CSBC Corporation, Taiwan

Operational Procedures for Endorsement or Guarantee for Others

Promulgated under the Document of (92)-Chuan-Cai-Zih-Di No. 09203038 dated Jul. 25, 2003

Amended under the Document of (97)-Chuan-Cai-Zih-Di No. 0970001444 dated Apr. 1, 2008

Amended under the Document of (98)-Chuan-Cai-Zih-Di No. 0980001573 dated Jul. 6, 2009

Amended under the Document of Chuan-Cai-Zih-Di No. 0990001288 dated Jun. 7, 2010

Amended under the Document of Chuan-Cai-Zih-Di No. 1020001053 dated Jun. 28, 2013

Amended under the Document of Chuan-Cai-Zih-Di No. 1030001080 dated Jul. 1, 2014

Point 1 These operational procedures are provided in accordance with the “Guidelines for Lending of Capital, Endorsements and Guarantees by Public Companies” promulgated by the Financial Supervisory Commission, R.O.C. (hereinafter referred to as the “FSC”).

The endorsement or guarantee provided by the CSBC for a third party due to business practices shall follow these Procedures and other applicable laws and regulations.

Point 2 The Endorsement or Guarantee stated in these operational procedures refers to the followings:

1.  Financing endorsement or guarantee, including:

(1) Discounted tickets.

(2) Endorsement or guarantee conducted for the financing purposes of other companies.

(3) Notes issued to non-financial businesses as the guarantee for the financing purposes of the CSBC.

2. Tariff endorsement or guarantee refers to the endorsement or guarantee regarding tariffs conducted by the CSBC or other companies,

3. Other endorsement or guarantee refers to the endorsement or guarantee not applicable to the endorsement or guarantee stated in previous two subparagraphs.

The movable property or real estate provided by the CSBC for the pledge or mortgage setup procedures of the loan guarantees of other companies shall be in accordance with these operational procedures.

Point 3 The net value stated in these operational procedures refers to the owner’s equity of parent companies as stated on the latest balance sheet stipulated in the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

The subsidiaries and parent companies stated in these operational procedures shall be identified in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

The public announcement stated in these operational procedures refers to the input onto the information reporting website designated by the FSC.

The actual date of occurrence stated in these operational procedures refers to the date on which a trade contract is signed, the date of payment, the date on which a resolution is adopted by the board of directors, or any other date which may be adopted to confirm the object and amount of a transaction, whichever is earlier.

Point 4 The CSBC may provide endorsement or guarantee for the following companies:

1.  A company in business relationship with the CSBC;

2.  A company in which the CSBC directly or indirectly owns over 50% of voting shares;

3.  A company that directly or indirectly owns over 50% of voting shares of the CSBC.

The CSBC may provide endorsement or guarantee, of which the amount does not exceed 10% of the net value of the CSBC, for the company in which the CSBC directly or indirectly owns 90% or more of voting shares. However, this rule does not apply to providing endorsement or guarantee for the company in which the CSBC directly or indirectly owns 100% of voting shares. The CSBC may provide endorsement or guarantee without the restrictions stipulated in the two Paragraphs abovementioned provided the CSBC enters into a mutual guarantee agreement with the parties of the same trade or joint builder for the need of construction contracting, or the said endorsement or guarantee is provided by all of the contributing shareholders in proportion to their respective share ratios for the company being invested due to joint investment relationship. However, the CSBC shall not act as a joint guarantor for the part of guarantee borne by a party of the same trade, joint builder, or a shareholder.

The abovementioned contributing shall mean the CSBC’s direct investment or an investment through a company in which the CSBC owns 100% of the voting shares.

Point 5 Amount limit on endorsement or guarantee for a third party

1.  The total amount of endorsement or guarantee provided by the CSBC: Shall be limited to 50% of the CSBC’s net value; however, the total amount of endorsement or guarantee within 5% of the CSBC’s net value may be determined by the chairman upon authorization, with the subsequent confirmation in the next board of directors meeting.

2.  The amount of endorsement or guarantee provided by the CSBC for one enterprise: Shall be limited to 10% of the CSBC’s net value.

3.  The overall amount of endorsement or guarantee provided by CSBC and its subsidiaries: Shall be limited to 50% of the CSBC’s net value.

4.  The overall amount of endorsement or guarantee provided by CSBC and its subsidiaries for one enterprise: Shall be limited to 10% of the CSBC’s net value.

Regarding a company in business relationship with the CSBC, the amount of endorsement or guarantee shall be limited to the transaction amount of business relationship between the two parties in the latest year. The transaction amount of business relationship refers to the amount of purchases or sales between the two parties, whichever is higher.

The CSBC and its subsidiaries defining in the respective regulations and offering an overall endorsement or guarantee over 50% of net value of the CSBC shall explain the necessity and reason in the shareholders’ meeting.

Point 6 Credit investigation

1.  The party that requests endorsement or guarantee to be provided by the CSBC (hereinafter referred to as the “Applicant”) shall submit an application form or official letter with a detailed description of the amount, expiration, purpose, and collateral offered pertaining to the said endorsement or guarantee. The Applicant shall provide basic information and financial information as required for credit investigation tasks.

2.  Application for endorsement or guarantee extension shall be subject to credit investigation principally once per year, and half a year if so required by the circumstance.

3.  An applicant for endorsement or guarantee with sound financial conditions and an annual financial statement certified by a CPA for financing may continue to use an investigation report older than one year but not older than two years, along with the audit report certified by a CPA as a reference, for endorsement or guarantee application.

