial

institutes promulgated by Ministry of Finance.

2. If any related has pledged a mortgage to any financial

institute with the target asset, the financial institutes

should have evaluated a total value of the target

against the loan. However, the loan-to-value decided

by the financial institute should be more than 70% and

the loan period must exceed more than one year.

Nonetheless, this rule does not apply to the case when

any of the financial institute or transaction

counterparty is the related party.

When purchasing the lands and houses of the same target

together with other parties, Epistar should follow any of

the above-stated methodologies to calculate the value of

the lands and houses.

Epistar should evaluate the cost of real estate subject to

Paragraph 1 and 2 when acquiring real estate from

related parties, and consult with CPA for review and

issue definitive comments.

weighted average interest rate of the loan for assets

procured of the same year. However, it should not

exceed the highest interest rate among financial

institutes promulgated by Ministry of Finance.

2. If any related has pledged a mortgage to any financial

institute with the target asset, the financial institutes

should have evaluated a total value of the target

against the loan. However, the loan-to-value decided

by the financial institute should be more than 70% and

the loan period must exceed more than one year.

Nonetheless, this rule does not apply to the case when

any of the financial institute or transaction

counterparty is the related party.

When purchasing or leasing the lands and houses of the

same target together with other parties, Epistar should

follow any of the above-stated methodologies to

calculate the value of the lands and houses.

Epistar should evaluate the cost of real estate or

right-of-use assets subject to Paragraph 1 and 2 when

acquiring real estate or right-of-use assets from related

parties, and consult with CPA for review and issue

definitive comments.

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~96~


Amendments

When any of the following situations applies to the

acquisition of real estate by Epistar, Article 12, instead of

the afore-stated 3 regulations, shall be the basis:

1. The real estate was inherited or given to the related

party.

2. The acquisition of the real estate (by contract) by the

related party has exceeded more than 5 years of the

contract date of the transaction.

3. The real estate was acquired from signing a joint

construction contract with the related party, or through

engaging a related party to build real property, either

on the company's own land or on rented land.

When any of the following situations applies to the

acquisition of real estate or right-of-use assets by Epistar,

Article 12, instead of the afore-stated 3 regulations, shall

be the basis:

1. The real estate or right-of-use assets was inherited or

given to the related party.

2. The acquisition of the real estate or right-of-use

assets (by contract) by the related party has exceeded

more than 5 years of the contract date of the

transaction.

3. The real estate was acquired from signing a joint

construction contract with the related party, or

through engaging a related party to build real

property, either on the company's own land or on

rented land.

4. The Company and its subsidiaries, or subsidiaries

that directly or indirectly hold 100% of the issued

shares or total capital, acquire the real estate

right-of-use assets for business use.

Article 14 Epistar should follow the regulations in Article 15 when

the evaluation result is lower than the actual transaction

price following the assessment standards in Paragraph 1

and 2 in the afore-stated article. However, such rule does

Epistar should follow the regulations in Article 15 when

the evaluation result is lower than the actual transaction

price following the assessment standards in Paragraph 1

and 2 in the afore-stated article. However, such rule does

Revised in

accordance with

partial

amendment of

~97~


Amendments

not apply to any of the following, especially when object

evidence is provided and the professional appraiser of

real estate and CPA both issue comments on the

reasonability of such transaction:

1. The related party provides evidence subject to any of

the following criteria when acquiring pure lands and

initiate construction:

(1) For pure lands, the rules of the above-stated article

shall apply. For houses, the sum of the building

cost and a reasonable construction profit for the

related party exceeds the actual transaction price.

The “reasonable construction profit” refers to the

average operating gross rate of the construction

department of the related party in the recent three

years or the gross rate of construction industry

announced by Ministry of Finance, whichever is

lower.

(2) Any other cases of transaction with non related

parties for the other floors of the target’s housing

lands or adjacent areas with similar areas. And the

transaction conditions are similar to the case of the

related party based on the transaction practices of

real estate in terms of the reasonable number of

not apply to any of the following, especially when object

evidence is provided and the professional appraiser of

real estate and CPA both issue comments on the

reasonability of such transaction:

1. The related party provides evidence subject to any of

the following criteria when acquiring pure lands and

initiate construction:

(1) For pure lands, the rules of the above-stated article

shall apply. For houses, the sum of the building

cost and a reasonable construction profit for the

related party exceeds the actual transaction price.

The “reasonable construction profit” refers to the

average operating gross rate of the construction

department of the related party in the recent three

years or the gross rate of construction industry

announced by Ministry of Finance, whichever is

lower.

(2) Any other cases of transaction with non related

parties for the other floors of the target’s housing

lands or adjacent areas with similar areas. And the

transaction conditions are similar to the case of the

related party based on the transaction practices of

real estate or lease in terms of the reasonable

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~98~


Amendments

floors or after evaluating the price differentiation

of the same area.

(3) Any other cases of leasing with non related parties

for the other floors of the target’s housing lands or

adjacent areas with similar areas. And the

transaction conditions, with estimation, are similar

to the case of the related party based on the leasing

practices of real estate in terms of the reasonable

number of floors.

