Far EasTone Telecommunications Co., Ltd. 2018 Annual ... · 0 Far EasTone Telecommunications Co., Ltd. 2018 Annual Shareholders’ Meeting Handbook June 14, 2018 Taipei City, R.O.C

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Far EasTone Telecommunications Co., Ltd. 2018 Annual Shareholders’ Meeting Handbook

June 14, 2018 Taipei City, R.O.C.

The English version is the translation of the Chinese version and if there is any conflict between the meaning of terms in the Chinese version and English translation, the meaning of the Chinese version shall prevail.

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Far EasTone Telecommunications Co., Ltd. Agenda of 2018 Annual Shareholders' Meeting

Time: 9:00 a.m., June 14, 2018 Place: Taipei Hero House, 20 Changsha Street, Sec. 1, Taipei City Opening – Chairman Company Presentation – Chairman / President Agenda of Meeting – Chairman I. Matters to be reported

(1) The 2017 Business report…………...............……..…………….………………………………… ……………………… 3

(2) The 2017 Financial statements …………………..……...….…………………………………………… .…. …………… 6

(3) The 2017 Audit Committee’s review report.………………………………………………………………………………… 7

(4) The 2017 directors’ and employees’ compensation.…………………………………………… ………………………… 8

(5) The issuance of corporate bonds………………………………………………………………… ………………………… 9

(6) Revisions to the Ethical Corporate Management Best Practice Principles……………………………………………… 10

II. Matters to be ratified

(1) The 2017 financial statements (including 2017 business report)……….……………..……………..…………………... 11

(2) The 2017 retained earnings distribution….……………....….…………....….……………...…………....…….….…….... 12

III. Matters to be discussed and election (1) To discuss and approve the cash distribution from Capital Surplus…………………..………………………….……... (2) Election of new Directors of the Company (The term of the newly elected eleven Directors, including three

Independent Directors). .……………....….…………....….……………..…....…….….…….... …………....….…………. (3) To release the non-competition restriction on Directors in accordance with Article 209 of the Company Law... .….

IV. Extempore Motion V. Motion to Adjourn

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Attachment 1. Independent Auditors’ Report………………………………………………………............................................................ 21 2. Balance Sheets……………………………………………………………………...……….….………………...................... 25 3. Statements of Comprehensive Income………….………………………….………………......…………………………….. 26 4. Statements of Changes in Equity……………………..………………………………………...…...……..……................... 28 5. Statements of Cash Flows…………………………………………….……………………….....…………..………………... 29 6. Independent Auditors’ Report…………………………………….……………………...……..……..……………………….. 31 7. Consolidated Balance Sheets…………………………………………….…………………..…....……...…...................... 36 8. Consolidated Statements of Comprehensive Income…………………………………….………….……………..……….. 37 9. Consolidated Statements of Changes in Equity……………………………………….…...............……….………………. 39 10. Consolidated Statements of Cash Flows……………………………………………….……………..…………………….. 40 11. Amendment to the “Ethical Corporate Management Best Practice Principles” of Far EasTone Telecommunications

Co., Ltd. …………………………….…...............……….………………. …………………………….…...............……….

42 12. Status of Directors’ shareholding of the 7th Term Board of Directors on April 16, 2018…………………………………. 44 13. Director and Employees’ compensation………..……………………………………….………………...……………......... 44 14. Impact of Stock Dividend Distribution on Business Performance, EPS and Return on Investment……………........... 44

Articles 1. Articles of Incorporation of Far EasTone Telecommunication Co., Ltd……………………………………..…...………... 46 2. Ethical Corporate Management Best Practice Principles…………………. .……..……….……………. …………..…... 53 3. Directors Election Guidelines……………. .……..……….………………. …………… …… . .……..……….…………… 58 4. Rules Governing the Conduct of Shareholders’ Meeting……………….. …………… ……...…..……..........................

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I. Matters to be reported (1) The 2017 Business report Dear shareholders, 2017 marked the 20th anniversary for FarEasTone Telecommunications (FET). In these past two decades, we have always upheld the brand motto “Closing the Distance” and played an important role as “Relationship Connector.” FET has also grown from a market value of NT$65 billion to a NT$240 billion company. In 2017, despite the difficult economic environment worldwide, FET employees nevertheless efficiently worked together and produced outstanding concrete results outperforming expectations. Consolidated revenue in 2017 reached NT$92 billion, merging earnings before interest, taxes, depreciation, and amortization (EBITDA) and after-tax income as NT$28.1 billion and NT$10.8 billion, respectively. The earnings per share (EPS) was $NT3.332; evidently, this demonstrates that FET continues to create maximum value for its shareholders. Leading Quality Internet Service FET continues to offer outstanding internet quality to its customers. FET is Taiwan's SpeedTest Awards Winner for Fastest Mobile Network during Q3-Q4 2017. In this 4G spectrum tight race against our competitors, FET persists to determinedly work towards obtaining sufficient spectrum and improving better internet service and experience. Innovative Transformation: Providing Internet of Things (IoT) Services In 2017, FET not only strived for a higher speed and more stable 4.5G super tri-band internet, but also introduced “BoBee,” a light-weight wearable GPS locator device; it is a continuous product from the 2016 “all around mobile housekeeper” service of the consumers’ digital lifestyle IoT series, designed for elders, children, and pets. FET simultaneously introduced the personalized “Digital Expert,” a computer, communication, and consumer electronics technical support service. Our Motivational Engines: “Innovative Digital Business” and “Enterprise Clients” Concerning self-expectations, FET is not only just a telecommunications company, but we are also an information communication provider that offers all-round lifestyle and business required services to our clients. After being the first telecommunications company in Taiwan to launch the direct carrier billing service through Google Play and Apple App Store, we are pleased to report that FET currently ranks first concerning occupancy rate in the Google Play market. Additionally, FET was selected as Google Play’s one of the two most innovative global business model representative companies. FET’s digital brand “friDay” successfully integrates several services such as video, music, shopping, e-wallet, gaming…etc. Customers could enjoy convenience and enrichment of the mobile digital lifestyle via our friDay application. For example, “friDay Wallet” is currently the most downloaded mobile payment application in Taiwan, due to its wide range of features such as sensor payment, QR code and barcode payment,

