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1     These Key Points are enacted to implement the goals of promoting national economic development and protecting investors as provided under Article 1 of the Securities and Exchange Law, to ensure the reasonableness of the transaction conditions on which a public company purchases real property from its related party, to protect shareholders' and investors' rights and interests, to set up objective standards for determining irregular transactions, and to unify appropriate handling methods.
2     This is handled in accordance with Item 7 of Paragraph 8 of the Guidelines for Handling Offering and Issuance of Securities by Issuers.
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  1. A company applying for public offering or a public company that purchases real property from a related party shall comply with these Key Points. The term "related party" shall have the same meaning as provided under Paragraph 2 of No. 6 of the ROC Statements of Financial Accounting Standards.
  2. A public company shall, pursuant to Point Four of these Key Points, determine whether its purchase of real property from a related party involves irregular transactions and seek the certifying CPA to issue the opinion that there is no error per its further review, after which the company shall, within two (2) days from the occurrence of the event, report to the Securities and Exchange Commission (hereinafter "SEC"). If the transaction amount reaches the standard that requires a public announcement to be made pursuant to the Key Points for Handling Acquisition or Disposal of Assets by Public Companies, a public announcement shall be made.
  3. If a public company is involved in irregular real property transactions, it shall handle the matter according to Point Five of these Key Points.
  4. If the related party acquires real property by inheritance or gift, or the period between the acquisition contract date and the current transaction's contract date has exceeded five (5) years, the transaction may be exempt from the application of the imputation or evaluation methods provided under Paragraph 1 of Point Four of these Keys Point.
  5. In addition to the determination standards set forth under Point Four of these Key Points, if there are other evidences showing that the real property acquisition transaction involves irregularity, the handling methods under Point Five of these Key Points shall still apply.
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  1. When a public company purchases real property from a related party, if the resulting cost of the real property imputed or evaluated by both the following two methods is less than the transaction price, it shall be deemed that irregular transaction is involved:
    1. Based on the transaction price of the related party plus necessary fund interest, and the cost to be borne by the buyer according to law. The "necessary fund interest cost" shall be imputed based on the weighted average interest rate of the fund borrowed by the company in the year of purchase of the asset; provided that such interest rate shall not be more than the ceiling of loan interest rate of non-financial industry published by the Ministry of Finance.
    2. Based on the total assessed value for loan made by a financial institution if such object has been mortgaged to the financial institution for a loan; provided that the actual aggregate loan extended by the financial institution for the object shall reach 70% or more of the total assessed value and the loan period is more than one year. However, this shall not apply if the financial institution and either party of the transaction are related persons.
      Where both the land and building on the property in question are purchased, the cost of the real property may be reached by respectively imputing or evaluating such land and building based on either method described above.
  2. If a public company is determined to have been involved in irregular transactions pursuant to the preceding Paragraph, but if it has any of the following conditions and provides objective evidence and opinions issued by a real property appraiser and certified public accountant showing that it is not involved in irregular transactions, it shall not be deemed to have been involved in irregular transactions:
    1. Where the related party purchased a piece of undeveloped land for construction, and the evidence provided by the public company meets one of the following conditions:
      1. The total value of the undeveloped land, imputed or evaluated based on the methods referred to in the preceding Paragraph, and the building, calculated based on the related party's construction cost plus reasonable construction profit, is more than the actual transaction price. The said "reasonable construction profit" shall be the average operating gross profit ratio of the construction department of the related party within the last 3 years or the most recent gross profit ratio of the construction industry published by the Ministry of Finance, whichever lower.
      2. The transaction of the other floors/levels on the same property or nearby region consummated in relevant period by non-related parties, the area being similar and the transaction conditions being reasonable after reasonable appraisal of the price difference of floor/level or region in accordance with real property sale transaction practice. The transaction of nearby region shall mean the transaction of the real property on the same or nearby street with a distance of less than 500 meters from the property in question. The "relevant period" shall be within 1 year in principle. The term "similar area" means that in the case of transaction of non-related party, the area is not less than 50% of the property in question.
      3. In the case of lease of non-related party of the other floors/levels of the object in the relevant period, the transaction conditions being reasonable after reasonable appraisal of the price difference of floor/level or region in accordance with real property lease transaction practice.