2. The real estate purchased by the real estate and of

which the evidence is proposed by Epistar has

transaction conditions similar to other cases of

transactions with non related parties in the same

neighborhood in a year and with similar areas.

The above stated “transactions in the same

neighborhood”, in principle, refers to the area within 500

meters in the same, or adjacent, streets/roads, or any

similar case based on publicly announced current value.

The “similar areas,” in principle, refer to more than 50%

of the areas of the transaction targets with non-related

parties. The “one year” refers to 12 months prior to the

de facto date of acquiring the real estate this time.

number of floors or after evaluating the price

differentiation of the same area.

2. The real estate by purchasing or by leasing to acquire

the right-of-use assets which the evidence is proposed

by Epistar has transaction conditions similar to other

cases of transactions with non related parties in the

same neighborhood in a year and with similar areas.

The above stated “transactions in the same

neighborhood”, in principle, refers to the area within 500

meters in the same, or adjacent, streets/roads, or any

similar case based on publicly announced current value.

The “similar areas,” in principle, refer to more than 50%

of the areas of the transaction targets with non-related

parties. The “one year” refers to 12 months prior to the

de facto date of acquiring the real estate or right-of-use

assets this time.

~99~


Amendments

Article 15 When the evaluation result of Epistar based on Article 13

and 14 for acquiring real estate from related parties is

lower than the transaction price, Epistar should comply

with the following:

1. Pursuant to Paragraph 1 Article 41 of Securities &

Exchange Act, Epistar should reserve a special earned

surplus for the difference between the transaction price

and assessed cost. Epistar should not distribute or

reallocate the amount to recapitalization stocks. If

Epistar follows Equity Method for investments,

Epistar should also reserve special earned surplus

proportionally based on the regulation in Paragraph 1

Article 41 of Securities & Exchange Act.

2. The supervisors should comply with the regulations in

Article 218 of Company Act.

3. Epistar should submit the follow-up status of

Subparagraph 1 and 2 to Shareholders’ Meeting and

disclose the details of transactions in the Annual

Report and Prospectus.

Epistar should not utilize the special earned surplus as

stated afore until Epistar has recognized the falling price

loss or disposed it, or compensated it properly or restored

When the evaluation result of Epistar based on Article 13

and 14 for acquiring real estate or right-of-use assets

from related parties is lower than the transaction price,

Epistar should comply with the following:

1. Pursuant to Paragraph 1 Article 41 of Securities &

Exchange Act, Epistar should reserve a special earned

surplus for the difference between the transaction price

and assessed cost of real estate or right-of-use assets.

Epistar should not distribute or reallocate the amount

to recapitalization stocks. If Epistar follows Equity

Method for investments, Epistar should also reserve

special earned surplus proportionally based on the

regulation in Paragraph 1 Article 41 of Securities &

Exchange Act.

2. The supervisors should comply with the regulations in

Article 218 of Company Act.

3. Epistar should submit the follow-up status of

Subparagraph 1 and 2 to Shareholders’ Meeting and

disclose the details of transactions in the Annual

Report and Prospectus.

The Company shall provide a special surplus reserve in

accordance with the provisions of the preceding

paragraph. The assets purchased or leased at a high price

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~100~


Amendments

it, or any other evidence can be provided to prove its

reasonability concurred by the regulators.

The 2 rules of the above-stated paragraphs should be

applicable when other evidence proving abnormal

transactions is discovered when acquiring real estate

from related parties.

shall be recognized as a loss or disposed or termination

of the lease or may be properly compensated or

reinstated, or there is other evidence provided with no

unreasonable situations, and with the consent of the

competent authority, the special surplus reserve shall be

utilized.

The 2 rules of the above-stated paragraphs should be

applicable when other evidence proving abnormal

transactions is discovered when acquiring real estate or

right-of-use assets from related parties.

Article 16 Transaction principles and policies

1. Transaction types: The derivatives transactions of

Epistar refers to the contracts of which the value

derives from assets, interest rates, exchange rates,

indices, or other interest, including forwards

(excluding insurance contracts, guaranty of contract,

after-sale service guarantee, long-term lease contracts

and long-term purchasing/sales contracts), options,

futures, exchange and structured contracts with the

combination of the above-stated products. Any other

products require the approval from the chairman

before transaction.

Transaction principles and policies

1. Transaction types: The derivatives transactions of

Epistar refers to the contracts of which the value

derives from specific interest rates, price of financial

tools, merchandise prices, exchange rates, indices,

price or rate index, credit rating, or credit index or

other index, including forwards (excluding insurance

contracts, guaranty of contract, after-sale service

guarantee, long-term lease contracts and long-term

purchasing/sales contracts), options contracts, futures

contracts, Leverage margin contract , swap contracts,

hybrid contracts combining the above contracts; or

hybrid contracts or structured products containing

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

~101~


Amendments

2. Management or hedging strategies: Transaction of

derivatives should focus on hedging; the targets of the

transactions should also be banks having business

relationship with Epistar to avoid credit risk.