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cloud payment, and entertainment applications. The notion of “mobile phone is the new wallet” steadily increases in society; therefore “friDay Wallet” became an important part of the everyday life. FET also applied the Big Data analysis technology into our telecom service and our friDay series by observing customers’ usage trends and needs, in hopes to offer more refined products and services in the future. In regards to enterprise clients on IoT applications, FET showcased six main smart IoT services during the 2017 World Congress on Information Technology (WCIT). Services include: scooter IoT network, power monitoring management, "Health+" cloud health management service, “BoBee,” Big Data analysis, and Tainan Smart City. FET’s “IoT Ecosystem,” which was established in 2017, also seized the top spot for six categories in the industry. Clearly, FET not only accomplished convenient digital lifestyle, but also will bring revenue increase and enhanced efficiency to our enterprise clients. Acquired Broadband Spectrum, Seized 5G Application Opportunities Furthermore, FET has not only worked with the telecom-equipment giant Ericsson to establish the first 5G Lab in Taiwan, but has also continued to enthusiastically develop IoT applications and polish our mobile services to become the preferred partner and brand in the digital lifestyle and pave a solid path forward to the future of 5G roll-out. In 2017, we announced that FET established the "IoT Ecosystem," becoming the first Taiwanese telecom operator to officially launch the NB-IoT (Narrow Band-IoT) service to business enterprises. We are also the first telecom company in Taiwan to receive 3 million NB-IoT numbers issued by the National Communications Commission (NCC). We perpetually develop our NB-IoT technology applications through projects such as Smart Manufacturing, Smart Transportation, Smart City, and Smart Health. Following the International Trend with Our Sustainability Strategic Blueprint, To actualize our corporate sustainability management approach, FET has upheld “Go Prosperous,” “Go Innovative,” “Go Caring,” and “Go Inclusive” as the four pillars of our sustainability strategy since 2015. We have combined our corporate sustainability strategy with our core operating strategy in response to the United Nations’ Sustainable Development Goals (SDGs), hoping to maximize our governance, environmental and social contributions. In 2017, FET won the “Exemplary Awards” presented by Global Views Monthly. FET also garnered seven awards at the 2017 Taiwan Corporate Sustainability Awards:“Top 50 Corporate Sustainability Award,” “Growth through Innovation Award,” “Creativity in Communication Award,” “Social Inclusion Award,” “Transparency and Integrity Award,” “Supply Chain Management Award,” and “Taiwan’s Top 50 CSR Report Information and Communications Awards.” Furthermore, FET was included in the Dow Jones Sustainability Indices (DJSI) Emerging Markets, a leading benchmark for sustainability initiatives, for the second consecutive year. Additionally, FET also topped the corporate governance evaluation released by the Taiwan Stock Exchange and was one of very few listed companies to be ranked in the top 5% of benchmark enterprises for three consecutive years, proving our sustainable governance performance has exceeded international standard. Starting 2018, “Go Eco” became an additional pillar in FET’s corporate sustainability strategic blueprint. Therefore, with five sturdy pillars as the corporate sustainability driving force, FET integrates its core value in responding the UN’s SDGs, while aiming towards the global sustainable development trend.

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FET continues to strengthen its corporate governance, implement corporate social responsibility, and show solicitude for social welfare and environmental protection. High Quality Customer Experience and Innovative Application Services As technology rapidly changes within the past decades, FET nevertheless retains the brand motto “Closing the Distance” to ach ieve high quality customer experience and innovative application services, in hopes to become consumers’ best partner in their digital lifestyle. Facing the next industry generation, FET continues to innovate and breakthrough into Taiwan’s telecommunications market as an influential leader. With the upcoming 5G future, we aim to be the force that fosters social progress and drives corporate growth in harmony with society, thereby maximizing value for shareholders, customers, employees and other stakeholders as we seek to achieve the vision of “FET Connects and Enriches Life.” Consequently, we would like to offer our most sincere gratitude to you, our shareholders. We look forward to the challenges of the year ahead and to our continuing dialogue. We wish you good health and all the best.

Chairman President Chief Accountant

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(2) The 2017 Financial statements

1. Balance Sheets 2. Statements of Comprehensive Income 3. Statements of Changes in Equity 4. Statements of Cash Flows 5. Consolidated Balance Sheets 6. Consolidated Statements of Comprehensive Income 7. Consolidated Statements of Changes in Equity 8. Consolidated Statements of Cash Flows Please refer to the attachments, page 21~41, for Independent Auditors’ Report together with all above financial reports of Year 2017. For complete financial reports, please download from the Market Observation Post System of the Taiwan Stock Exchange (http://newmops.twse.com.tw)

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(3) The 2017Audit Committee’s review report

The Board of Directors has prepared the Company’s 2017 Business Report, the Financial Statements and the Proposal for Profit Distribution. The CPAs of Deloitte & Touche, Annie Lin and Denny Kuo have audited the Financial Statements (including the Stand-alone & the Consolidated Financial Reports) and issued the audit opinions. The Business Report, Financial Statements, and the Proposal for Profit Distribution have been reviewed and determined to be correct and accurate by the Audit Committee members of Far EasTone Telecommunications Co., Ltd. According to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Act, we hereby submit this report.

Far EasTone Telecommunications Co., Ltd. Chairman of the Audit Committee:

Lawrence Juen-Yee LAU March 2, 2018

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(4) The 2017 directors’ and employees’ compensation Explanatory Notes： 1. According to Article 26 of the Articles of Incorporation, if the Company has surplus, it shall set aside 1%~2% for

employees’ compensation and set aside no more than 1% as directors’ compensation. It is proposed that for the 2017, the Company distributes 2% of the before tax earnings as employees’ compensation in the amount of NT$261,539,193, and distributes approximate 0.72% of the before tax earnings as directors’ compensation in the amount of NT$94,154,109. The distribution will take place in cash.

2. The compensation of the Company’s directors is distributed in accordance with the shareholding each one represents, and the effort each has contributed to the Company’s affairs, which are carefully considered for the remuneration arrangement. The Company’s PIPNS regulations will determine the times and date of the compensation of employees.

3. This proposal has been approved by the 14th meeting of the seventh-term Board of Directors on February 23, 2018 for submitting to the 2018 Annual Shareholders Meeting for report.

4. Please report. Resolution:

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(5) The issuance of corporate bonds Explanatory Notes： 1. Latest Information of the Corporate Bonds Issued in Y2017 & Y2018.

Offering Type Domestic Unsecured Bond

(1st of Year 2017) (2nd of Year 2017) (3rd of Year 2017) (1st of Year 2018)

Total Amount NT$ 4.5 billion NT$ 2.0 billion NT$ 3.0 billion (A Issue: NT$ 1.5 billion B Issue: NT$ 1.5 billion)

NT$ 5.0 billion (A Issue: NT$ 1.5 billion B Issue: NT$ 3.5 billion)

Maturity 5 years 7 years A Issue: 5.5 years B Issue: 7 years

A Issue: 5 years B Issue: 7 years

Coupon Rate 1.17% p.a. 1.17% p.a. A Issue: 0.95% p.a. B Issue: 1.09% p.a.

A Issue: 0.85% p.a. B Issue: 1.01% p.a.

Repayment The bond is repayable in lump sum on the expiry date. The interest is calculated on the coupon rate and paid annually.

Each issue of the bond is repayable in lump sum on the expiry date. The interest is calculated on the coupon rate and paid annually.

Guarantor None

Authority

Approval Authority Taipei Exchange

Approved Date April 17th, 2017 September 1st, 2017 December 14th, 2017 April 30th, 2018

Approval Letter No. 106000093711 10600244932 10600338561 10700102541

Use of Proceeds To repay short term borrowing and strengthen financial structure

Remark Issued at par value on April 26th, 2017

Issued at par value on September 4th, 2017

Issued at par value on December 20th, 2017

Issued at par value on May 7th, 2018

2. According to Article 246 of Company Law, the Company shall report the corporate bond issuances to the shareholders’ meeting. Please report.

Resolution:

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(6) Revisions to the Ethical Corporate Management Best Practice Principles Explanatory Notes： 1. It is proposed to amend the coordination department for the implementation of “Ethical Corporate Management Best

Practice Principles”. Please refer to the attachments, page 42. 2. This proposal has been approved by the 15th meeting of the seventh-term Board of Directors on May 4, 2018 for

submitting to the 2018 Annual Shareholders Meeting for report. 3. Please report. Resolution:

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II. Matters to be ratified (1) The 2017 financial statements (including 2017 business report) Explanatory Notes： 1. The 2017 business report and the 2017 annual financial statements and consolidated financial statements as of

December 31, 2017 have been audited by the Company’s auditing CPAs, Ms. Annie Lin and Mr. Tony Chang of Deloitte and Touche. Audit Committee of the Company has reviewed the Financial Statements for the year ended December 31, 2017 and issued audit reports.

