Chapter I General Principles
Article 1
The Procedures for Endorsements and Guarantees (hereinafter “the Procedures”) of China Steel Corporation (hereinafter “the Corporation”) are adopted in accordance with the provisions of “Regulations Governing Loaning of Funds and Making of Endorsements and Guarantees by Public Companies” regulated by the Financial Supervisory Commission (hereinafter “FSC”).
Article 2
The term "endorsements/guarantees" used here in the Procedures refers to the followings:
(1) Factorings of Accounts Receivables: Where the Corporation makes endorsements for promissory notes it acquires for business purposes, and the notes are thereby purchased by bills finance companies at the agreed discount rate.
(2) “Guaranty” as defined under Section 24,
Part II “Obligations” of the Civil Code. Any creation by the Corporation or its subsidiary as defined in Article 3-1 of a pledge or mortgage on its chattel or real property as security for the loans of another company shall also comply with the Procedures.
Article 2-1
Terms in the Procedures are defined as follows:
1. The term "announce and report" refers to the process of entering data to the information reporting website designated by the FSC.
2. The term “date of occurrence” refers to the date of contract signing, date of payment, dates of boards of directors resolutions, or other date that can confirm the counterparty and monetary amount of the transaction, whichever date is earlier.
3. The term “subsidiary" shall be as determined under the Regulations Governing the Preparation of Financial Reports by Securities Issuers.
4. The term "net worth of the Corporation" refers to the latest balance sheet equity attributable to the Corporation under the Regulations Governing the Preparation of Financial Reports by Securities Issuers.
Article 3
The Corporation may make endorsements and guarantees for the following companies:
1. A company to which the
Corporation factors its accounts receivables is subject to the bill finance company, and the amount shall not exceed that of factoring account receivables resulted from the Corporation’s credit sales.
2. The Corporation directly and indirectly holds more than 50 % of the voting shares in a company. However, the percentage of endorsements and guarantees shall not exceed the Corporation’s shareholding percentage in the company.
Where the Corporation fulfills its contractual obligations by providing mutual endorsements and guarantees for another company in the same industry or joint buildersfor purposes of undertaking a construction project, or where shareholders make endorsements and guarantees for their jointly invested company in proportion to their shareholding percentages, such endorsements and guarantees may be made free of the restriction of the preceding paragraph. However, the Corporation shall not make endorsements or guarantees for other shareholders that should be liable for their own.
Where the Corporation indirectly invests in the invested company through a wholly-owned subsidiary, the Corporationmay make endorsements/guarantees in proportion to the shareholding percentage that the wholly-owned subsidiary holds in the invested company.
Article 3-1
Companies in which the Company holds, directly or indirectly, 90% or more of the voting shares may make endorsements/guarantees for each other, and shall submit the proposed endorsement/guarantee to the Company’s board of directors for a resolution. The amount of endorsements/guarantees may not exceed 10% of the net worth of the Company.
This restriction shall not apply to endorsements/guarantees made between companies in which the Company holds, directly or indirectly, 100% of the voting shares.
Article 5
The total amount for endorsements/guarantees provided by the Corporation is limited to 40 % of its net wortht; the amount of endorsements/guarantees provided by the Corporation for any individual entity is limited to 30 % of its net worth.
The aggregate amount for endorsements/guarantees provided by the Corporation and its subsidiaries shall not exceed 50 % of its net worth. Unless otherwise provided in Article 3-1 of the Procedures, the aggregate amount for endorsements/guarantees provided by the Corporation and its subsidiaries for any individual company is limited to 30% of its net worth.
Article 6
The Company and its subsidiaries as defined in Article 3-1 shall evaluate the following matters before make any endorsement/guarantee:
(1) The necessityand reasonableness of the endorsement/guarantee.
(2) Credit status and risk assessment of the entity for which the endorsement/guarantee is made.
(3) The impact on the Corporation’s operating risks, financial condition and shareholders' equity.
(4) Whether collateral and appraisal of the collateral value must be obtained or not.
Article 6-1
For circumstances in which an entity for which the Company makes any endorsement/guarantee is a subsidiary whose net worth is lower than half of its paid-in capital, relevant follow-up monitoring and control measures shall be expressly prescribed to keep any potential risk under control.
In the case of a subsidiary with shares having no par value or a par value other than NT$10, for the paid-in capital in the calculation of the preceding paragraph, the sum of the share capital plus paid-in capital in excess of par shall be substituted.
Article 7
Before making an endorsement/guarantee for others, the Company and its subsidiaries as defined in Article 3-1 shall carefully evaluate whether the endorsement/guarantee is in compliance with theProcedures and other regulations promulgated by the FSC. The Corporation may make an endorsement/guarantee only after the evaluation results pursuant to Article 6 have been submitted to and adopted by the meeting of Board of Directors, or approved by Chairman of the Board who is authorized by the Board of Directors to grant endorsements/guarantees within a specific limit, and then subsequently submitted tothe next meeting of Board of Directors for verification.
When the meeting of Board of Directors resolves or verifies endorsements/guarantees for others in accordance with the preceding paragraph, it shall take each Independent Director’s opinion into full consideration; his/her specific opinion of assent or dissent andreason for dissent shall be included in the minutes of the meeting of Board of Directors.
Article 8
The Corporation shall use an authorized chop ratified by the meeting of Board of Directors as the dedicated chop for factoring the Corporation’s accounts receivables, and the chop shall be kept in the custody of Manager of the Cash Management Section, Finance Department of the Corporation; the Corporation shall use the corporate chop with register of the Ministry of Economic Affairs as the dedicated chop for endorsements/guarantees, and the chop shall be kept in the custody of Manager of Documents & Archives Management Section, Secretariat Department of the Corporation. Unless the prescribed procedures are followed under the passage of the meeting of Board of Directors or the approval of Chairman of the Board, the corporate chop shall not be used to seal.
When making a guarantee for a foreign company, the Corporation shall have the guarantee letter signed by Chairman of the Board or the person authorized by the meeting of Board of Directors.
Article 9
The Finance Department of the Corporation shall prepare a memorandum book for its endorsement/guarantee activities and record in detail the following information: the entity for which the endorsement/guarantee is made, the amount, the date of passage by the meeting of Board of Directors orthe date of approval by Chairman of the Board, the date of the endorsement/guaranteemade, and the matters to be carefully evaluated under, Article 6 of the Procedures.
