1. Introduction of Independent Director

Pursuant to Article 14-2 of the amended SEA, a publicly issued company may amend its articles of incorporation to create independent directors within its board. However, the Financial Supervisory Commission ("FSC") may, after considering the scale, shareholding structure and business of a publicly issued company and other circumstance, require such publicly issued company to elect not less than two independent directors or not less than one fifth of the total number of directors as independent directors (whichever is lower). The detailed rules for the mandatory election of independent directors by a publicly issued company as may be requested by the FSC are to be prescribed by the FSC.

Under Article 14-3 of the amended SEA, a publicly issued company that has elected independent directors is required to have certain matters be submitted to its board of directors for approval, which is in line with local practice generally.

2. Introduction of Audit Committee/Supervisor Double-Track System

Pursuant to Article 14-4 of the amended SEA, a publicly issued company shall either establish an audit committee or elect supervisors, provided that the FSC may, after considering the situation of practice, require a publicly issued company to establish an audit committee to replace its supervisors. Given that the audit committee is a completely new system to Taiwanese companies which does not exist in the Taiwan Company Act, the FSC still needs to promulgate detailed provisions. The audit committee of a publicly issued company should be composed by all of its independent directors and one of them should act as the convener of the audit committee, provided that the members of the audit committee should in no event be less than three persons and at least one of its members should have expertise in the fields of accounting or finance. Resolutions of an audit committee should be adopted by a majority of its total members. The scope of the matters that must be submitted to the audit committee of a publicly issued company (if such committee has been established by it) is prescribed under Article 14-5 of the amended SEA.

3. Independence of Directors and the Rules for the Meeting of the Board of Directors

Pursuant to Article 26-3 of the amended SEA, the directors of a publicly issued company should in no event be less than five persons. In addition, unless otherwise approved by the FSC, the representatives designated by a shareholder of a publicly issued company who is a government agency or a legal entity can no longer be permitted to concurrently be elected or act as the director and supervisor of the publicly issued company in accordance with the second paragraph, Article 27 of the Company Act.

Also, for a publicly issued company, unless otherwise approved by the FSC, (a) there should be more than one half of the directors who are not spouse or parents, grand parents, children, grand children, brothers or sisters of other directors; and (b) there should be at least one supervisor who is not spouse or a parent, grand parent, child, grand child, brother or sister of other directors or supervisors.

In the event that the directors/supervisors of a publicly issued company elected in a shareholders' meeting are in violation of the restrictions described in the preceding paragraph, the effectiveness of the election of such directors/supervisors shall be determined in accordance with the following rules:

(i) if such violation is a result of the relationship between or among the directors: the election of such directors with less votes shall be deemed invalid so that there would be no violation of the foregoing restrictions;

(ii) if such violation is a result of the relationship between or among the supervisors: the election of such supervisors with less votes shall be deemed invalid so that there would be no violation of the foregoing restrictions; and

(iii) if such violation is a result of the relationship between or among the supervisors and directors: the election of such supervisors with less votes shall be deemed invalid so that there would be no violation of the foregoing restrictions.

Where the directors/supervisors of a publicly issued company violate the foregoing restrictions after they were elected as directors/supervisors, the rules described in the preceding paragraph regarding the effectiveness of the election shall apply mutatis mutandis for the discharge of such directors/supervisors. If for any reasons certain directors of a publicly issued company were discharged and therefore the board of directors has less than five directors, the succeeding directors shall be elected in the next shareholders' meeting to fill the vacancy, provided that if the number of vacancies on the board of directors of a publicly issued company equals to or exceeds one third of the total number of directors prescribed under its articles of incorporation, an extraordinary shareholders' meeting shall be convened to elect the succeeding directors to fill such vacancies within 60 days after the vacancy is occurred.

In order to strengthen the independency and operation of the board of directors, the amended SEA also requires a publicly issued company to establish the rules governing the meeting of its board of directors. A publicly issued company failing to establish such rules will be subject to a fine imposed by the FSC.