2. This proposal has been approved by the 14th meeting of the seventh-term Board of Directors on February 23, 2018. 3. Please ratify. Resolution:

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(2) The 2017 retained earnings distribution Explanatory Notes： 1. It is proposed the Company to distribute cash dividend of NT$9,896,066,960 from the retained earnings at NT$3.037 per

share. 2. Please refer to the following table for the Company’s 2017 appropriation proposal:

Far EasTone Telecommunications Co., Ltd. Retained Earnings Distribution Proposal (in NT dollars)

3. If the outstanding shares are impacted due to the Company’s subsequent capital increase or other matters before the ex-cash dividend record date, it is proposed the Board of Directors be authorized by the Shareholders’ Meeting to adjust the ultimate cash to be distributed to each common share based on the number of actual outstanding shares on the ex-cash dividend record date. Cash dividend of individual shareholder will be round down to and distributed in integer of New Taiwan Dollar, with fractions of the Dollar of the cash dividend of each shareholder be reduced and be accounted for as the other income of the Company.

4. It is proposed that the Board authorizes the Chairman to fix the record date of ex-cash dividend after the approval by the 2018 annual Shareholders’ Meeting.

5. This proposal has been approved by the 14th meeting of the seventh-term Board of Directors on February 23, 2018. 6. Please ratify. Resolution:

Un-appropriated earnings as of January 1, 2017 2,737,450

Add: actuarial gain (loss) recognized as retained earnings 19,026,194

Less: Adjustments due to changes in investees’ equity in equity-method investments

(55,547,073)

Adjusted un-appropriated earnings (33,783,429)

Add:Y2017 Net income 10,856,681,558

Less: legal reserve (1,082,289,813)

Add :reverse special reserve 157,138,957

Maximum distributable earnings 9,897,747,273

Less: appropriation

Cash dividends (NT$3.037per share) (9,896,066,960)

Un-appropriated earnings after distribution 1,680,313

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III. Matters to be discussed and election (1) To discuss and approve the Cash distribution from Capital Surplus Explanatory Notes: 1. According to Article 241 of the Company Act: “Where a company incurs no loss, it may distribute its legal reserve and

capital reserve-Additional Paid-in Capital-Share Issuance in Excess of Par Value as cash dividend to its original shareholders in proportion to the number of shares being held by each of them.” It is proposed the Company to distribute cash dividend of NT$$2,323,311,078 from the Capital Surplus: Net Assets from Merger at NT$0.713 per share.

2. If the outstanding shares are impacted due to the Company’s subsequent capital increase or other matters before the ex-cash distribution record date, it is proposed the Board of Directors be authorized by the Shareholders’ Meeting to adjust the ultimate cash to be distributed to each common share based on the number of actual outstanding shares on the ex-cash distribution record date. Cash dividend of individual shareholder will be round down to and distributed in integer of New Taiwan Dollar, with fractions of the Dollar of the cash dividend of each shareholder be reduced and be accounted for as the other income of the Company.

3. It is proposed that the Board authorizes the Chairman to fix the record date of ex-cash distribution after the approval by the 2018 annual Shareholders’ Meeting.

4. This proposal has been approved by the 14th meeting of the seventh-term Board of Directors on February 23, 2018. 5. In Ratification Proposal 2, it is proposed the Company distributes cash of NT$9,896,066,960 from the retained earnings

at NT$3.037 per share. With the cash distribution of NT$0.713 per share from capital surplus: Net Assets from Merger, totaling cash NT$3.75 per share of 2017.

6. Please approve. Resolution:

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(2) Election of new Directors of the Company (The term of the newly elected eleven Directors, including three Independent Directors)

Explanatory Notes: 1. The tenure of Directors of the Company is three years and the term of Directors of the Seventh term of the Board will

expire on June 17, 2018. According to the Article 195 of the Company Act, new Directors shall be elected at the annual Shareholders’ Meeting of 2018. The term of the newly elected eleven Directors (including three Independent Directors) is three years, effective from June 14, 2018 to June 13, 2021. Regulations governing the professional qualifications, restrictions on shareholdings and concurrent positions held, assessment of independence, method of nomination, and other matters for compliance with respect to independent directors shall be followed.

2. According to the Article 192-1 of the Company Act, the Board of Directors (via this Board Meeting) of the Company and any shareholders with 1% above shareholding may nominate director candidates. During the period (from April 9, 2018 to April 18, 2018) for nomination, the Company has received the nomination of eleven director candidates from the major shareholder Yuan Ding Investment Co., Ltd. After examination, all eleven candidates both meet the requirements and qualifications of director or independent director. The Company has make public announcement about the qualified eight Directors and three Independent Directors candidate roster after the approval by the Board of Directors, Please refer to page 15~19.

3. This proposal has been approved by the 14th and 15th meeting of the seventh-term Board of Directors on February 23, 2018 and May 4, 2018 for submitting to the 2018 Annual Shareholders Meeting for election.

4. Please elect. Election result:

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The Eighth term of the Board of Directors of candidate list

Type Candidate Education Major Experience Current Position Shareholding (Unit: shares)

Director Douglas Hsu, Representative of Yuan Ding Investment Co., Ltd.

M.S., University of Notre Dame, U.S.A. M.S., Economics, Columbia University, U.S.A. Honor Ph.D., Management , National Chiao Tung University

President of FarEastern New Century Corporation

Chairman of Far Eastern New Century Corporation Chairman of Asia Cement Co., Ltd. Chairman of Far Eastern Department Stores Ltd. Chairman of Oriental Union Chemical Corp. Chairman of U-Ming Marine Transport Corp. Chairman of New Century InfoComm Tech Co., Ltd. Vice Chairman of Far Eastern International Bank

1,066,657,614

Director Peter Hsu, Representative of Yuan Ding Investment Co., Ltd.

M.S., Operations Research, Stanford University, USA

Vice President of Ding & Ding Management Consultants Co. Ltd.

Vice Chairman of Far Eastern New Century Corporation Director of Asia Cement Co., Ltd. Supervisor of U-Ming Marine Transport Corp.

1,066,657,614

Director Jan Nilsson, Representative of Yuan Ding Investment Co., Ltd.

M.S., Industrial and Management Engineering, Linkoping University, Sweden

Vice Chairman of Far Eastone Telecommunications Co., Ltd. President of Far Eastone Telecommunications Co., Ltd. Sr. Executive VP of

None 1,066,657,614

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Satelindo Telecom Indonesia

Director Champion Lee, Representative of Yuan Ding Co., Ltd.

MBA, Texas A&I University, USA

President of Yuan Ding Co., Ltd. Sr. EVP of Far Eastern New Century Corporation

Director of Far Eastern New Century Corporation Director of Asia Cement Co., Ltd. Director of U-Ming Marine Transport Corp.

4,163,500

Director Jeff Hsu, Representative of Yuan Ding Co., Ltd.

Master’s degree in Design and Innovation Methods, Institute of Design, Illinois Institute of Technology MBA, University of Notre Dame

Worked as a Strategy and Design Consultant in the United States with clients ranging from hi-tech startups to Nestle, Denso Automotive, Kia Motors, and Target. Captain’s commission in the United States Marine Corps

Chief Innovation Officer of Far Eastern Group Director & Executive Senior Vice President of U-Ming Marine Transport Corp.

4,163,500

Director Toon Lim, Representative of Ding Yuan International Investment Co., Ltd.

Postgraduate Diploma in Business Administration University of Singapore BE(Hons), University of Canterbury

Chief Operating Officer, SingTel Group

Advisor, SingTel Group Board Director, APT Satellite, HK

919,653

Director Keijiro Murayama, Representative of U-Ming Marine Transport Corp.

MBA, May 2001 Goizueta Business School Emory University (USA)

Senior Manager, Smart-life Solutions Department, Smart-life Business Division, NTT DOCOMO, Inc.

Executive Director Asia Business, Global Business Division, NTT DOCOMO, Inc.