Article 10
The Corporation’s internal auditors shall audit the Procedures and the implementation thereof at least on a quarterly basis and prepare written records accordingly. If any material violation is found, the internal auditors shall write reports to notify each Supervisor immediately.
Article 11
Where an entity for which an endorsement/guarantee is made does not meet the requirements of the Procedures or the amount for the endorsement/guarantee exceeds the limit as a result of changes of condition, the Corporation shall conclude an improvement plan, submit it to eachSupervisor, as well as complete the improvements as planned schedules.
Chapter IIIInformation Disclosure
Article 12
The Corporation shall declare its and its subsidiaries' last month's balance of endorsements/guarantees before the 10th day of each month in the FSC’s specific format.
When the Corporation's balance of endorsements/guarantees reaches one of levels as specified in Paragraph 1, Article 25 of Regulations Governing Loaning of Funds and Making of Endorsements/Guarantees by Public Companies as regulated by the FSC, the Corporation shall declare such an event in the FSC’s specific format within two days commencing immediately commencing immediately from the date of occurrence..
If any subsidiary not belong to a domestic public company has any matters required to declare pursuant to FSC's regulations, the Corporation shall declare on behalf of the subsidiary..
Article 13
The Corporation shall evaluate or record the contingent losses for endorsements/guarantees , and shall adequately disclose information on endorsements/guarantees in its financial reports and provide certified public accountants with relevant information for implementation of necessary audit procedures.
Chapter IVAdditional Provisions
Article 14
Where a subsidiary of the Corporation intends to make an endorsement/guarantee for others, and such subsidiary is a domestic public company, it shall formulate its own Procedures for Endorsements and Guarantees in compliance with these regulations promulgated by the FSC. While the subsidiary of the Corporation is not a domestic public company, it shall formulateits own Procedures for Endorsements and Guarantees in accordance with the Procedures and implement accordingly.
Article 15
Directors and Supervisors of any subsidiary designated by the Corporation shall monitor and supervise the Procedures of the subsidiary to ensure that all procedures stipulated for endorsements/guarantees are indeed followed.
In evaluating the appropriateness of procedures for endorsements/guarantees, a subsidiary that is a domestic public company should provide the Corporation an internal audit report rendered by its internal auditors; a subsidiary that is not a domestic public company will be audited in a timely manner, either by internal auditors of the Corporation, or by external auditors engaged by the subsidiary as required by the Corporation.
Article 16
In the event where material losses are caused by the Corporation's executives and employees in violation of the Procedures, punishments will be imposed on them depending on the severity of their violation in accordance with the rules of “ Reward and Punishment” in Charter 2, Part 4 of Personnel Management System of the Corporation.
Article 17
Any matters not set forth in the Procedures for Endorsements and Guarantees shall be dealt in accordance with related laws or regulations promulgated by the FSC.
Article 18
The Procedures, after passage by the meeting of Board of Directors, shall be submitted to each Supervisor and to the shareholders' meeting for approval. Provided that any Director expresses dissent which is contained in the minutes or a written statement, the dissenting opinion shall be submitted to each Supervisor and to shareholders' meeting for discussion. The same as above said in this Article shall apply to any amendment to the Procedures.
Procedures for Acquisition or Disposal of Assets of China Steel Corporation
Chapter IGeneral Principles
Article 1
The Procedures for Acquisition or Disposal of Assets (hereinafter “the Procedures”) of China Steel Corporation (hereinafter “the Corporation”) are adopted in accordance with the provisions of the Article 6, Paragraph 1 of “Regulations Governing the Acquisition and Disposal of Assets by Public Companies” (hereinafter “the Regulations”) regulated by Financial Supervisory Commission, Executive Yuan (hereinafter “FSC”).
Article 2
The term "assets" as used in the Procedures includes the following:
1. Investments in stocks, government bonds,corporate bonds, financial bonds, securities representing interest in a fund, depositary receipts, call (put) warrants, beneficial interest securities, and asset-backed securities.
2. Real property and other fixed assets.
3. Memberships.
4. Patents, copyrights, trademarks, franchiserights, and other intangible assets.
5. Derivatives.
6. Assets acquired or disposed of in connectionwith mergers, demergers, acquisitions, ortransfer of shares in accordance with acts of law
7. Other major assets.
Article 3
Terms used in the Procedures are defined as follows:
1. "Derivatives": Forward contracts, optionscontracts, futures contracts, leverage contracts, swap contracts and compound contracts combining the above products, whose value is derived from the products of assets, interest rates, foreign exchange rates, indexes or other interests. The term "forward contracts" does not include insurance contracts, performance contracts, after-sales service contracts, long-term leasing contracts, or long-term purchase (sales) agreements.
2. "Assets acquired or disposed through mergers, demergers, acquisitions, or transfer of shares in accordance with acts of law": Refers to assets acquired or disposed through mergers, demergers, or acquisitions conducted under the Business Mergers and Acquisitions Act, Financial Holding Company Act, Financial Institution Merger Act or other acts, or to transfer of shares from any other company through issuance of new shares of its own as the consideration thereof (hereinafter "transfer of shares") under Article 156, paragraph 6 of the Company Act.
3. "Related party": As defined in Statement of Financial Accounting Standards No. 6 published by the ROC Accounting Research and Development Foundation (hereinafter "ARDF").
4. "Subsidiary": As defined in Statements of Financial Accounting Standards Nos. 5 and 7 published by the ARDF.
5. "Professional appraiser": Refers to a real property appraiser or any other person duly authorized by an act of law to engage in the value appraisal of real property or other fixed assets.
6. "Date of occurrence": Refers to the date of contract signing, date of payment, date of consignment trade, date of transfer, dates of resolutions of the meeting of Boards of Directors, or other date that can confirm the counterpart and monetary amount of the transaction, whichever date is earlier; provided, for investment for which approval of the Competent Authority is required, the earlier of the above date or the date of receipt of approval by the Competent Authority shall apply.
7. "Mainland area investment": Refers to investments in China 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.
8. “Within one year”: Refers to one year preceding the actual date of acquisition or disposal of the assets or occurrence of the transaction.