3. Delegation:

(1) Treasury Department: Treasury Department is

responsible for FX management system, such as

collecting market information, judging the market

tread and risks, becoming familiar with financial

products and transaction skills etc. Treasury

Department, under the instruction of its head, is

authorized to control FX positions based on

Epistar’s internal policy on risk hedging.

(2) Accounting Department: Accounting Department

controls the entire FX position, settles the realized

and unrealized exchange P/L on a regular basis for

Treasury Department to decide their hedging

practices.

4. Evaluation of performance: For any transaction on

derivatives, the trader(s) should mark down the details

(such as amount, exchange rate, banks, maturity date

embedded derivatives. Any other products require the

approval from the chairman before transaction.

2. Management or hedging strategies: Transaction of

derivatives should focus on hedging; the targets of the

transactions should also be banks having business

relationship with Epistar to avoid credit risk.

3. Delegation:

(1) Treasury Department: Treasury Department is

responsible for FX management system, such as

collecting market information, judging the market

tread and risks, becoming familiar with financial

products and transaction skills etc. Treasury

Department, under the instruction of its head, is

authorized to control FX positions based on

Epistar’s internal policy on risk hedging.

(2) Accounting Department: Accounting Department

controls the entire FX position, settles the realized

and unrealized exchange P/L on a regular basis for

Treasury Department to decide their hedging

practices.

4. Evaluation of performance: For any transaction on

derivatives, the trader(s) should mark down the details

(such as amount, exchange rate, banks, maturity date

Commission.

~102~


Amendments

etc) on the summary of unwinding position in order to

control P/L. In addition, the FX exchange P/L should

be settled on a monthly, quarterly and annually basis.

5. Total facility of master agreement and all/individual

loss limit:

(1) Total facility of master agreement shall be

pursuant to the risk position (net) of the Company.

(2) All/individual loss limit: The trading on

derivatives of the Company is for hedging

purpose. The loss cap for all/individual contract is

15% of the contract value. However, in the case of

any major negative impact related to exchange

rates or interest rates, the Company should

convene a meeting to gather all related parties and

discuss solutions.

etc) on the summary of unwinding position in order to

control P/L. In addition, the FX exchange P/L should

be settled on a monthly, quarterly and annually basis.

5. Total facility of master agreement and all/individual

loss limit:

(1) Total facility of master agreement shall be

pursuant to the risk position (net) of the Company.

(2) All/individual loss limit: The trading on

derivatives of the Company is for hedging

purpose. The loss cap for all/individual contract is

15% of the contract value. However, in the case of

any major negative impact related to exchange

rates or interest rates, the Company should

convene a meeting to gather all related parties and

discuss solutions.

Article 23 The “assets acquired or disposed by means of legal

merging, spin-off, acquisition or transfer of shares” in the

Rules refers to the assets acquired or disposed subject to

Business Mergers and Acquisitions Act, Financial

Holding Company Act, Financial Institutions Merger Act

or other laws via corporate merging, spin-off or

acquisition, or transferred company shares (hereinafter

“transfer of shares”) via new issuance subject to

The “assets acquired or disposed by means of legal

merging, spin-off, acquisition or transfer of shares” in the

Procedures refers to the assets acquired or disposed

subject to Business Mergers and Acquisitions Act,

Financial Holding Company Act, Financial Institutions

Merger Act or other laws via corporate merging, spin-off

or acquisition, or transferred company shares (hereinafter

“transfer of shares”) via new issuance subject to Article

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

~103~


Amendments

Paragraph 6 Article 156 of Company Act. 156-3 of Company Act. Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

Article 26 Unless otherwise indicated in other laws or any special

reasons requiring pre-approval by the regulators, Epistar

should convene the BOD meeting and Shareholders’

Meeting on the same day with the company participating

the merger, spin-off or acquisition to decide related

matters of such merger, spin-off or acquisition.

Unless otherwise indicated in other laws or any special




the transfer of shares.

Epistar should retain the following information in a

complete written form for 5 years in case of future

inspection when participating any merger, spin-off,

acquisition or transfer of shares:

1. Basic profile of people: Including the titles, names, ID

numbers (or passport numbers for foreigners) of





the merger, spin-off or acquisition to decide related

matters of such merger, spin-off or acquisition.





the transfer of shares.

Epistar should retain the following information in a

complete written form for 5 years in case of future

inspection when participating any merger, spin-off,

acquisition or transfer of shares:

1. Basic profile of people: Including the titles, names, ID

numbers (or passport numbers for foreigners) of

Revised in

accordance with

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~104~


Amendments

everyone participating or executing the mergers,

spin-off, acquisition or transfer of shares prior to the

announcement of such news.

2. Important dates: Including the dates of signing letter

of intent or MOU, engagement for financial or legal

consultants, signing the contracts and BOD meeting.

3. Important documents and meeting notes: Including the

plan of mergers, spin-off, acquisition or transfer of

shares, letter of intent or MOU, important contracts

and meeting notes of BOD meetings etc.