331,000

Director Bonnie Peng, Representative of Asia Investment Corp.

Doctor of Journalism, Southern Illinois University, Carbondale, USA

Chairperson of the 2nd term of National Communication Commission Professor, Department of

Professor, Department of Social and Policy Sciences, and Department of Information

1,426,303

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Journalism (Graduate program), National Chengchi University, Taiwan

Communication (Graduate program), Yuan Zu University

Independent Director (Note 1)

Lawrence Juen-Yee LAU B.S. in Physics and Economics, Stanford University M.A. and Ph.D. in Economics, University of California at Berkeley

Academician, Academia Sinica, 1982; Kwoh-Ting Li Professor in Economic Development, Stanford University Vice-Chancellor (President) of The Chinese University of Hong Kong; Chairman of CIC International (Hong Kong) Co., Limited

Ralph and Claire Landau Professor of Economics, The Chinese University of Hong Kong; Independent Non-executive Director, CNOOC Limited in Hong Kong; Independent Non-executive Director, AIA Group Limited in Hong Kong; Independent Non-executive Director, Hysan Development Company Limited in Hong Kong; Member of the Hong Kong Special Administrative Region Exchange Fund Advisory Committee, member of its Currency Board and Investment Sub-Committees and Chairman of its Governance Sub-Committee; Vice-Chairman, Our Hong Kong Foundation; Member and Chairman

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of the Prize Recommendation Committee, the LUI Che Woo Prize Company; Chairman, Board of Directors, The Chinese University of Hong Kong (Shenzhen) Finance Institute, aka Shenzhen Finance Institute

Independent Director

Chung Laung Liu Sc. D., Massachusetts Institute of Technology

President and Mei Yi Che Honorary Chair Professor of National Tsing Hua University, Taiwan Professor Emeritus of University of Illinois at Urbana-Champaign

William M. W. Mong Honorary Chair Professor, National Tsing Hua University, Taiwan Independent Director of United Microelectronics Corporation Independent Director of Microelectronics Technology Inc. Independent Director of Powerchip Semiconductor Corporation

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Independent Director

Tim Pan Ph.D. in Electrical Engineering, Washington University in St. Louis, U.S.A.

Microsoft Research (since 2005) Board member of St. John’s University (Taiwan) Co-founder of Gemfor Technology Co-founder of GoldKey Technology

Senior Outreach Director, Microsoft Research Asia

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Note 1: According to the “Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies ”, If

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an independent director candidate included by a public company under the provisions of the preceding paragraph has already served as an independent director of the public company for three consecutive terms or more, the company shall publicly disclose, together with the review results under the preceding paragraph, the reasons why the candidate is nominated again for the independent directorship, and present the reasons to the shareholders at the time of the election at the shareholders meeting. Independent Director Lawrence Juen-Yee Lau is currently the Chairman of FET Audit Committee and FET Remuneration Committee. Serving as the Academician of Academia Sinica, Mr. Lau is an expert in Economic Development and Economic Growth, and possesses a broad global perspective. With multinational financial expertise and extensive management experience, Mr. Lau provided FET with insightful advices on corporate governance and business management during the term. He is well versed in telecom industry, and has profound understanding of telecom all these years. Therefore, Mr. Lau is nominated as an Independent Director candidate, in the hope that he continues to assist FET in Board and functional Committees operations.

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(3) To release the non-competition restriction on Directors in accordance with Article 209 of the Company Law

Explanatory Notes:

1. According to Article 209 of the Company Act, a Director who does anything for himself or on behalf of another person that is within the scope of the company's business shall explain to the Shareholders’ Meeting the essential contents of such an act and secure its approval.

2. If the Director candidate to be elected as the eighth term Board of Directors actually does anything for themselves or on behalf of another person within the scope of the Company’s business as follows, it is proposed to release the non-competition restriction for the would-be newly elected directors and their representatives at the annual Shareholders’ Meeting of Year 2018.

Name Title and Competition Company Major Business Scope

Toon Lim, Representative of Ding Yuan International Investment Co., Ltd.

Advisor, SingTel Group Board Director, APT Satellite, HK

Telecommunications Keijiro Murayama, Representative of U-Ming Marine Transport Corp.

Executive Director Asia Business, Global Business Division, NTT DOCOMO, Inc.

3. This proposal has been approved by the 15th meeting of the seventh-term Board of Directors on May 4, 2018 for submitting to the 2018 Annual Shareholders Meeting for approval.

4. Please approve. Resolution:

IV. Extempore Motion

V. Motion to Adjourn

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Far EasTone Telecommunications Co., Ltd.

Opinion

We have audited the financial statements of Far EasTone Telecommunications Co., Ltd. (the

Company), which comprise the balance sheets as of December 31, 2017 and 2016, and the

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

and the notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the

financial position of the Company as of December 31, 2017 and 2016, and its financial

performance and its cash flows for the years then ended in accordance with the Regulations

Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

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

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

the Republic of China. Our responsibilities under those standards are further described in the

Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are

independent of the Company in accordance with The Norm of Professional Ethics for Certified

Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities

in accordance with these requirements. We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

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

our audit of the financial statements for the year ended December 31, 2017. These matters were

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

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

The descriptions of the key audit matters of the financial statements for the year ended December

31, 2017 are as follows:

Impairment Loss of Property, Plant and Equipment and Intangible Assets (Including Goodwill)

As of December 31, 2017, the balances of property, plant and equipment and intangible assets

account for 64% of the total assets and are material for the financial statements as a whole. The

economic trends, market competition, and technology development influence the operation of the

Company and the management’s evaluation and judgment on the expected economic benefits and

recoverable amounts of the cash-generating unit to which an asset belongs, which in return is used

for the evaluation of the asset’s impairment. Thus, the impairment of property, plant and

equipment and intangible assets is considered a key audit matter.

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For the estimates and judgments related to property, plant and equipment and intangible assets,

please refer to Note 5 to the financial statements. For other related disclosures, please refer to

Note 11 and Note 13.

By conducting the tests of controls, we obtained an understanding of the Company’s asset

impairment evaluation processes and the design and implementation of related controls. We also

performed corresponding audit procedures as follows:

1. Obtain the Company’s asset impairment evaluation reports for each cash-generating unit.

2. Evaluate the reasonableness of the Company’s identification of asset impairment, the

assumptions and sensitivity used in the asset impairment assessment, including the

appropriateness of the classification of cash-generating unit, the cash flows forecasts and

discount rates used.

Recognition of Mobile Telecommunications Service Revenue

The mobile telecommunications service revenue is the main source of the revenue, and it accounts

for 77% of the Company’s total revenue of 2017. The calculation of telecommunications service

revenue highly relies on automated systems and includes complicated data transmission. In order

to meet market demands and remain competitive, the Company often launches different

combinations of products and services which makes the calculation of revenue more complex and

directly affects the accuracy and timing of revenue recognition. Therefore, the recognition of

mobile telecommunications service revenue is considered a key audit matter.

For the accounting policies related to mobile telecommunications service revenue, please refer to

Note 4 to the financial statements.

By conducting the tests of controls, we obtained an understanding of the Company’s recognition of

mobile telecommunications service revenue and the design and implementation of related controls.

We also engaged IT specialists to perform corresponding audit procedures as follows:

1. Review the contracts of mobile subscribers to confirm the accuracy of the information in the

accounting system.

2. Perform test dialing to verify the accuracy and completeness of the traffic and information in

the switch equipment.

3. Test the accuracy of the billing calculation.

4. Test the completeness and accuracy of the calculation and billing of monthly fees and airtime

fees.

5. Test the completeness and accuracy of the calculation and billing of value-added service fees.

For the revenue recognition of billed and unbilled amounts, we conducted the following tests:

1. For the billed amounts, we compare if there is any difference between the reports generated

from the accounting system and the billing system.