9. “Transaction amount”: Refers to the transaction amount calculated using one of the following methods. However, in calculation of threshold of the transaction amount to determine whether the Company shall obtain appraisal reports or certified public accountant’s opinions, or whether items need to be approved by the Board of Directors and recognized by the Supervisors, items duly conducted in accordance with the Procedures need not be counted toward the transaction amount. In calculation of the threshold to determine whether the Company shall publicly announce and report the relevant information of the transaction, items duly announced in accordance with the Procedures need not be counted toward the transaction amount.
(1)The amount of any individual transaction.
(2)The cumulative transaction amount of acquisitions and disposals of the same type of underlying asset with the same trading counterparty within one year.
(3)The cumulative transaction amount of real property acquisitions and disposals (cumulative acquisitions and disposals, respectively) within the same development project within one year.
(4)The cumulative transaction amount of acquisitions and disposals (cumulative acquisitions and disposals, respectively) of the same securities within one year.
Article 4
Professional appraisers and their officers, certified public accounts, attorneys, and securities underwriters that provide public companies with appraisal reports, certified public accountant's opinions, attorney's opinions, or underwriter's opinions shall not be a related party of any party involved in the transaction.
Article 4-1
Where a public company's acquisition or disposal of assets is subject to the approval of the meeting of Board of Directors under theProcedures or other acts or regulations, each Independent Director's opinion shall be fully considered.
Where an Independent Director or Director objects or expresses reservations about any matter (including in a written statement), it shall be recorded in the minutes of the meeting of Board of Directors, and then the minutes shall be submittedto each Supervisor.
Chapter 2Disposal Procedures
Section IAcquisitions or Disposals of Assets
Article 5
The evaluation procedures for acquisition or disposal of assets of the Corporation, unless provided otherwise, shall be conducted in accordance with provisions regulated in the “Procurement and Payment Cycle” and “Investment and Finance Cycle” in the internal control systems of the Corporation.
Article 6
The Corporation’s acquisition or disposal of assets should be approved by the levels of authority according to the following provisions which are implemented by the first echelon units in charge, depending the nature of assets in accordance with respective control operations of the relevant trading cycles in internal control system, unless such control operations provided otherwise:
1. Investments of current and non-current financial instruments:
(1) Investments for business purposes and disposal of their equities shall be submitted to the meeting of Board of Directors for approval.
(2) Executives are fully authorized to acquire or dispose the low-risk investments of financial instruments for the purposes of financial management, including government bonds, corporate bonds, financial bonds, domestic and foreign bond-type funds, domestic and foreign currency-type funds, negotiable deposit certificates, shortterm commercial papers and banker's acceptances acquired or disposed.
(3) For other investments in financial instruments, the amount of each transaction orthe cumulative amount of transactions within one year reaching NT$200 millionor more shall be submitted to the meeting of Board of Directors for approval. Transactionsnot reaching NT$200 million are fully handled by the authorized Chairman of the Board orexecutives and are subsequently reported to the next meeting ofBoard of Directors for approval and future reference.
2. Real estate and other fixed assets:
(1) Acquisition: Except as otherwise stipulated in Article 8, Paragraph 1, Subparagraph 1 and Article 13, those already included in the annual operating budget shall be approved by the President or his authorized executives for handling; those not originally included in the budget orthe originally budget to be insufficient shall be approved by the President or his authorized executives for handling after agreed by the meeting of Board of Directors or its authorizedlevels in charge for reallocating portions from other existing budget categories or increasing the budget.
(2) Disposal: Except as otherwise stipulated in Article 8, Paragraph 1, Subparagraph 1, disposal of assets already completedpursuant to the procedures of obsolescence shall be approved by the President or his authorized executives for handling; disposal of assets not completed pursuant to the procedures of obsolescence shall be approved by the President or his authorized levels for handling after agreed by the meeting of Board of Directors or its authorized levels in charge.
3. Other assets: Shall be approved by the President, except as otherwise stipulated in the Company Act, the Business Mergers and Acquisitions Act, other acts, the Corporation’s Articles of Incorporation, and Sections 3 and 4 of this Chapter.
Article 7
The total amount of investments and other equity interests, the total amount of investment in securities, the limit amounts for individual securities, and the total amount of non-business-purpose real estates invested by the Corporation and its subsidiaries are stipulated below respectively, except that the subsidiaries are domestic public companies and have their own Provisions of the Procedures for Acquisition or Disposal of Assets:
1. The total amount of the Corporation’s investment shall not exceed 180% of the Corporation’s paid-in capital. Of the total amount of the Corporation’s investment, non-steel related investment shall not exceed 20% of the Corporation’s paid-in capital; the total amount of investments in other securities shall not exceed 40% of the Corporation’s paid-in capital, and investments in individual securities, except those in wholly-owned subsidiaries, shall not exceed 40% of the Corporation’s paid-in capital.
2. The total amount of investment for each subsidiary whose primary business is not investment,transportation or trading,shall not exceed 100% of the subsidiary’spaid-in capital; the total amount invested in other securities shall not exceed 40% of the subsidiary’spaid-in capital, and investments in individual securities shall not exceed 40% of the subsidiary’spaid-in capital.
The total amount of investment for each subsidiary whose primary business is investment , transportation or trading,shall not exceed 250% of the subsidiary's paid-in capital, the total amount invested in other securities shall not exceed 100% of the subsidiary’s paid-in capital, and investments in individual securities shall not exceed, either.
3. The total amount of real estate acquired by the Corporation and each subsidiaryfor non-business purposes shall not exceed 10% of each company's paid-in capital.
Securities as referred to in the preceding paragraphs do not include low-risk investments acquired or disposed of for financial management purposes in Article 6, Subparagraph 1, Item 2.
Article 8
In acquiring or disposing real property or other fixed assets where the transaction amount reaches NT$300 million or more, the Corporation, unless transacting with a government agency, commissioning others to build on its own land, commissioning others to build on rented land, or acquiring or disposing machinery equipment for operating use, shall obtain an appraisal report before the date of occurrence of the event from a professional appraiser and shall further comply with the following provisions:
1. Where due to special circumstances a limited
price, specified price, or special pricemust be given as a reference basis for the transaction price, the transaction shall be submitted for approval in advance by the meeting of Board of Directors, and the same procedure shall be followed for any future changes to the terms and conditions of the transaction.