4. Grace Period for the Application of the Requirements regarding Independent Director and Audit Committee

The foregoing amendment regarding (a) the requirements for the election of independent directors or the establishment of an audit committee and (b) the discharge of directors/supervisors due to unpermitted relative relationship as stated in paragraph I.3 above may apply after the expiry of the terms of offices of the current directors/supervisors of a publicly issued company.

Please note that the abovementioned amendment described in this Section I (Corporate Governance) will not be effective until January 1, 2007.

1. Liabilities Regarding the Production of Financial Report

In order to ensure the accuracy of the financial and business information of a publicly issued company, the impartiality of the securities market and the protection of the investors' interests, the chairman, managers and the head of accounting department of a publicly issued company are required to sign or affix his/her seal onto the financial report of the publicly issued company and issue a declaration certifying that the financial report contains no untrue or incorrect information or omission. In addition, the head of the accounting department of a publicly issued company must meet certain qualification requirements and attend relevant on-job training courses continually. The FSC is authorized to prescribe the rules governing the financial report and the qualification requirements and on-job training of the head of the accounting department of a publicly issued company.

Also, under Article 20-1 of the amended SEA, the issuer of securities, the responsible persons of the issuer and the employees of the issuer signing or affixing his/her seal onto the financial report or other financial/business documents shall be liable for the loss of the acquirers, sellers or holders of such securities with good faith arising from the untrue or incorrect information or omission contained in the financial report, provided that the employees of the issuer signing or affixing his/her seal onto the financial report or other financial/business documents (other than the issuer of securities and the responsible persons of the issuer) shall not be liable for such loss if he/she can prove that he/she has exercised appropriate duty of care and has just causes to reasonably believe that there is no untrue or incorrect information or omission in the financial report or financial/business documents. Also, if an accountant certifying a financial report or other financial/business documents conducts any inappropriate behavior or violates or fails to perform relevant obligations when rendering his/her professional service, the accountant shall be liable for any losses incurred therefrom. The employees of the issuer signing or affixing his/her seal onto the financial report or other financial/business documents and the accountant (other than the issuer of securities and the responsible persons of the issuer) shall compensate the relevant losses on a proportional basis in accordance with their respective responsibilities in connection therewith.


2. Simplified Procedure for the Offering of Securities

Pursuant to Article 22 of the amended SEA, the approval procedure for the offering and issuance of securities has been revoked. Therefore, the offering and issuance of securities in the future will no longer be required to apply to the FSC for an approval and can be made after reporting the same to the FSC if without being objected during certain period. However, the review period and other detailed rules for the reporting procedure is to be prescribed by the FSC.

1. Market Manipulation

Under Article 155 of the amended SEA, the following conducts are added as prohibited market manipulation behaviors:

(i) the failure of a securities firm to perform its settlement obligations with the market (i.e., the failure of a securities firm to settle a transaction after the relevant sale/purchase offer reported by such securities firm to the market has been accepted by other trader) is also considered as market manipulation behavior;

(ii) the "wash sales" made by a person intending to create the impression of market activity by continually selling/purchasing certain securities (in his/her name or the name of his/her nominee) to/from other persons associated with him/her through the market is also considered as market manipulation behavior; and

(iii) the provisions against market manipulation should also apply to actions that simultaneously affect multiple shares, shares in certain sectors or the entire market (i.e., the market manipulation behaviors are no longer limited to those directly or indirectly affecting a specific security).

2. Insiders Trading

Under Article 157-1 of the amended SEA, the following measures have been taken for the prevention of insider trading:

(i) the following persons are added as insiders of a publicly issued company:

(a) individuals appointed as representatives by a government agency or legal entity that is elected as director or supervisor of a publicly issued company; and

(b) former directors (including individuals appointed by government agencies or legal entities), supervisors (including individuals appointed by government agencies or legal entities), managers, shareholders holding more than 10% of the company's issued shares and other persons learning the price-sensitive information due to occupational or controlling relationship, for six months after they discharge or lose such status or position,

(ii) a "cooling-off" period after the announcement of price-sensitive information is added: an insider of a publicly issued company can not buy or sell shares of the publicly issued company "within 12 hours after the disclosure of relevant information"; and

(iii) the FSC is authorized to make regulations on matters relating to price-sensitive information, such as the scope of such information and the method of disclosure.>