In the case of participating merger, spinoff, acquisition or

transfer of shares, Epistar should upload the information

stated in Subparagraph 1 and 2 within 2 days after the

occurrence date of the BOD approving the resolution to

the internet system in regulated format for FSC’s future

review.

If the company participating in Epister’s merger, spin-off,

acquisition or transfer of shares is not a listed/OTC

company, Epistar should sign an agreement with the

company and process according to the stipulation in

Paragraphs 3 and 4.

everyone participating or executing the mergers,

spin-off, acquisition or transfer of shares prior to the

announcement of such news.

2. Important dates: Including the dates of signing letter

of intent or MOU, engagement for financial or legal

consultants, signing the contracts and BOD meeting.

3. Important documents and meeting notes: Including the

plan of mergers, spin-off, acquisition or transfer of

shares, letter of intent or MOU, important contracts

and meeting notes of BOD meetings etc.

In the case of participating merger, spinoff, acquisition or

transfer of shares, Epistar should upload the information

stated in Subparagraph 1 and 2 within 2 days after the

occurrence date of the BOD approving the resolution to

the internet system in regulated format for FSC’s future

review.

If the company participating in Epister’s merger, spin-off,

acquisition or transfer of shares is not a listed/OTC

company, Epistar should sign an agreement with the

company and process according to the stipulation in

foresaid two Paragraphs

Article 33 The SOP, and any amendment thereto, should be put into

force after approve by the BOD and Shareholders’

The SOP, and any amendment thereto, should be put into

force after approve by the BOD and Shareholders’

Revised in

accordance with

~105~


Amendments

Meeting, and submitted to each supervisor. If any

director expresses objection with a record or written

statement Epistar should submit such objections to each

supervisor.

When Epistar has independent directors in place, Epistar


















When Epistar has Audit Committee in place, Paragraph 3

Meeting, and submitted to each supervisor. If any

director expresses objection with a record or written

statement Epistar should submit such objections to each

supervisor.

When Epistar has independent directors in place, Epistar


















When Epistar has Audit Committee in place, Paragraph 3

partial

amendment of

the “Regulations

Governing the

Acquisition and

Disposal of

Assets by Public

Companies”

issued by

Financial

Supervisory

Commission.

~106~


Amendments

Article 14 in Securities and Exchange Act should be

applicable to the supervisors in Audit Committee and

Paragraph 3 Article 14-4 of Securities and Exchange Act

should be applicable to the independent directors of

Audit Committee.

Related party or subsidiary, as defined in the Regulations

Governing the Preparation of Financial Reports by

Securities Issuers.

For the calculation of 10 percent of total assets under

these procedures, the total assets stated in the most recent

parent company only financial report or individual

financial report prepared under the Regulations


Securities Issuers shall be used.

Article 14 in Securities and Exchange Act should be

applicable to the supervisors in Audit Committee and

Paragraph 3 Article 14-4 of Securities and Exchange Act

should be applicable to the independent directors of

Audit Committee.

Related party or subsidiary, as defined in the Regulations


Securities Issuers.

For the calculation of 10 percent of total assets under

these procedures, the total assets stated in the most recent

parent company only financial report or individual

financial report prepared under the Regulations


Securities Issuers shall be used.

The definitions of the procedures for domestic and

overseas stock exchanges or OTC's business premises are

as follows:

1. Domestic stock exchanges refer to Taiwan Stock

Exchange Co., Ltd.; foreign stock exchanges refer to

any securities trading market organized and managed

by the securities authorities of the country where it is

located.

~107~


Amendments

2. The OTC's business premises: the domestic OTC's

business premises, which refers to the place where the

securities dealer's designed a special counters used for

trading according to the Administrative Measures for

the Sale and Purchase of Securities by Securities

Dealers' Business Offices; the foreign OTC's business

premises refers to the financial institution business

premises managed by foreign securities authority and

conducting securities business.

~108~

Attachment 9

Epistar Corporation Procedures for Loaning Funds to Other Parties



Article 2 Targets

Based on Article 15 of Company Act, except for

the following situations, the funding of Epistar

should not loan to any shareholders or others：

(1) The companies or firms having business

relationship with Epistar.

(2) Companies or firms with the demand for

short-term financing. The so-called

“short-term” refers to one year or one business

cycle (whichever is longer). The so-called

“financing” amount refers to the cumulative

balance of Epistar’s short-term funding for

financing.

Epistar may loan to the foreign companies of

which Epistar directly or indirectly holds shares

for 100% voting rights and the restriction of

Section 1 Article 4 shall not be applicable. But the

amount limits of loans shall not exceed forty

percent (40%) of Epistar's net worth, and the

Targets

Based on Article 15 of Company Act, except for

the following situations, the funding of Epistar

should not loan to any shareholders or others：

(1) The companies or firms having business

relationship with Epistar.

(2) Companies or firms with the demand for

short-term financing. The so-called

“short-term” refers to one year or one business

cycle (whichever is longer). The so-called

“financing” amount refers to the cumulative

balance of Epistar’s short-term funding for

financing.