2. For the unbilled amounts, we recalculate the service revenue for services provided as of the

balance sheet date based on the applied charge rates to confirm the accuracy.

23

Responsibilities of Management and Those Charged with Governance for the Financial

Statements

Management is responsible for the preparation and fair presentation of the financial statements in

accordance with the Regulations Governing the Preparation of Financial Reports by Securities

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

preparation of financial statements that are free from material misstatement, whether due to fraud

or error.

In preparing the financial statements, management is responsible for assessing the Company’s

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

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

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

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

Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report

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

guarantee that an audit conducted in accordance with the auditing standards generally accepted in

the Republic of China will always detect a material misstatement when it exists. Misstatements

can arise from fraud or error and are considered material if, individually or in the aggregate, they

could reasonably be expected to influence the economic decisions of users taken on the basis of

these financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of

China, we exercise professional judgment and maintain professional skepticism throughout the

audit. We also:

1. Identify and assess the risks of material misstatement of the financial statements, whether due

to fraud or error, design and perform audit procedures responsive to those risks, and obtain

audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk

of not detecting a material misstatement resulting from fraud is higher than for one resulting

from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,

or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Company’s ability to

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

required to draw attention in our auditors’ report to the related disclosures in the financial

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

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

events or conditions may cause the Company to cease to continue as a going concern.

24

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

the disclosures, and whether the financial statements represent the underlying transactions and

events in a manner that achieves fair presentation.

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

entities or business activities within the Company to express an opinion on the financial

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

We remain solely responsible for our audit opinion.

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

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

in internal control that we identify during our audit.

We also provide those charged with governance with statements that we have complied with

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

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

where applicable, related safeguards.

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

that were of most significance in the audit of the financial statements for the year ended December

31, 2017 and are therefore the key audit matters. We describe these matters in our auditors’ report

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

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

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

benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are An-Hwei

Lin and Cheng-Hung Kuo.

Deloitte & Touche

Taipei, Taiwan

Republic of China

February 23, 2018

Notice to Readers

The accompanying financial statements are intended only to present the financial position,

financial performance and cash flows in accordance with accounting principles and practices

generally accepted in the Republic of China and not those of any other jurisdictions. The

standards, procedures and practices to audit such financial statements are those generally applied

in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial

statements have been translated into English from the original Chinese version prepared and used

in the Republic of China. If there is any conflict between the English version and the original

Chinese version or any difference in the interpretation of the two versions, the Chinese-language

independent auditors’ report and financial statements shall prevail.

25

FAR EASTONE TELECOMMUNICATIONS CO., LTD.

BALANCE SHEETS

DECEMBER 31, 2017 AND 2016

(In Thousands of New Taiwan Dollars)

2017 2016

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents (Notes 4, 6 and 28) $ 1,093,018 1 $ 779,886 1

Derivative financial assets for hedging - current (Notes 4 and 7) - - 2,073 -

Debt investments with no active market - current (Notes 4 and 28) 42,488 - 48,198 -

Notes receivable (Note 4 and 28) 35,465 - 29,424 -

Accounts receivable, net (Notes 4 and 8) 5,755,169 4 6,136,547 5

Accounts receivable - related parties (Notes 4, 8 and 28) 252,976 - 302,662 -

Other receivables - related parties (Note 28) 261,960 - 79,562 -

Inventories (Notes 4 and 9) 3,550,840 3 1,261,852 1

Prepaid expenses 679,833 1 1,048,386 1

Other financial assets - current (Notes 4 and 28) 2,575,508 2 2,700,876 2

Other current assets (Note 28) 37,046 - 41,596 -

Total current assets 14,284,303 11 12,431,062 10

NONCURRENT ASSETS

Financial assets carried at cost (Note 4) 195,000 - 150,000 -

Investments accounted for using the equity method (Notes 4, 10 and 28) 30,093,290 23 30,047,042 23

Property, plant and equipment, net (Notes 4, 11 and 28) 28,927,960 22 32,184,965 25

Investment properties (Notes 4 and 12) 761,492 1 754,028 1

Concessions, net (Notes 1, 4 and 13) 41,820,510 32 38,383,531 30

Computer software, net (Notes 4 and 13) 2,801,276 2 2,541,309 2

Goodwill (Notes 4 and 13) 10,283,031 8 10,283,031 8

Deferred income tax assets (Notes 4 and 22) 675,336 1 829,824 1

Refundable deposits (Note 28) 442,572 - 436,954 -

Total noncurrent assets 116,000,467 89 115,610,684 90

TOTAL $ 130,284,770 100 $ 128,041,746 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Notes 4 and 14) $ 400,000 - $ 2,400,000 2

Short-term bills payable (Notes 4 and 14) - - 2,799,387 2

Derivative financial liabilities for hedging - current (Notes 4 and 7) - - 40,229 -

Notes payable 12,056 - 9,613 -

Accounts payable 2,661,505 2 1,554,621 1

Accounts payable - related parties (Note 28) 1,607,562 1 1,124,819 1

Other payables (Note 16) 6,455,120 5 7,674,958 6

Other payables - related parties (Note 28) 3,757,966 3 1,077,282 1

Current tax liabilities (Notes 4 and 22) 1,894,767 1 1,603,206 1

Unearned revenue (Note 4) 2,615,961 2 2,303,684 2

Current portion of long-term borrowings (Notes 4 , 14 and 15) 8,998,533 7 6,197,478 5

Guarantee deposits received - current 200,885 - 219,343 -

Other current liabilities (Notes 4 and 17) 642,709 1 594,466 1

Total current liabilities 29,247,064 22 27,599,086 22

NONCURRENT LIABILITIES

Bonds payable (Notes 4 and 15) 20,373,820 16 12,190,103 10

Long-term borrowings (Notes 4 and 14) 7,600,000 6 14,048,345 11

Provisions - noncurrent (Notes 4 and 17) 335,304 - 318,447 -

Deferred income tax liabilities (Notes 4 and 22) 1,629,888 1 1,495,976 1

Net defined benefit liabilities - noncurrent (Notes 4 and 18) 727,479 1 763,723 1

Guarantee deposits received - noncurrent 246,199 - 265,089 -

Other noncurrent liabilities (Notes 4, 10 and 16) 366,604 - 354,959 -

Total noncurrent liabilities 31,279,294 24 29,436,642 23

Total liabilities 60,526,358 46 57,035,728 45

EQUITY

Capital stock

Common stock 32,585,008 25 32,585,008 25

Capital surplus 8,143,345 6 10,166,874 8

Retained earnings

Legal reserve 17,405,561 14 16,270,878 13

Special reserve 783,467 1 769,907 -

Unappropriated earnings 10,822,899 8 11,346,830 9

Total retained earnings 29,011,927 23 28,387,615 22

Other equity 18,132 - (133,479) -

Total equity 69,758,412 54 71,006,018 55

TOTAL $ 130,284,770 100 $ 128,041,746 100

The accompanying notes are an integral part of the financial statements.