Point 7 Review and Approval of Endorsement or Guarantee Application

1.  If the credit investigation and review find the applicant of endorsement or guarantee has poor credit and the endorsement or guarantee requested is to be denied, the handler of the said application shall reply to the applicant as soon as possible with the reasons for rejection.

2.  If the credit investigation finds the applicant has good credit and the endorsement or guarantee is applied for justifiable use, the handler of the said application shall propose the conditions of the endorsement or guarantee (including whether or not to obtain a collateral and the assessed value of the collateral) to the chain of command; the chairman of the board shall review the case, and, if approved, present it to the latest meeting of the board of directors for subsequent confirmation.

Point 8 Notice to the Applicant

Upon the approval of an endorsement or guarantee application, the undertaking officer shall notify the applicant by mail or telephone and describe the details of the terms and conditions of the application, including the amount limit, deadline, collateral, and guarantor, and ask the applicant to sign the agreement within the deadline, set the pledge or lien on the collateral, and complete the collateral verification procedure required for the endorsement and guarantee.

Point 9 Agreement Signing and Collateral Verification

An endorsement or guarantee application requires the undertaking officer to confirm the applicable articles for the agreement, followed by the review by the supervisor, before proceeding to the agreement signing procedure.

Point 10 Qualification and Responsibility of a Guarantor

1.  An entity in the same industry that has maintained a business relationship with the CSBC for one year or above, and has no record of action against the CSBC;

2.  No record of delinquency, debt dispute, and poor business reputation;

3.  The guarantor shall be held liable for repaying the debt if the applicant fails to repay its debt.

Point 11 Setting the Right of the Collateral

The applicant applying for a loan with collateral shall provide the collateral and set up the pledge or lien to guarantee the CSBC’s creditor’s right.

Point 12 Insurance

1.  Other than land and securities, all collaterals shall be covered by insurance against fire and all vessels and vehicles shall be covered by comprehensive insurance. The amount of the insurance shall not be lower than the value pledged on the collateral, and the insurance policy shall state that the CSBC is the beneficiary. The name, quantity, storage location, terms and conditions of the insurance and insurance endorsement stated on the insurance policy shall be identical with the original terms and conditions of the CSBC’s endorsement or guarantee. A building that does not yet have an address at the time of setting shall use its land section and land lot number as its address.

2.  The undertaking officer should be aware to notify the applicant to renew the insurance policy prior to the expiration of the insurance.

Point 13 Endorsement or Guarantee

The endorsement or guarantee will be provided if the application has been approved, the applicant has signed the agreement, pledge or lien has been set against the collateral, and the due process has been verified.

The document of guarantee prepared by the CSBC shall be signed by the person authorized by the board of directors in case of the guarantee provided for a foreign company.

Point 14 Cancellation

1.  After endorsement or guarantee has been provided, frequent attention should be paid on the finance, business, and credit status of both the applicant and the guarantor. If collateral is provided, pay attention to any change of its value.

2.  The certificate of creditor’s right, such as a promissory note or IOU, shall be cancelled and returned to the applicant if the applicant completes the cancellation process upon the expiration of the endorsement or guarantee.

Point 15 Document Filing and Safekeeping

After handling an endorsement or guarantee case, the responsible handler shall file the certificate of creditor’s right, such as IOU or promissory note, document of the collateral, insurance policy, and correspondence in an orderly fashion, gather them in a keeper’s bag, mark the content and the name of the customer on the bag, and submit the bag to a supervisor for inspection. If there is no further question, the bag shall be sealed immediately with the seals of the handler and the supervisor affixed on the cross-seam of the bag, registered on the keeper’s logbook, and checked in a depot for safekeeping.

Point 16 Term of Endorsement or Guarantee

The term of an endorsement or guarantee provided shall be limited up to 12 months and may be extended if necessary.

However, the CSBC may cancel the said endorsement or guarantee from time to time if the CSBC’s finance can not sustain due to poor business.

If the opposite party of an endorsement or guarantee is a subsidiary, whose net value worth is lower than half of its own paid-up capital in its latest financial statements, the CSBC shall review such a company for the financial and operational status on a monthly basis and propose improvements, and shall request the said company, if necessary, to increase its cash capital in order to reduce the risk of the endorsement or guarantee.

Point 17 The negotiable instruments and company seals shall be separately kept by dedicated persons; no check may be signed or issued without first going through the due process provided by the CSBC. The said persons shall be appointed by the chairman of the board with the authorization of the board of directors. The seal proprietary to endorsement or guarantee shall be the company seal that is registered with the Ministry of Economic Affairs.

Point 18 Before providing the endorsement or guarantee for others, the CSBC shall evaluate discreetly whether such a provision complies with these operational procedures and submit the evaluation results to the board of directors for resolution and implementation; however, the endorsement or guarantee complying to Subparagraph 1, Paragraph 1 of Point 5 shall be confirmed retrospectively in the next board of directors meeting.

The endorsement or guarantee conducted by the companies of which over 90% of the voting shares are directly and indirectly held by the company in accordance with the regulation stipulated in Paragraph 2 of Point 4 shall be submitted to the company’s board of directors for resolution before the implementation.

However, the endorsement or guarantee conducted by the companies of which over 100% of the voting shares are directly and indirectly held by the company is not limited to this regulation.

While providing the endorsement or guarantee for others, the CSBC shall fully consider the opinions of every independent director and include specific opinions of agreement and disagreement as well as reasons for objection in the minutes of the board of directors.