Foreign companies of which Epistar directly or

indirectly holds shares for 100% voting rights may

loan to each other, or the foreign companies of

which Epistar directly or indirectly holds shares

for 100% voting rights may loan to Epistar and the

restriction of paragraph 1 Article 4 shall not be

Revised in accordance with

“Regulations Governing

Loaning of Funds and Making

of Endorsements/ Guarantees

by Public Companies.”

~109~


duration of loans shall not be longer than three

years.

applicable. But the total amount of loans and

limits of loans to individual shall not exceed forty

percent (40%) of Epistar's net worth, and the

duration of loans shall not be longer than three

years.

The person in charge of the company who violates

the provisions of paragraph 1 shall be responsible

for the return of the loan jointly and severally with

the borrower; if the company suffers damage, the

person in charge shall also be liable for damages.

Article 5 Procedures of loans

(1) Crediting

Before Epistar proceeds with any loans to

others, the creditor is required to provide all

necessary data and financial information

related to the company in order to apply for

financing from Epistar. After accepting the

application, Epistar’s Treasury Department

should investigate and evaluate the company’s

core business, financial status, solvency, credit,

profitability and usage for loans in order to file

a report.

(2) Security

When conducting any loans to others, Epistar

Procedures of loans

(1) Crediting

Before Epistar proceeds with any loans to

others, the creditor is required to provide all

necessary data and financial information

related to the company in order to apply for

financing from Epistar. After accepting the

application, Epistar’s Treasury Department

should investigate and evaluate the company’s

core business, financial status, solvency,

credit, profitability and usage for loans in

order to file a report.

(2) Security

When conducting any loans to others, Epistar






~110~


should request guaranteed checks equivalent to

the loan amount and mortgage of movable

properties or real estate when necessary. The

BOD may take reference from the crediting

report of Treasury Department for the above

guarantee if the creditor provides financial

status qualified as a guarantee for individual or

corporate creditor. For those providing

guarantee for corporations, Epistar should pay

attention to whether there is any clause related

to guarantee in the Articles of Incorporation.

(3) Delegation Scope

Before approving any loan to others, Epistar’s

Treasury Department should submit the

application to President and BOD for approval

based on the evaluation result of Paragraph 1,

Article 5. Any loan between Epistar and any

subsidiary, or between different subsidiaries,

should be submitted to the BOD for

deliberation and approval based on the

evaluation result of Paragraph 1, Article 5. The

Chairman is authorized to approve the same

creditor within the delegated credit line

decided by the BOD for any loan (installment

should request guaranteed checks equivalent

to the loan amount and mortgage of movable

properties or real estate when necessary. The

BOD may take reference from the crediting

report of Treasury Department for the above

guarantee if the creditor provides financial

status qualified as a guarantee for individual

or corporate creditor. For those providing

guarantee for corporations, Epistar should pay

attention to whether there is any clause related

to guarantee in the Articles of Incorporation.

(3) Delegation Scope

Before approving any loan to others, Epistar’s

Treasury Department should submit the

application to President and BOD for approval

based on the evaluation result of Paragraph 1,

Article 5. Any loan between Epistar and any

subsidiary, or between different subsidiaries,

should be submitted to the BOD for

deliberation and approval based on the

evaluation result of Paragraph 1, Article 5. The

Chairman is authorized to approve the same

creditor within the delegated credit line

decided by the BOD for any loan (installment

~111~


or revolving) under 1-year tenure. The credit

line refers to the authorized line for any single

enterprise under 10% net worth of Epistar or

the subsidiary based on the most recent

financial statement. On top of that, the credit

line should be subject to the regulations

stipulated in Paragraph 2, Article 2.

Where Epistar has established the position of

Independent Directors, when it submits ithe

matters related to loaning funds to other parties

for discussion by the Board of Directors,

Epistar should consider each independent

director’s comments for any loan to others and

record the definitive comments for agreement

or objection into meeting notes of BOD.

or revolving) under 1-year tenure. The credit

line refers to the authorized line for any single

enterprise under 10% net worth of Epistar or

the subsidiary based on the most recent

financial statement. On top of that, the credit

line should be subject to the regulations

stipulated in Paragraph 2, Article 2.


Independent Directors, when it submits ithe

matters related to loaning funds to other

parties for discussion by the Board of

Directors, Epistar should consider each

independent director’s comments for any loan

to others. If an independent director has

objections or reservations, it should be stated

in the meeting minutes of the board of

directors.

Article 9 Procedures of announcement and declaration

1. Epistar should announce and declare the

endorsement/guarantee balance as of the last

month end for Epistar and subsidiaries prior to

the 10th of each month.

2. When Epistar’s loan balance meets any of the

following standards, Epistar is required to make

Procedures of announcement and declaration





2. When Epistar’s loan balance meets any of the

following standards, Epistar is required to make






~112~


promulgation within 2 days after the occurrence

date (inclusive):

(1) The loan balance of Epistar and subsidiaries

to others achieve more than 20% of Epistar’s

net worth according to the most recent



to a single enterprise achieve more than 10%

of Epistar’s net worth according to the most

recent financial statements.