26


STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2017 2016

Amount % Amount %

OPERATING REVENUES (Notes 4, 20 and 28) $ 72,945,992 100 $ 78,838,895 100

OPERATING COSTS (Notes 4, 9, 21 and 28) 41,675,647 57 46,227,643 59

GROSS PROFIT 31,270,345 43 32,611,252 41

OPERATING EXPENSES (Notes 4, 21 and 28)

Marketing 14,369,608 20 16,199,526 20

General and administrative 4,709,283 6 4,570,071 6

Total operating expenses 19,078,891 26 20,769,597 26

OPERATING INCOME 12,191,454 17 11,841,655 15

NONOPERATING INCOME AND EXPENSES

Other income (Notes 4, 21 and 28) 132,434 - 143,137 -

Other gains and losses (Notes 4 and 12) 83,295 - 54,108 -

Financial costs (Notes 4, 21 and 28) (472,909) - (470,159) (1)

Share of the profit of subsidiaries and associates

(Notes 4 and 10) 1,459,098 2 2,159,787 3

Losses on disposal of property, plant, equipment and

intangible assets (Note 4) (638,322) (1) (616,691) (1)

Impairment losses recognized on property, plant and

equipment (Notes 4 and 11) - - (313,563) -

Total nonoperating income and expenses 563,596 1 956,619 1

INCOME BEFORE INCOME TAX 12,755,050 18 12,798,274 16

INCOME TAX (Notes 4 and 22) 1,898,368 3 1,406,971 2

NET INCOME 10,856,682 15 11,391,303 14

OTHER COMPREHENSIVE INCOME

Items that will not be reclassified subsequently to

profit or loss:

Remeasurement of defined benefit plans (Notes 4

and 18) 18,887 - (34,528) -

Share of other comprehensive income of

subsidiaries and associates (Notes 4 and 19) 139 - (648) -

19,026 - (35,176) -

(Continued)

27


STATEMENTS OF COMPREHENSIVE INCOME



2017 2016

Amount % Amount %

Items that may be reclassified subsequently to profit

or loss:

Exchange differences on translating foreign

operations (Notes 4 and 19) (4) - (198) -

Unrealized losses on available-for-sale financial

assets (Notes 4 and 19) - - (4,752) -

Cash flow hedges (Notes 4 and 19) 31,670 - (26,814) -


subsidiaries and associates (Notes 4 and 19) 119,945 - 23,497 -

151,611 - (8,267) -

Total other comprehensive income, net of

income tax 170,637 - (43,443) -

TOTAL COMPREHENSIVE INCOME $ 11,027,319 15 $ 11,347,860 14

EARNINGS PER SHARE, NEW TAIWAN DOLLARS

(Note 23)

Basic $3.33 $3.50

Diluted $3.33 $3.49

The accompanying notes are an integral part of the financial statements. (Concluded)

28


STATEMENTS OF CHANGES IN EQUITY


(In Thousands of New Taiwan Dollars, Except Dividends Per Share)

Other Equity

Exchange Unrealized Gains

Retained Earnings Differences on (Losses) on

Share Capital (Note 19) Unappropriated Translating Available-for-sale

Number of Shares Capital Surplus Legal Reserve Special Reserve Earnings Foreign Operations Financial Assets Cash Flow Hedges

(Thousand Share) Amounts (Notes 4 and 19) (Note 19) (Note 19) (Notes 4 and 19) (Notes 4 and 19) (Notes 4 and 19) (Notes 4 and 19) Total

BALANCE AT JANUARY 1, 2016 3,258,501 $ 32,585,008 $ 12,058,158 $ 15,127,206 $ 824,480 $ 11,436,725 $ 829 $ 14,625 $ (140,666) $ 71,906,365

Appropriation of the 2015 earnings

Legal reserve - - - 1,143,672 - (1,143,672) - - - -

Special reserve - - - - (54,573) 54,573 - - - -

Cash dividends - NT$3.174 per share - - - - - (10,342,482) - - - (10,342,482)

Cash dividends from capital surplus - NT$0.576 per share - - (1,876,896) - - - - - - (1,876,896)

Adjustments to share of changes in equities of associates - - (14,388) - - (14,441) - - - (28,829)

Net income for the year ended December 31, 2016 - - - - - 11,391,303 - - - 11,391,303

Other comprehensive income (losses) for the year ended

December 31, 2016 - - - - - (35,176) 3,809 (60,497) 48,421 (43,443)

BALANCE AT DECEMBER 31, 2016 3,258,501 32,585,008 10,166,874 16,270,878 769,907 11,346,830 4,638 (45,872) (92,245) 71,006,018


Legal reserve - - - 1,134,683 - (1,134,683) - - - -

Special reserve - - - - 13,560 (13,560) - - - -

Cash dividends - NT$3.129 per share - - - - - (10,195,849) - - - (10,195,849)

Cash dividends from capital surplus - NT$0.621 per share - - (2,023,529) - - - - - - (2,023,529)

Adjustments to share of changes in equities of associates - - - - - (5,182) - - - (5,182)

Difference between the price for acquisition or disposal of

subsidiaries and carrying amount - - - - - (144) - - - (144)

Changes in percentage of ownership interests in subsidiaries - - - - - (50,221) - - - (50,221)

Net income for the year ended December 31, 2017 - - - - - 10,856,682 - - - 10,856,682

Other comprehensive income (losses) for the year ended

December 31, 2017 - - - - - 19,026 (516) 45,872 106,255 170,637

BALANCE AT DECEMBER 31, 2017 3,258,501 $ 32,585,008 $ 8,143,345 $ 17,405,561 $ 783,467 $ 10,822,899 $ 4,122 $ - $ 14,010 $ 69,758,412

The accompanying notes are an integral part of the financial statements.

- 29 -


STATEMENTS OF CASH FLOWS



2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 12,755,050 $ 12,798,274

Adjustments for:

Depreciation 7,798,274 7,351,816

Amortization 692,430 644,334

Amortization of concessions 3,078,021 2,581,338

Allowance for doubtful accounts 481,907 296,273

Financial costs 472,909 470,159

Interest income (27,284) (24,740)

Share of the profit of subsidiaries and associates (1,459,098) (2,159,787)

Loss on disposal of property, plant, equipment and intangible assets 638,322 616,691

Gain on disposal of financial assets - (265)

Impairment loss recognized on property, plant and equipment - 313,563

Reversal of write-down of inventories (1,073) (29,444)

(Gain) loss on change in fair value of investment properties (7,464) 198,552

Deferred loss on derivative assets for hedging - (4,500)

Net changes in operating assets and liabilities

Notes receivable (6,041) 597

Accounts receivable (100,529) (772,295)

Accounts receivable - related parties 49,686 (100,679)

Other receivables - related parties (49,841) 173,193

Inventories (2,287,915) 1,644,745

Prepaid expenses 368,553 51,098

Other current assets (3,519) (207)

Notes payable 2,443 (930)

Accounts payable 1,106,884 (135,167)

Accounts payable - related parties 482,743 (123,733)

Other payables (812,117) (53,338)

Other payables - related parties (124,299) 77,679

Provisions (36,896) (7,419)

Unearned revenue 312,277 (114,911)

Other current liabilities 53,710 332,781

Net defined benefit liabilities (13,489) (9,728)

Cash generated from operations 23,363,644 24,013,950

Interest received 23,148 25,801

Dividend received 1,966,584 2,907,365

Interest paid (355,809) (465,727)

Income taxes paid (1,328,761) (1,530,158)

Net cash generated from operating activities 23,668,806 24,951,231

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds of the disposal of available-for-sale financial assets - 190,134

Disposal (acquisition) of debt investments with no active market 5,710 (38,457)

(Continued)

- 30 -


STATEMENTS OF CASH FLOWS



2017 2016

Acquisition of financial assets carried at cost (45,000) -

Acquisition of investments accounted for using the equity method (590,620) (30,000)

Proceeds from capital reduction of investments accounted for using the

equity method 99,985 217,936

Acquisition of property, plant and equipment (5,686,247) (7,751,175)

Proceeds from the disposal of property, plant and equipment 66,686 40,249

Increase in refundable deposits (112,130) (125,896)

Decrease in refundable deposits 106,512 158,150

Increase in financing provided by other receivables - related parties (130,000) -