2. Where the transaction amount is NT$1 billion or more, appraisals from two or more professional appraisers shall be obtained.
3. Where the professional appraiser’s appraisalresults exhibit any one of the following circumstances, unless all the appraisal results for the assets to be acquired are higher than the transaction amount, or all the appraisal results for the assets to be disposed of are lower than the transaction amount,, a certified public accountant shall be engaged to perform the appraisal in accordance with the provisions of Statement of Auditing Standards No. 20 published by the ARDF and express a specific opinion regarding the reasons for the discrepancy and the fairness of the transaction price:
(1) Where the discrepancy between theappraisal result and the transaction amount reaches 20 %or more of the transaction amount.
(2) Where the discrepancy between the appraisal results of two or more professional appraisers reaches 10 % or more of the transaction amount.
4.No more than three months may pass between the date of the appraisal report issued by a professional appraiser and the contract execution date; provided, where the publicly announced current value for the same period is used and not more than six months have elapsed, an opinion may still be issued by the original professional appraiser. While dealing with the acquisition or disposal of real property or other fixed assets not contained in the preceding paragraph, the first-echelon units in charge acquiring or disposing of real property should refer to the declared current value, assessed value and the actual transaction prices of neighboring real properties for setting a transaction price; and the first-echelon units in charge acquiring or disposing of other fixed assetsshould refer to past transaction prices experienced by the Corporation or those in the same industry for setting a transaction price, as a reference for levels in authorityto estimate the transaction price.
Article 9
The Corporation acquiring or disposing of securities shall , before the date of occurrence of the event,obtain the most recent financial statement from the issuing company, audited and attested by a certified public accountant, for reference in appraising the transaction price. In any of the following circumstances where the transaction amount reaches NT$300 million or more, the Corporation shall engage a certified public accountant to render an opinion on the reasonableness of the transaction price before the date of occurrence of the event. If the certified public accountant needs to use the report of an expert as evidence, he shall do so in accordance with the provisions of Statement of Auditing Standards No. 20 published by the ARDF.. However, securities with quoted prices in an active market or covered by other regulations of the FSC are not subject to this restriction.
Exceptions in the preceding paragraph refer to the following:
Securities acquired by means of cash subscriptions when establishing a company by founders or byofferingpublic shares.
Acquisition of securities issued by the object company based on par valuein order to increase cash capital by relevant laws.
Acquisition of securities issued by wholly-owned subsidiary for the purpose of increasing cash capital.
Listed, traded and emerging securities traded in stock exchanges or by brokers.
Government bonds, or bonds traded with repurchase or resell agreements.
Domestic and overseas funds.
Listed(or over-the-counter) stocks acquired or disposed in accordance with rules promulgated by a stock exchange or securities market for tender offer or auction of listed(or over-the-counter) stocks.
Securities acquired from subscriptions of cash capital increase made by public offering, where the securities are not obtained through private placement.
Fund applications made prior to the establishment of the funds in accordance with Article 11, Paragraph 1 of the Securities Investment Trust and Consulting Act and the order numbered Chin Cheng Four Tzu No. 0930005249 issued by the FSC on November 1, 2004.
For the subscription or repurchase of domestic private equity funds, if the investment strategy has already been indicated in the trust contract, except for securities on credit and securities of uncovered interest arbitrage related product positions being held,the remainder will be within the same range of investment as for public offering funds.
Other situations regulated by the FSC.
Article 10
Where the Corporation acquires or disposes of memberships or intangible assets and the transaction amount reaches NT$300 million or more, the Corporation shall engage a certified public accountant to render an opinion on the reasonableness of the transaction price before the date of occurrence of the event; ; the CPA shall comply with the provisions of Statement of Auditing Standards No. 20 published by the ARDF.
Article 11
Where the Corporation acquires or disposes of assets through court auction procedures, the evidentiary documentation issued by the court may be substituted for the appraisal report or CPA opinion.
Section II
Article 12
When engaging in any acquisition or disposal of assets from or to a related party, the Corporation shall ensure that the reasonableness of the transaction terms is appraised, and other relevant matters are carried out, in compliance with the provisions of the preceding Section and this Section. When judging whether a trading counterparty is a related party, in addition to legal formalities, the substance of the relationship shall also be considered.
Article 13
When the Corporation intends to acquire or dispose of real property from or to a related party, or when it intends to acquire or dispose of assets other than real property from or to a related party and the transaction amount reaches NT$300 million or more, the Corporation it may not proceed to enter into a transaction contract or make a payment until the following matters have been approved by the Board of Directors and recognized by the supervisors:
1.The purpose, necessity and anticipated benefit of the acquisition or disposal of the asset
2. The reason for choosing the related party as atrading counterparty.
3. With respect to the acquisition of real property from a related party, information regarding appraisal of the reasonableness of the preliminary
4. The date and price at which the related party originally acquired the real property, the original trading counterparty, and that tradingcounterparty's relationship to the Corporation and the related party.
5. Monthly cash flow forecasts for the year commencing from the anticipated month ofsigning of the contract, and evaluation of the necessity of the transaction, and reasonableness of the funds utilization.
6. An appraisal report from a professional appraiser or a certified public accountant's opinion obtained in compliance with the preceding article.
7. Restrictive covenants and other important stipulations associated with the transaction. When the Corporation acquires or disposes of machinery and equipment for business use from or to its subsidiaries, the Board of Directors may delegate the Chairman to decide such matters when the transaction is within a certain amount and have the decisions subsequently submitted to and ratified by the next board meeting.
Article 14
Where the Corporation acquires a real property from a related party, the reasonableness of the costs of the transaction shall be evaluated in accordance with the following methodology:
1.Based on the transaction price at the time that the related party’s initially acquired such, plus the required interests on funds and the costs that the Buyer must bear in accordance with the law.The cost of the required interests on funds as referred to herein shall be calculated on the basis of the weighted average interest rates for funds borrowed in the year that the assets were purchased from the related party, but shall not exceed the maximum interest rates for lending by non-financial sector as announced by the Ministry of Finance.