(3) The new loans of fund of Epistar or

subsidiaries is more than NT$10 millions

and above 2% of Epistar’s net worth

according to the most recent financial

statements.

If any subsidiary of Epistar is not a listed

company and the subsidiary meets any of the

requirements as above-stated in Sub-section 3,

Epistar should make declaration on behalf of

the subsidiary.

“The occurrence date” in Section 2 means the

contract signing date, the payment date, the

Board of Directors resolution date, or other

dates that can confirm transaction parties and

promulgation within 2 days after the occurrence

date (inclusive):


to others achieve more than 20% of Epistar’s




to a single enterprise achieve more than 10%

of Epistar’s net worth according to the most


(3) The new loans of fund of Epistar or

subsidiaries is more than NT$10 millions

and above 2% of Epistar’s net worth

according to the most recent financial

statements.



requirements as above-stated in section 3 in the

preceding paragraph, Epistar should make

declaration on behalf of the subsidiary.

“The occurrence date” in paragraph 2 means the



dates that can confirm the counterparties of loan

~113~


monetary amounts, whichever date is earlier.

3. Epistar should evaluate or recognize the

contingent loss of the loans and disclose related

information in financial reports, offering related

data to CPAs for necessary audit procedures.

and monetary amounts, whichever date is

earlier.


contingent loss of the loans and disclose related

information in financial reports, offering related

data to CPAs for necessary audit procedures.

Article 14 This SOP, after approved by BOD, should be

submitted to each supervisor and obtain the

approval from shareholders in Shareholders’

Meeting. If any director expresses objection on a

record or a written statement, Epistar should

submit such objection to each supervisor and

Shareholders’ Meeting for discussion. Any related

amendments should follow the same rules.


Independent Directors, when it submits the

operational procedures related to loaning funds to

other parties for discussion by the Board of


independent director’s comment on the

endorsement/guarantee application and record any

definitive comments of agreement or objection

(and the reasons for objection) in the meeting

notes of the BOD.

This SOP, after approved by BOD, should be

submitted to each supervisor and obtain the

approval from shareholders in Shareholders’

Meeting. If any director expresses objection on a

record or a written statement, Epistar should

submit such objection to each supervisor and

Shareholders’ Meeting for discussion. Any related

amendments should follow the same rules.



operational procedures related to loaning funds to

other parties for discussion by the Board of



endorsement/guarantee application. If an

independent director has objections or

reservations, it should be stated in the meeting

minutes of the board of directors.






~114~


Where Epistar has established an Audit

Committee, the Audit Committee shall exercise its

functional duties under Article 14-5 of the

Securities and Exchange Act. The provisions

regarding supervisors in this regulation shall apply

mutatis mutandis to the Audit Committee.

Where Epistar has established an Audit

Committee, the Audit Committee shall exercise its

functional duties under Article 14-5 of the

Securities and Exchange Act. The provisions

regarding supervisors in this regulation shall apply

mutatis mutandis to the Audit Committee.

If the company establish an audit committee, the

setting or amendments of this procedures shall be

approved by majority members of the audit

committee and submit to the board of directors for

resolution. The second provision shall not apply.

If the setting or amendments is not approved by

one-half of all members of the Audit Committee, it

may be resolved by more than two-thirds of all

directors, and the resolutions of the Audit

Committee shall be stated in the meeting minutes

of the Board of Directors.

All members of the Audit Committee referred to in

paragraph 5 and all directors referred to in the

preceding paragraph shall be counted as actual

incumbents.

~115~

Attachment 10

Epistar Corporation Procedures for Endorsements and Guarantees



Article 5 Announcement requirements





2. When Epistar’s endorsement/ guarantee

balance meets any of the following standards,

Epistar is required to make promulgation

within 2 days after the occurrence date

(inclusive):

(1) The endorsement/guarantee balance of

Epistar and subsidiaries achieve more than

50% of Epistar’s net worth according to

the most recent financial statements.


Epistar and subsidiaries to a single

enterprise achieve more than 20% of

Epistar’s net worth according to the most


Announcement requirements





2. When Epistar’s endorsement/ guarantee

balance meets any of the following standards,

Epistar is required to make promulgation

within 2 days after the occurrence date

(inclusive):


Epistar and subsidiaries achieve more than

50% of Epistar’s net worth according to

the most recent financial statements.


Epistar and subsidiaries to a single

enterprise achieve more than 20% of



Revised in accordance

with “Regulations

Governing Loaning of

Funds and Making of

Endorsements/

Guarantees by Public

Companies.”

~116~



Epistar and subsidiaries is more than

NT$10 million, and the total of such

endorsement/guarantee, a long-term nature

investment and loan balance total is more

than 30% of Epistar’s net worth according

to the most recent financial statements.