Decrease in financing provided by other receivables - related parties - 241,000

Acquisition of intangible assets (7,471,107) (9,033,843)

Proceeds from disposal of intangible assets 3,750 -

Decrease (increase) in other financial assets 125,368 (323,810)

Net cash used in investing activities (13,627,093) (16,455,712)

CASH FLOWS FROM FINANCING ACTIVITIES

(Decrease) increase in short-term borrowings (2,000,000) 2,400,000

(Decrease) increase in short-term bills payable (2,799,387) 2,799,387

Proceeds from issue of bond payables 14,675,877 -

Repayments of bonds payable (6,200,000) (1,600,000)

Proceeds from long-term borrowings 8,900,057 1,699,831

Repayment of long-term borrowings (12,848,402) (8,141,487)

Increase in guarantee deposits received 72,819 77,965

Decrease in guarantee deposits received (110,167) (103,766)

Increase in financing obtained from other payables - related parties 2,800,000 -

Decrease in financing obtained from other payables - related parties - (6,500,000)

Cash dividends paid (12,219,378) (12,219,378)

Net cash used in financing activities (9,728,581) (21,587,448)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 313,132 (13,091,929)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 779,886 13,871,815

CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 1,093,018 $ 779,886

The accompanying notes are an integral part of the financial statements. (Concluded)

- 31 -

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Far EasTone Telecommunications Co., Ltd.

Opinion

We have audited the consolidated financial statements of Far EasTone Telecommunications Co.,

Ltd. and its subsidiaries (the Group), which comprise the consolidated balance sheets as of

December 31, 2017 and 2016, and the consolidated statements of comprehensive income, changes

in equity and cash flows for the years then ended, and the notes to the consolidated financial

statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material

respects, the consolidated financial position of the Group as of December 31, 2017 and 2016, and

its consolidated financial performance and its consolidated cash flows for the years then ended in

accordance with the Regulations Governing the Preparation of Financial Reports by Securities

Issuers, and International Financial Reporting Standards (IFRS), International Accounting

Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued

into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

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

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

the Republic of China. Our responsibilities under those standards are further described in the

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our

report. We are independent of the Group in accordance with The Norm of Professional Ethics for

Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical

responsibilities in accordance with these requirements. We believe that the audit evidence we

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

Key Audit Matters

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

our audit of the consolidated financial statements for the year ended December 31, 2017. These

matters were addressed in the context of our audit of the consolidated financial statements as a

whole, and in forming our opinion thereon, and we do not provide a separate opinion on these

matters.

- 32 -

The description of the key audit matters of the consolidated financial statements for the year ended

December 31, 2017 are as follows:

Impairment Loss of Property, Plant and Equipment and Intangible Assets (Including Goodwill)

As of December 31, 2017, the consolidated balances of property, plant and equipment and

intangible assets account for 77% of the total assets and are material for the consolidated financial

statements as a whole. The economic trends, market competition, and technology development

influence the operation of the Group and the management’s evaluation and judgment on the

expected economic benefits and recoverable amounts of the cash-generating unit to which the asset

belongs, which in turn is used for the evaluation of the asset’s impairment. Thus, the impairment

of property, plant and equipment and intangible assets is considered as a key audit matter.

For the estimates and judgments related to property, plant and equipment and intangible assets,

please refer to Note 5 to the consolidated financial statements. For other related disclosures,

please refer to Note 14 and Note 16.

By conducting the tests of controls, we obtained an understanding of the Group’s asset impairment

evaluation processes and of the design and implementation of related controls. We also performed

corresponding audit procedures as follows:

1. Obtain the Group’s asset impairment evaluation reports for each cash-generating unit.

2. Evaluate the reasonableness of the Group’s identification of asset impairment, the assumptions

and sensitivity used in the asset impairment assessment, including the appropriateness of the

classification of cash-generating unit, cash flows forecasts and discount rates used.

Recognition of Mobile Telecommunications Service Revenue

The mobile telecommunications service revenue is the main source of the revenue, and it accounts

for 69% of the Group’s total revenue of 2017. The calculation of mobile telecommunications

service revenue highly relies on automated systems and includes complicated and huge data

transmission. In order to meet market demands and remain competitive, the Group often launches

different combinations of products and services which makes the calculation of revenue more

complex and directly affects the accuracy and timing of revenue recognition. Therefore, the

recognition of mobile telecommunications service revenues is considered as a key audit matter.

For the accounting policies related to mobile telecommunications service revenues, please refer to

Note 4 to the consolidated financial statements.

By conducting the tests of controls, we obtained an understanding of the Group’s recognition of

mobile telecommunications service revenues and of the design and implementation of related

controls. We also engaged IT specialists to perform corresponding audit procedures as follows:

1. Review the contracts of mobile subscribers to confirm the accuracy of the information in the

accounting system.

2. Perform test dialing to verify the accuracy and completeness of the traffic and information in

the switch equipment.

3. Test the accuracy of the billing calculation.

4. Test the completeness and accuracy of the calculation and billing of monthly fees and airtime

fees.

- 33 -

5. Test the completeness and accuracy of the calculation and billing of value-added service fees.

For the revenue recognition of billed and unbilled amounts, we conducted the following tests:

1. For the billed amounts, we compare if there is any difference between the reports generated

from the accounting system and the billing system.

2. For the unbilled amounts, we recalculate the service revenue for services provided as of the

balance sheet date based on the applied charge rates to confirm the accuracy.

Other Matter

We have also audited the parent company only financial statements of Far EasTone as of and for

the years ended December 31, 2017 and 2016 on which we have issued an unmodified opinion.

Responsibilities of Management and Those Charged with Governance for the Consolidated

Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial

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

Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting

Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued

into effect by the Financial Supervisory Commission of the Republic of China, and for such

internal control as management determines is necessary to enable the preparation of consolidated

financial statements that are free from material misstatement, whether due to fraud or error.

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

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

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

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

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

Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of

assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards

generally accepted in the Republic of China will always detect a material misstatement when it

exists. Misstatements can arise from fraud or error and are considered material if, individually or

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

taken on the basis of these consolidated financial statements.

- 34 -

As part of an audit in accordance with the auditing standards generally accepted in the Republic of

China, we exercise professional judgment and maintain professional skepticism throughout the

audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks,

and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one

resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Group’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Group’s ability to

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

required to draw attention in our auditors’ report to the related disclosures in the consolidated

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

conclusions are based on the audit evidence obtained up to the date of our auditors’ report.

However, future events or conditions may cause the Group to cease to continue as a going

concern.

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

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

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

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

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

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

the group audit. We remain solely responsible for our audit opinion.

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

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

in internal control that we identify during our audit.

We also provide those charged with governance with statements that we have complied with

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

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

where applicable, related safeguards.

- 35 -

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

that were of most significance in the audit of the consolidated financial statements for the year

ended December 31, 2017 and are therefore the key audit matters. We describe these matters in

our auditors’ report unless law or regulation precludes public disclosure about the matter or when,

in extremely rare circumstances, we determine that a matter should not be communicated in our

report because the adverse consequences of doing so would reasonably be expected to outweigh the

public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are An-Hwei

Lin and Cheng-Hung Kuo.

Deloitte & Touche

Taipei, Taiwan

Republic of China

February 23, 2018

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated

financial position, financial performance and cash flows in accordance with accounting principles

and practices generally accepted in the Republic of China and not those of any other jurisdictions.

The standards, procedures and practices to audit such consolidated financial statements are those

generally accepted and applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying

consolidated financial statements have been translated into English from the original Chinese

version prepared and used in the Republic of China. If there is any conflict between the English

version and the original Chinese version or any difference in the interpretation of the two versions,

the Chinese-language independent auditors’ report and consolidated financial statements shall

prevail.