2.Where the related party has pledged the property to a financial institution as collateral, the total collateral value of the property as evaluated by the financial institution; however, the cumulative value of loans actually made for the property in question must be 70% or more of the total collateral value, and more than one year must have passed since the loans have been made.However, this shall not be applicable where the financial institution and a party to the transaction are mutually related parties.
Where the land and the building(s) located thereon are purchased together, the transaction costs for the land and the building(s) may be evaluated separately in accordance with any of the methods set forth in the foregoing paragraph.
Where the Corporation acquires real property from a related party, in addition to evaluating the cost of the real property pursuant to the stipulations of paragraphs 1 and 2, accountants must also be engaged to audit such a cost and to express their specific opinions.
Where one of the following conditions is true, the stipulations of the three foregoing paragraphs shall not be applicable:
1.Where the related party acquired the real property through inheritance or as a gift.
2.Where the date on which the related party entered into the agreement to acquire the real property precedes the date of the contract for the current transaction by more than five years.
Where real property was acquired through
entering into a joint development contract with a related party.
Article 15
When the results of the Corporation’s appraisal conducted in accordance with the provisions of Paragraphs 1 and2 of the preceding Article are uniformly lower than the transaction price, the matter shall be handled in compliance with the provisions of Article 16. However, where the following circumstances exist, objective evidence has been submitted and specific opinions on reasonableness have been obtained from a professional real property appraiser and a CPA, this restriction shall not apply:
1.Where the related party acquired undeveloped land or leased land for development, it may submit proof of compliance with one of the following conditions:
(1) Where undeveloped land is appraised in accordance with the means in the preceding Article, and structures according to the related party's construction cost plus reasonable construction profit are valued in excess of the actual transaction price. The "Reasonable construction profit" shall be deemed the average gross operating profit margin of the related party's construction division over the most recent three years or the gross profit margin for the construction industry for the most recent period as announced by the Ministry of Finance,whichever is lower.
(2) Completed transactions by unrelated parties within the preceding year involving other floors of the same property or neighboring or closely valued parcels of land, where the land area and transaction terms are similar after calculation of reasonable price discrepancies in floor or area land prices in accordance with standard property market ractices.
(3) Completed leasing transactions by unrelated parties for other floors of the same property from within the preceding year, where the transaction terms are similar after calculation of reasonable price discrepancies among floors in accordance with standard property leasing market practices.
2. Where the Corporation acquires real property from a related party and provides evidence that the terms of the transaction are similar to the terms of transactions completed for the acquisition of neighboring or closely valued parcels of land of a similar size by unrelated parties within the preceding year.
Completed transactions for neighboring or closely valued parcels of land in the preceding paragraph in principle refers to parcels on the same or an adjacent block and within a distance of no more than 500 meters or parcels close in publicly announced current value; transaction for similarly sized parcels in principle refers to transactions completed by unrelated parties for parcels with a land area of no less than 50 %of the property in the planned transaction.
Article 16
Where the Corporation acquires real property from a related party and the results of appraisals conducted in accordance with the provisions of Articles 14 and15 are uniformly lower than the transaction price, the following steps shall be taken:
1. A special reserve shall be set aside in accordance with the provisions of Article 41, paragraph 1 of the Securities and Exchange Act against the difference between the real property transaction price and the appraised cost, and may not be distributed or used for capital increase or issuance of bonus shares.
2. Supervisors shall comply with the provisions of Article 218 of the Company Act.
3. Actions taken pursuant to subparagraphs 1 and 2 shall be reported to a shareholders’ meeting, and the details of the transaction shall be disclosed in the annual report and any investment prospectus.
When the Corporation has set aside a special reserve under the preceding paragraph, it may not utilize the special reserve until it has recognized a loss on decline in market value of the assets it purchased at a premium, or the assets have been disposed of, or adequate compensation has been made, or the status quo ante has been restored, or there is other evidence confirming that there was nothing unreasonable about the transaction, and the FSC has given its consent.
When the Corporation obtains real property from a related party, it shall also comply with the provisions of the preceding two paragraphs if there is other evidence indicating that the acquisition was not an arms length transaction.
Section III
Engaging in Derivatives Trading
Article 17
The Corporation shall take the following principles and strategies for risk management and auditing matters when engaging in derivatives trading:
1. Trading principles and strategies:
(1) Operating or hedging strategies:
Trade in derivative instruments engaged in by the Corporation is limited to non-trade purposes, and under the principle of hedging against risk. All related organizations must confirm their operations in accordance with the authorized regulations, and attention must be paid to risk management and to making periodic assessments.
(2) Types of derivatives that may be traded: At present the Corporation’s trade in derivative instruments is limited to hedge trades which fit in with the needs of our business, such as foreign exchange futures, currency swaps and interest rate swaps.
(3) Segregation of duties:
Finance Department: The finance
department is the operational unit engaging in the trade of derivative instruments, and needs to be aware of the Corporation’s overall position and financial trends here and abroad at all times. It engages in trades at the appropriate times within the authorized monetary limits, and keeps abreast of cash flow for trades that have already occurred as a means of lowering future delivery risks. The Finance Department must submit all trading certificates and related information to the Accounting Department to be entered into the accounts.
Accounting Department: The
Accounting Department must keep accounts based on all certificates submitted by the Finance Department according to generally accepted accounting principles.
(4) Performance evaluation: Following the settlement of accounts at the end of each month, the Cost Department must draw up a statement with the profits and losses for the period created from the actual settlement of trading in derivatives for said period as recorded in the accounts, and provide it to the Vice President of the Finance Division for performance evaluation.
(5) Total value of contracts and upper limit for losses:
The maximum total value of foreign
exchange futures and currency swap contracts must equal the net position of estimated trades of the Corporation in long-term and short-term foreign exchange. The maximum total value of interest rate swap contracts must equal the total value of long-term debt for the Corporation.
When trading in derivative
instruments, the maximum losses for all contracts or for individual contract must not exceed 20% of the value of all contracts or of individual contract.
2. Risk management measures:
(1)The following risks should be considered within the scope of risk management, and should be avoided:Credit risks: The risk of losses
incurred when the counterpart of the trade does not execute the terms of contracts.
Market risks: The risk of potential
losses incurred by market price fluctuations in derivate instruments in the future.