(4) The new endorsement/guarantee amount

of Epistar or subsidiaries is more than

NT$30 million and above 5% of Epistar’s






dates that the transaction parties and monetary

amounts could be confirmed, whichever date

is earlier.



requirements provided by subparagraph 4 in

Section 2, Epistar should make declaration on


Epistar and subsidiaries is more than

NT$10 million, and the total of such

endorsement/guarantee, the investment of

book value of the loan by equity method

and loan balance total is more than 30% of



(4) The new endorsement/guarantee amount

of Epistar or subsidiaries is more than

NT$30 million and above 5% of Epistar’s






dates that the endorsement/guarantee parties

and monetary amounts could be confirmed,

whichever date is earlier.



requirements provided by subparagraph 4 in

Section 2, Epistar should make declaration on

~117~


behalf of the subsidiary.


contingent loss of the endorsement/guarantee

and disclose related information in financial

reports, offering related data to CPAs for

necessary audit procedures.

The so-called “most recent financial statements”

refer to the financial statements audited or

reviewed by CPAs.

behalf of the subsidiary.


contingent loss of the endorsement/guarantee

and disclose related information in financial

reports, offering related data to CPAs for

necessary audit procedures.

The so-called “most recent financial statements”

refer to the financial statements audited or

reviewed by CPAs.

Article 6 Procedures of endorsement/guarantee

The responsible unit should submit a petition in

regards with any endorsement/ guarantee, stating

the targets, rationales and amount. After approved

by the Treasury Department, President and

Chairman, the petition must be submitted to the

BOD for deliberation and approval. However, the

BOD may delegate Chairman to approve

applications under a certain facility and report to

the BOD for recognition afterwards. It should also

be reported to the Shareholders’ Meeting for any

follow-up updates.

Before confirming endorsement/ guarantee for

any subsidiary, by which Epistar holds more than

Procedures of endorsement/guarantee

The responsible unit should submit a petition in

regards with any endorsement/ guarantee, stating

the targets, rationales and amount. After approved

by the Treasury Department, President and

Chairman, the petition must be submitted to the

BOD for deliberation and approval. However, the

BOD may delegate Chairman to approve

applications under a certain facility and report to

the BOD for recognition afterwards.

Before confirming endorsement/ guarantee for

any subsidiary, by which Epistar holds more than


with “Regulations


Funds and Making of

Endorsements/


Companies.”

~118~


90% shares via voting rights directly or indirectly

subject to Paragraph 2 in Article 3, the application

of such endorsement/ guarantee should be

submitted to the BOD for deliberation and

approval. However, this rule does not apply to any

company by which Epistar holds 100% share via

voting rights.

90% shares via voting rights directly or indirectly

subject to Paragraph 2 in Article 3, the application

of such endorsement/ guarantee should be

submitted to the BOD for deliberation and

approval. However, this rule does not apply to any

company by which Epistar holds 100% share via

voting rights.

Article 8 Decision making and authorization level

1. Any endorsement/guarantee requires the

approval from BOD and process according to

normal procedures. However, in line with

business demands, the BOD may delegate the

chairman for approval to process based on

special procedures within 50% limit and

compliant with Article 4. And such cases must

be submitted to the BOD for recognition

afterwards. The implementation updates of

such endorsement/guarantee within each

business year, and any amendment thereto,

should be submitted to Shareholders’ Meeting

of the following year for reference.

2. In case of business demand and any necessary

request to exceed the liability facilities

Decision making and authorization level

1. Any endorsement/guarantee requires the

approval from BOD and process according to

normal procedures. However, in line with

business demands, the BOD may delegate the

chairman for approval to process based on

special procedures within 50% limit and

compliant with Article 4. And such cases must

be submitted to the BOD for recognition

afterwards.

2. In case of business demand and any necessary

request to exceed the liability facilities


with “Regulations


Funds and Making of

Endorsements/


Companies.”

~119~


stipulated in Article 4, Epistar should follow

normal procedure and require the BOD’

approval to request the directors’ signatures

on joint guarantee for the possible loss

incurred from such exceeding. And Epistar

should amend the procedures and report to

Shareholders’ Meeting for recognition

afterwards. In the case of objection from the

shareholders in Shareholders’ Meeting,

Epistar should draft a plan to cancel the

facilities exceeding the limit within a certain

period of time.

3. Where Epistar has established the position of


matters of endorsements/ guarantees for

discussion by the Board of Directors, Epistar

should consider each independent director’s

comment on the endorsement/guarantee

application and record any definitive

comments of agreement or objection (and the

reasons for objection) in the meeting notes of

the BOD.

stipulated in Article 4, Epistar should follow

normal procedure and require the BOD’

approval to request the directors’ signatures

on joint guarantee for the possible loss

incurred from such exceeding. And Epistar

should amend the procedures and report to

Shareholders’ Meeting for recognition

afterwards. In the case of objection from the

shareholders in Shareholders’ Meeting,

Epistar should draft a plan to cancel the

facilities exceeding the limit within a certain

period of time.

3. Where Epistar has established the position of


matters of endorsements/ guarantees for

discussion by the Board of Directors, Epistar

should consider each independent director’s

comment on the endorsement/guarantee

application. If an independent director has

objections or reservations, it should be stated

in the meeting minutes of the board of

directors.