    2. The public company provides evidence to prove that the transaction conditions for purchase of the real property from the related party correspond with those of other transactions of non-related parties in the neighborhood and relevant period, with a similar area. The transaction in the neighborhood shall mean the transaction of the real property on the same or nearby street with a distance of less than 500 meters from the property in question. The "relevant period" shall be within 1 year in principle. The term "similar area" means that in the case of transaction of non-related party, the area is not less than 50% of the property in question.
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  1. Disposal of Offering and Issuance of Securities
    1. In the case of capital increase with distribution of stock dividend, if it is discovered that irregular transaction is involved and the earnings are inaccurate, in addition to Paragraph 2 of Point Five, the SEC shall handle the matter in accordance with the following principles:
      1. The irregular transaction not causing decrease/loss of earnings or capital reserve: Recapitalization/distribution of stock dividend may be approved on the condition that the information is fully disclosed.
      2. The irregular transaction causing decrease/loss of earnings or capital reserve: If the over-assessed amount can be objectively and reasonably estimated, such portion may be reserved and allocated as special reserve in accordance with Article 41 of the Securities and Exchange Law. The other portion may be recapitalized/ distributed for stock dividend. If the affected amount cannot be reasonably estimated, the recapitalization/distribution of stock dividend shall not be approved.
    2. In the case of capital increase by cash or offering of corporate bonds, if it is discovered that irregularity is involved in the purchase of real property by the public company from the related party, in addition to Paragraph 2 of Point FIVE, the SEC shall handle the matter in accordance with the following principles:
      1. Where the public company offers and issues securities to specified persons, if the irregular real property transaction can be fully known to such specified persons through disclosure of information, the SEC will not make substantive examination and will approve the offering.
      2. Where the public company offers and issues securities to the general public, if the irregular transaction might affect the rights and interests of the company, the SEC shall take prudent attitude and strictly examine the case and may authorize an agency designated by it to make thorough examination of the irregular transaction.
      3. Where a listed or over-the-counter company offers or issues securities, the SEC may, pursuant to the Securities and Exchange Law, restrict such securities from trading in the centralized stock exchange or over-the-counter market.
      4. The above-mentioned specified persons shall include the original shareholders, employees of the company and other specified persons arranged according to relevant rules.
  2. If a public company purchasing real property from a related party is considered to be involved in irregular transaction based on Point Four, the SEC shall handle in accordance with the following principles:
    1. The SEC shall order the issuing company to allocate the difference between the real property transaction price and the imputed cost as special reserve in accordance with Paragraph 1 of Article 41 of the Securities and Exchange Law, and distribution of dividend or recapitalization shall not be allowed. In addition, if the investor evaluating the investment in the company by equity method is a public company, it shall set aside a corresponding amount in proportion to its shareholding as special reserve in accordance with Paragraph 1 of Article 41 of the Securities and Exchange Law.
    2. The SEC shall request the supervisor of the issuing company in writing to handle the matter pursuant to Article 218 of the Company Law.
    3. The issuing company shall report the above-said handling condition to the shareholders meeting and publish the detailed transaction content in the prospectus or financial report.
    4. Where a public company whose stocks have not been listed on the stock exchange or traded on the over-the-counter market, the SEC may request the Taiwan Stock Exchange Corporation and ROC Over-the-Counter Securities Exchange in writing to specifically make examination and list such as an important matter to be examined by the examination committee when company applies for listing the stocks on the stock exchange or trading on the over-the-counter market. When necessary, the SEC may provide relevant information and request investigation agency or other authorities in charge of the business of the company to make thorough examination.
  3. An issuing company which has allocated special reserve shall not use such special reserve until and unless the investigation or judicial agency confirms that no offense is involved, or a devaluation loss on the asset purchased at high price has been entered, or such asset has been disposed of, or proper compensation has been received, or the original status has been restored.
    Before an investigation or judicial agency confirms that an issuing company has not committed any offense, or such company has received proper compensation for the asset purchased at high price or restored to original status, if the issuing company contemplates to offer and issue securities to unspecified persons, it shall be noted whether there exists the situations in which the offering and issuance of securities is improper under Item 7 of Article 8 of the Guidelines for Handling Offering and Issuance of Securities by Issuers.