Liquidity risks: The risks associated
with the depth of trades on the commodities market and realization at appropriate market prices, and the risks associated with the delivery of fund allocations in the future.
Operational risks: Operational risks
caused by negligence, insufficient supervision, fraud and improper controls and management.
Legal risks: Risks associated with
losses caused by insufficiently detailed contracts, incorrect authorizations, and varying interpretations of legal stipulations.
(2)Trading personnel and those involved in confirmation and delivery are appointed by the Finance Department, but can not simultaneously hold positions in both areas. Trading personnel must submit trade certificates or contracts (orders) to confirmation personnel, who verify them with the banks and then notify delivery personnel. Trade certificates or contracts (orders) are also submitted to the Accounting Department, who must periodically verify or confirm them with the bank.
(3)Authorized monetary limits and levels:Authorized monetary limits are given as follows based on the status of the Corporation’s operations and risk position
:
Authorized Level |
Single trade amount |
Daily Total Amount |
President or Executive Vice President |
US$20 million or equivalent |
US$50 million or equivalent |
Vice President of Finance Division |
US$10 million or equivalent |
US$25 million or equivalent |
General Manager of Finance Department |
US$5 million or equivalent |
US$12.5 million or equivalent |
Situations processed according to authorizations should be recorded in the most recent business reports of the Finance Division for the Board of Directors.
(4)Periodic evaluations and abnormal situation management:
Hedge trades engaged for business purposes must be evaluated at least twice per month. Evaluation reports must be submitted to the Vice President of the Finance Division.
The Vice President of the Finance Division must perform periodic evaluations of the performance of derivative instruments in order to ascertain whether they fit in with operational strategies, whether the risks are within the permitted range, whether current risk management procedures are appropriate, and whether they are being performed according to regulations. The results of the periodic evaluations must be recorded in the most recent business reports of the Finance Division for the Board of Directors.
The Vice President of the Finance Division must monitor and supervise the status of trading and losses. Corresponding measures must be taken in the event of an abnormal situation where market price evaluation reports exceed the upper limit for losses, and a report must be made immediately for the Board of Directors. An independent director must attend the meeting of the Board of Directors and provide his/her opinion.
3. Internal audit system;
Internal auditors must periodically remain aware of the appropriateness of internal controls, examine the adherence by the trading department to the regulations for derivatives trading every month and make an audit report. Any major violation of the regulations shall be reported in writing to all supervisors.
Article 18
When engaging in derivatives trading, the Corporation shall establish a log book in which details of the types and amounts of derivatives trading engaged in, approval dates of the meetings of Board of Directors, and the matters required to be carefully evaluated under Sub-item 1, Sub-item 2, Item 4, Subparagraph 2 of Article 17 shall be recorded in detail in the log book.
Section IV Mergers, Demergers,. Acquisitions, and Transfer of Shares
Article 19
When conducting a merger, demerger, acquisition, or transfer of shares, prior to convening a meeting of Board of Directors to resolve on the matter, the Corporation shall engage a CPA, attorney, or securities underwriter to give an opinion on the reasonableness of the share exchange ratio, acquisition price, or distribution of cash or other property to shareholders, and submit it to the meeting of Board of Directors for deliberation and passage.
Article 20
When participating in a merger, demerger, acquisition, or transfer of shares, the Corporation shall prepare a public report to shareholders prior to the shareholders’meeting detailing important contractual content and matters relevant to the merger, demerger, or acquisition,along with the expert opinion referred to in the preceding Article when sending shareholders notification of the shareholders’ meeting for reference in deciding whether to approve the merger, demerger, or acquisition. Provided that a provision of another act exempts the Corporation from convening a shareholders’ meeting to approve the merger, demerger, or acquisition, the above said in this Article shall not apply.
Article 21
Every person participating in or being privy to the plan for merger, demerger, acquisition, or transfer of shares shall issue a written undertaking of confidentiality and may not disclose the content of the plan prior to public disclosure of the information and may not trade, in their own name or under the name of another person, in any stock or other equity securities of any company related to the plan for merger, demerger, acquisition, or transfer of shares.
Article 21-1
When participating in a merger, demerger, or acquisition, the Corporation shall prepare a full written record of the following information and retain it for five years for reference:
1. Basic identification data for personnel:Including the occupational titles, names, and national ID numbers (or passport numbers in the case of foreign nationals) of all persons involved in the planning or implementation of any merger, demerger, acquisition, or transfer of another Company's shares prior to disclosure of the information.
2. Dates of material events: Including the dates of signing of any letter of intent or memorandum of understanding, the hiring of a financial or legal advisor, the signing of a contract, and the convening of meetings of the Board of Directors.
3. Important documents and minutes: Including merger, demerger, acquisition, and share transfer plans, any letter of intent or memorandum of understanding, material contracts, and minutes of meetings of the Board of Directors.
The Corporation shall, within two days commencing immediately from the date of passage of a resolution by the Board of Directors, report (in the prescribed format and via the Internet-based information system) the information set out in subparagraphs 1 and 2 of the preceding paragraph to the FSC for recordation.
Article 21-2
When participating in a merger, demerger, acquisition, or transfer of shares, the Corporation may not arbitrarily alter the share exchange ratio or acquisition price unless under the below-listed circumstances, and shall stipulate the circumstances permitting alteration in the contract for the merger, demerger, acquisition, or transfer of shares:
1. Cash capital increase, issuance of convertible corporate bonds, or the issuance of bonus shares, issuance of corporate bonds with warrants, preferred shares with warrants, stock warrants, or other equity based securities.
2. An action, such as a disposal of major assets, that affects the Corporation’s financial operations.
3. An event, such as a major disaster or major change in technology, that affects shareholder equity or share price.
4. An adjustment where any of the companies participating in the merger, demerger, acquisition, or transfer of shares from another company, buys back treasury stocks by law.
5. An increase or decrease in the number of entities or companies participating in the merger, demerger, acquisition, or transfer of shares.
6. Other terms/conditions that the contract stipulates may be altered and that have been publicly disclosed.
Article 21-3
The contract for participation by the Corporation in a merger, demerger, acquisition, or of shares shall record the rights and obligations of the companies participating in the merger, demerger, acquisition, or transfer of shares, and shall also record the following:
1. Handling of breach of contract.
2. Principles for the handling of equity-type securities previously issued or treasury stock previously bought back by any company that is extinguished in a merger or that is demerged.