~120~


Article 14 This SOP, after approved by BOD, should be

submitted to each supervisor and approved by

shareholders in Shareholders’ Meeting. If any

director expresses objection on a record or a

written statement, Epistar should submit such

objection to each supervisor and Shareholders’

Meeting for discussion. Any related amendments

should follow the same rules.



operational procedures of endorsements/

guarantees for discussion by the Board of



endorsement/guarantee application and record any

definitive comments of agreement or objection

(and the reasons for objection) in the meeting

notes of the BOD.

This SOP, after approved by BOD, should be

submitted to each supervisor and approved by

shareholders in Shareholders’ Meeting. If any

director expresses objection on a record or a

written statement, Epistar should submit such

objection to each supervisor and Shareholders’

Meeting for discussion. Any related amendments

should follow the same rules.



operational procedures of endorsements/

guarantees for discussion by the Board of



endorsement/guarantee application. If an

independent director has objections or

reservations, it should be stated in the meeting

minutes of the board of directors.

If the company sets up an audit committee and

sets or amends the operating procedures, it shall

be approved by majority of members of the audit

committee and submit to the board of directors for

resolution. The second provision shall not apply.


with “Regulations


Funds and Making of

Endorsements/


Companies.”

~121~


If the preceding paragraph is not approved by

majority of the Audit Committee, it may be

resolved by more than two-thirds of all directors,

and the resolutions of the Audit Committee shall

be stated in the meeting minutes of the Board of

Directors.

All members of the Audit Committee referred to

in the third paragraph and all directors referred to

in the preceding paragraph shall be counted as

actual incumbents.

~122~

Attachment 11

EPISTAR CORPORATION List of releasing the newly elected directors from non-competition restrictions

Name Positions in Other Companies Engage Business Place of

establishment

Relationship between the Company

and the Competitive Entities

Biing-Jye Lee The director of Epicrystal

Corporation (ChangZhou)

Ltd.

Production and sales of

Light-emitting diode epi

wafers and chips.

China To increase the penetration rate of LED products in

various application markets, EPISTAR deploy LED

industrial cooperation strategies from upstream to

downstream and further expand the OEM products

and customer base by combining the production

capacity and technical advantages of both

companies ; the joint venture company founded with

strategic partners as listed in left column who may be

involved in the same or similar businesses to

aforesaid joint venture companies of EPISTAR;

Nevertheless, it will not have a major impact on

EPISTAR due to Strategic Partners relationship.

The director of Kaistar

Lighting (Xiamen) Co., Ltd.



wafers, chips, packages

and modules.

China

The director of FormoLight

Technologies, Inc.

LED display system and

solution provider.

Taiwan

The Chairman of Unikorn

Semiconductor Corporation

III-V Semiconductor

Foundry business.

Taiwan

(Continued)

~123~


establishment



Chih-Yuan Chen The director of Nan Ya

Photonics Inc.

LED lighting

applications.

Taiwan To increase the penetration rate of LED products in



downstream; the joint venture company founded

with strategic partners as listed in left column who

may be involved in the same or similar businesses to




(Continued)

~124~


establishment



Nan-Yang Wu The director of EDISON Opto

Corporation

The manufacturer and

sales of LED packaging.

Taiwan Director Nan-Yang Wu is a senior deputy GM of

Yi-Far holding system; To increase the penetration

rate of LED products in various application markets,

EPISTAR deploy LED industrial cooperation

strategies from upstream to downstream; the joint

venture company founded with strategic partners as

listed in left column who may be involved in the

same or similar businesses to aforesaid joint venture

companies of EPISTAR; Nevertheless, it will not

have a major impact on EPISTAR due to Strategic

Partners relationship.

The director of ProLight Opto

Technology Corporation

The manufacturer and

sales of LED packaging.

Taiwan

The director of Wafer Works

Corporation

Semiconductor / IC

Manufacturing (Silicon

Wafer supplier for

Semiconductor)

Taiwan

The director of GaN Ventures

Co., Limited

Investment & sales of

electronic components.

Hong Kong

The director of GV

Semiconductor Inc.

Research and design of

Semiconductors and

seller of technology

components.

America

The director of APT

Electronics Co Ltd.

R&D, production, sell of

Light emitting diode

(LED) and Lighting

system.

China

(Continued)

~125~


establishment



Chin-Yung Fan The director of Luxlite

(Shenzhen) Corporation

Limited

Sales of Light-emitting

diode chips.

China To increase the penetration rate of LED products in



downstream; the joint venture company founded

with strategic partners as listed in left column who

may be involved in the same or similar businesses to




The director of LEDOLUX

Sp. Zo. O.


Light-emitting diode for

lighting products

Poland

The director of Jiangsu

Canyang Optoelectronics Ltd.



wafers and chips.

China

The director of Te Opto

Corporation



wafers and chips.

Taiwan

(End)

epistar corporation 2019 annual general shareholders

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