3.The amount of treasury stock which participating companies are permitted under law to buy back after the record date of calculation of the share exchange ratio, and the principles for handling thereof.
4.The manner of handling changes in the number of participating entities or companies.
5.Preliminary progress schedule for plan execution, and anticipated completion date.
6.Scheduled date for convening the legally mandated shareholders’ meeting if the plan exceeds the deadline without completion, and relevant procedures.
Article 21-4
In addition to the stipulations of this Section, the Corporation’s participation in a merger, demerger, acquisition or share transfer must be conducted in adherence with the provisions of Paragraph 2 of Article 23, Paragraphs 1, 2, and 5 of Article 24, Article 28 and Article 29 of the Regulations.
Chapter IIIPublic Disclosure of Information
Article 22
Under any of the following circumstances, the Corporation acquiring or disposing of assets shall publicly announce and report the relevant information on the FSC's designated Website in the appropriate format as prescribed by regulations within two days commencing immediately from the date of occurrence of the fact:
1. Acquisition or disposal of real property from or to a related party, or acquisition or disposal of assets other than real property from or to a related party where the transaction amount reaches NT$300 million or more; provided, this shall not apply to trading of government bonds or bonds under repurchase and resale agreements.
2. Merger, demerger, acquisition, or transfer of shares.
2. Loss from derivatives trading reaching the limit on aggregate loss or loss on individual contract set out in Sub-item 2, Item 5, Sub-paragraph 1 of Article 17 of the Procedures.
4.Where an asset transaction other than any of those referred to in the preceding three subparagraphs or investment in the mainland area reaches NT$300 million; provided, this shall not apply to the following circumstances:
(1) Trading of government bonds.
(2)Trading of bonds under repurchase/resale agreements.
(3)Where the type of asset acquired or disposed is equipment/machinery for operating use, the trading counterparty is not a related party, and the transaction amount is less than NT$500 million.
(4)Where land is acquired under an arrangement for commissioned construction on self-owned land, engaging others to build on rented land, joint construction and allocation of housing units, joint construction and allocation of ownership percentages, or joint construction and separate sale, and the amount the Corporation expects to invest in the transaction is less than NT$500 million.
The Corporation shall compile monthly reports on the status of derivatives trading engaged in up to the end of the preceding month by itself and any subsidiary that is not domestic public company and enter the information in the prescribed format into the information reporting website designated by the FSC by the tenth day of each month.
When the Corporation at the time of public announcement makes an error or omission in an item required by regulations to be publicly announced and so is required to correct it, all the items shall be again publicly announced and reported in their entirety.
In acquiring or disposing of assets, the Corporation shall keep all relevant contracts, meeting minutes, log books, appraisal reports and CPA, attorney, and securities underwriter opinions at the Corporation’s headquarter, where they shall be retained for five years except where another act provides otherwise
Article 23
Where any of the following circumstances occurs with respect to a transaction that the Corporation has already publicly announced and reported in accordance with the following paragraph, a public report of relevant information shall be made on the information reporting website designated by the FSC within two days commencing immediately from the date of occurrence of the fact:
1. Change, termination, or rescission of a contract signed in regard to the original transaction.
2. The merger, demerger, acquisition, or transfer of shares is not completed by the scheduled date set forth in the contract.
3. Change to the originally publicly announced and reported information.
Chapter IVAdditional Provisions
Article 24
Any subsidiary that is a domestic public company shall enact and implement procedures in accordance with “Regulations Governing Acquisition and Disposal of Assets by Public Companies” regulated by the FSC. Any subsidiary that is not a domestic public company shall enact and implement procedures for the acquisition and disposal of assets in reference to the Procedures.
Article 25
Information required to be reported in accordance with the provisions of Chapter III on acquisition and disposal of assets by any subsidiary that is not itself a domestic public company shall be reported by the Corporation.
Article 26
Directors and Supervisors of any subsidiary designated by the Corporation shall monitor and supervise the procedures of subsidiary to ensure that all procedures stipulated for the acquisition and disposal of assets are indeed followed.
In evaluating the appropriateness of procedures for acquisition or disposal of assets, a subsidiary that is a domestic public company should provide the Corporation an internal audit report rendered by its internal auditors; a subsidiary that is not a domestic public company shall be audited in a timely manner, either by an internal auditor of the Corporation, or by an external auditor engaged by the subsidiary as required by the Corporation.
Article 27
Punishments will be imposed on the Corporation’s officers and employees depending on the severity of such persons’ violation of the Procedures in accordance with the rules in “Reward and Punishment”, Chapter 2, Part 4 of the Corporation’s provisions of personnel management.
Article 28
Any matters not set forth in the Procedures shall be dealt in accordance with related laws and regulations.
Article 29
After passage by the Board of Directors, the Corporation shall submit the Procedures to each supervisor and for approval by the shareholders' meeting. The same shall apply to any amendment to the Procedures.
Procedures for Loaning of Funds to Other Parties
Article 1
The Procedures for Loaning of Funds (hereinafter “the Procedures”) of China Steel Corporation (hereinafter “the Corporation”) are adopted in accordance with the provisions of “Regulations Governing Loaning of Funds and Making of Endorsements and Guarantees by Public Companies” regulated by the Financial Supervisory Commission (hereinafter “FSC”). The Corporation shall adopt the Procedures when extending loans to others, and for any matter not set forth in the Procedures, relevant laws and the regulations promulgated by the FSC shall prevail.
Article 2
Terms in the Procedures are defined as follows:
1. The term "announce and report" refers to the process of entering data to the information reporting website designated by the FSC.
2. The term “date of occurrence” refers to the date of contract signing, date of payment, dates of boards of directors resolutions, or other date that can confirm the counterparty and monetary amount of the transaction, whichever date is earlier.
3. The term “subsidiary" shall be as determined under the Regulations Governing the Preparation of Financial Reports by Securities Issuers.
4. The term "net worth of the Corporation" refers to the latest balance sheet equity attributable to the Corporation under the Regulations Governing the Preparation of Financial Reports by Securities Issuers.
Article 3
The entity that the Corporation is extending loans to shall be limited to “subordinate company ” as defined in Article 369-2 of the Company Act and shall be limited to entities with short term financing necessity.
“Short term” in the preceding paragraph refers to a period of one year or less.
Article 4
The total amount of loans made by the Corporation shall not exceed 20 % of the Corporation’s net worth and the amount of loans made by the Corporation for any individual subordinate company shall not exceed 10 % of the Corporation’s net worth.
Article 5
The term of each loan extended by the Corporation shall not exceed one year. The interest rate shall be determined on the basis of the Corporation’s funding costs at the time of loaning and adjusted accordingly, but in no event shall it be lower than the Corporation’s average short-term funding rate within the latest 30 days.
Article 6
In extending loans to other parties, the application and evaluation process are as follows:
1. The borrower, when applying for a loan from the Corporation, shall submit an application form describing in details the loan amount requested, term, purpose and collateral. The Corporation may request additional information when necessary.
2. Finance Department, after evaluating the following information, shall then propose the borrowing counterparty, line of credit, duration, calculation of interest and other conditions of the loan:
(1) The necessity and reasonableness of extending loans.
(2) Credit status and risk assessment of the borrower.
(3) The impact on the Corporation’s operating risks, financial position and shareholder’s equity.
(4) The necessity of obtaining collateral and appraisal of the value thereof.
Article 7
Before making a loan of funds to others, the Corporation shall carefully evaluate whether the loan is in compliance with the relevant provisions in the Company Act, the Procedures, and the provisions regulated by the FSC, and then submit, together with the result of the evaluation made as described in paragraph 2 of the preceding article and conditions of loans, to the board of directors for a resolution and approval. The board of directors may authorize the chairman, for a specific borrowing counterparty, within a certain monetary limit resolved by the board of directors, and within a period not to exceed one year, to give loans in installments or to make a revolving credit line available for the counterparty to draw down.
When extending loans to others in compliance with the preceding paragraph, the board of directors shall take into full consideration each independent director’s opinions; independent directors’ opinions specifically expressing assent or dissent and the reasons for dissent shall be included in the minutes of the board directors’ meeting.
Article 8
Follow-up controlling measures and procedures for collecting overdue loans are as follows:
1. After the loan is granted, the Finance Department shall follow and trace financial status, business and credit status of the borrower. In case any collateral is furnished, attention shall be paid to changes of the value of the collateral. In case of material change in the value of the collateral, the Finance Department shall propose proper measures to cope with to the chairman for approval, and report to the most recent board directors’ meeting.
2. Upon the occurrence of the following conditions, the borrower shall not draw down the line of credit, and all undue loans are deemed to be due. The Finance Department shall negotiate with the borrower about its repayment plan, and adopt security measures to ensure creditor’s right of the Corporation:
(1) the borrower fails to repay the principals and interests
(2) the Finance Department notifies the borrower exempt from providing collateral to provide collateral within a timeframe due to the borrower’s deteriorating credit status or financial position within the loaning period, and the borrower fails to do so.
3. When the loan is due, the borrower shall repay the principals and interests. If the borrower could not repay the loan on time and request for extension of the term , the borrower shall propose such request in advance. After the Finance Department confirms that none of the conditions in the preceding paragraph exists in the borrower’s case, the Finance Department may propose the extension of loan repayment to the chairman for approval, and the total duration of the loan shall not exceed one year.
Article 9
The Finance Department shall prepare a memorandum book for its fund-loaning activities and truthfully record the following information: borrower, amount, date of approval by the board of directors, dates of approvals by the chairman to loans given in installments to a specific borrowing counterparty, lending/borrowing date, and matters to be carefully evaluated under paragraph 1 of Article 7.
The Corporation’s internal auditors shall audit the Procedures for Loaning Funds to Other Parties and the implementation thereof no less frequently than monthly and prepare written records accordingly. The internal auditors shall promptly notify all the supervisors in writing of any material violation found.
Article 10
If, as a result of a change in circumstances, the borrowing counterparty to which the loan is extended does not meet the requirements of the Procedures, or the loan balance exceeds the limit, the Finance Department shall propose rectification plans and submit them to the chairman for approval. After the rectification plans are approved, such plans shall be submitted to all the supervisors, and shall be carried out according to the timeframe set out in the plan.
Article 11
The Corporation shall announce and report the loan balances in accordance with the provisions by the FSC.
Article 12
The Corporation shall evaluate the status of its loans of funds and reserve sufficient allowance for bad debts, and shall adequately disclose relevant information in its financial reports and provide certified public accountants with relevant information for implementation of necessary auditing procedures.
Article 13
Where a subsidiary of the Corporation intends to extend a loan to others, and such subsidiary is a domestic public company, it shall formulate its own Procedures for Loaning of Funds to Other Parties in compliance with the regulations promulgated by the FSC. While the subsidiary of the Corporation is not a domestic public company, it shall formulate its own Procedures for Loaning of Funds to Other Parties in accordance with the Procedures and implement accordingly.
Article 14
Directors and Supervisors of any subsidiary designated by the Corporation shall monitor and supervise the subsidiary to ensure that all loans extended by the subsidiary shall comply with the provisions stipulated by the subsidiary for procedures of loaning of funds to other parties of the subsidiary.
In evaluating the appropriateness of procedures for loaning of funds to other parties of the subsidiary, which is a domestic public company, such subsidiary should provide the Corporation with an internal audit report rendered by its internal auditors; For any subsidiary that is not a domestic public company, the Corporation may designate internal auditors or request the subsidiary to appoint external auditors to audit the subsidiary in a timely manner.
Article 15
In the event where material losses are caused by the Corporation's executives and personnel in charge in violation of the Procedures, punishments will be imposed depending on the severity of their violation in accordance with the rules of “ Reward and Punishment” in Charter 2, Part 4 of Personnel Management System of the Corporation.
Article 16
The Procedures, after passage by the board directors’ meeting, shall be submitted to each Supervisor and to the shareholders' meeting for approval. Provided that any Director expresses dissent which is contained in the minutes or a written statement, the dissenting opinion shall be submitted to each Supervisor and to shareholders' meeting for discussion. The same as above said in this Article shall apply to any amendment to the Procedures.