- 36 -

FAR EASTONE TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2016


2017 2016

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents (Notes 4, 6 and 34) $ 8,347,304 6 $ 10,258,743 8

Financial asset at fair value through profit or loss - current (Notes 4 and 34) 595,200 - - -

Available-for-sale financial assets - current (Notes 4 and 34) - - 598,132 -

Derivative financial assets for hedging - current (Notes 4, 7 and 34) 1,700 - 2,073 -

Debt investments with no active market - current (Notes 4, 9 and 34) 658,765 1 910,396 1

Notes receivable, net (Notes 4 and 10) 70,321 - 64,361 -

Accounts receivable, net (Notes 4 and 10) 7,706,352 6 7,445,520 6

Accounts receivable - related parties (Notes 4, 10 and 34) 251,910 - 205,425 -

Inventories (Notes 4 and 11) 4,776,547 4 2,488,365 2

Prepaid expenses 859,512 1 1,190,030 1

Other financial assets - current (Notes 4, 34 and 35) 2,856,693 2 3,079,280 2

Other current assets (Note 34) 159,849 - 315,063 -

Total current assets 26,284,153 20 26,557,388 20

NONCURRENT ASSETS

Financial assets carried at cost (Notes 4 and 8) 263,308 - 218,308 -

Investments accounted for using the equity method (Notes 4, 13 and 34) 1,205,015 1 1,025,081 1

Property, plant and equipment, net (Notes 4, 14 and 34) 46,233,707 35 49,849,572 37

Investment properties (Notes 4 and 15) 1,082,453 1 1,041,406 1

Concessions, net (Notes 1, 4 and 16) 41,820,510 31 38,383,531 29

Goodwill (Notes 4 and 16) 10,808,901 8 10,808,901 8

Other intangible assets (Notes 4 and 16) 3,479,960 3 3,266,025 2

Deferred income tax assets (Notes 4 and 26) 759,909 - 943,784 1

Other noncurrent assets (Notes 4, 10, 17, 22, 34 and 35) 768,439 1 713,326 1

Total noncurrent assets 106,422,202 80 106,249,934 80

TOTAL $ 132,706,355 100 $ 132,807,322 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Notes 4 and 18) $ 864,000 1 $ 2,800,000 2

Short-term bills payable (Notes 4 and 18) 299,681 - 3,149,171 2

Derivative financial liabilities for hedging - current (Notes 4, 7 and 34) - - 47,767 -

Notes payable 45,637 - 15,425 -

Accounts payable (Note 34) 6,515,052 5 4,126,464 3

Other payables (Note 20) 7,531,030 6 8,795,001 7

Current tax liabilities (Note 4) 2,033,857 1 2,157,366 2

Provisions - current (Notes 4 and 21) 227,536 - 219,922 -

Unearned revenue (Note 4) 2,806,802 2 2,447,193 2

Current portion of long-term borrowings (Notes 4, 18 and 19) 8,998,533 7 6,197,478 5

Guarantee deposits received - current 246,344 - 257,597 -

Other current liabilities (Note 34) 823,502 1 767,320 -

Total current liabilities 30,391,974 23 30,980,704 23

NONCURRENT LIABILITIES

Bonds payable (Notes 4 and 19) 20,373,820 15 12,190,103 9

Long-term borrowings (Notes 4 and 18) 7,600,000 6 14,048,345 11

Provisions -noncurrent (Notes 4 and 21) 887,441 1 859,586 1

Deferred income tax liabilities (Notes 4 and 26) 1,730,452 1 1,595,238 1

Deferred revenue - noncurrent (Note 20) 185,766 - 193,188 -

Net defined benefit liabilities - noncurrent (Notes 4 and 22) 728,162 1 764,232 1

Guarantee deposits received - noncurrent 296,738 - 310,364 -

Other noncurrent liabilities (Notes 4 and 13) 65,789 - 142,961 -

Total noncurrent liabilities 31,868,168 24 30,104,017 23

Total liabilities 62,260,142 47 61,084,721 46

EQUITY ATTRIBUTABLE TO OWNERS OF FAR EASTONE

Capital stock

Common stock 32,585,008 25 32,585,008 24

Capital surplus 8,143,345 6 10,166,874 8

Retained earnings

Legal reserve 17,405,561 13 16,270,878 12

Special reserve 783,467 1 769,907 1

Unappropriated earnings 10,822,899 8 11,346,830 8

Total retained earnings 29,011,927 22 28,387,615 21

Other equity 18,132 - (133,479) -

Total equity attributable to owners of Far EasTone 69,758,412 53 71,006,018 53

NONCONTROLLING INTERESTS 687,801 - 716,583 1

Total equity 70,446,213 53 71,722,601 54

TOTAL $ 132,706,355 100 $ 132,807,322 100

The accompanying notes are an integral part of the consolidated financial statements.

- 37 -


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



2017 2016

Amount % Amount %

OPERATING REVENUES (Notes 4, 24 and 34) $ 92,069,681 100 $ 94,344,266 100

OPERATING COSTS (Notes 4, 11, 25 and 34) 56,306,762 61 56,193,147 60

GROSS PROFIT 35,762,919 39 38,151,119 40

OPERATING EXPENSES (Notes 4, 25 and 34)

Marketing 15,663,463 17 17,274,374 18

General and administrative 5,883,158 7 5,852,395 6

Total operating expenses 21,546,621 24 23,126,769 24

OPERATING INCOME 14,216,298 15 15,024,350 16

NONOPERATING INCOME AND EXPENSES

Other income (Notes 4, 25 and 34) 98,094 - 93,536 -

Other gains and losses (Notes 4, 7, 15, 16 and 34) 145,680 - 275,644 -

Financial costs (Notes 4, 25 and 34) (461,784) - (441,781) -

Share of the loss of associates (Note 4) (79,524) - (164,917) -

Loss on disposal of property, plant, equipment and

intangible assets (Note 4) (756,192) (1) (683,934) (1)

Impairment loss recognized on property, plant and

equipment (Notes 4 and 14) - - (313,563) -

Total nonoperating income and expenses (1,053,726) (1) (1,235,015) (1)

INCOME BEFORE INCOME TAX 13,162,572 14 13,789,335 15

INCOME TAX (Notes 4 and 26) 2,308,929 2 2,378,660 3

NET INCOME 10,853,643 12 11,410,675 12

OTHER COMPREHENSIVE INCOME

Items that will not be reclassified subsequently to

profit or loss:

Remeasurement of defined benefit plans (Note 4) 19,430 - (35,245) -

19,430 - (35,245) -

Items that may be reclassified subsequently to profit

or loss:

Exchange differences on translating foreign

operations (Notes 4 and 23) (491) - 5,590 -

(Continued)

- 38 -


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



2017 2016

Amount % Amount %

Unrealized gains (losses) on available-for-sale

financial assets (Notes 4 and 23) 45,872 - (60,497) -

Cash flow hedges (Notes 4, 7 and 23) 24,698 - (17,269) -


associates accounted for using the equity

method (Note 4) 81,589 - 65,243 -

151,668 - (6,933) -

Total other comprehensive income, net of

income tax 171,098 - (42,178) -

TOTAL COMPREHENSIVE INCOME $ 11,024,741 12 $ 11,368,497 12

NET INCOME ATTRIBUTABLE TO:

Owners of Far EasTone $ 10,856,682 12 $ 11,391,303 12

Noncontrolling interests (3,039) - 19,372 -

$ 10,853,643 12 $ 11,410,675 12

COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Owners of Far EasTone $ 11,027,319 12 $ 11,347,860 12

Noncontrolling interests (2,578) - 20,637 -

$ 11,024,741 12 $ 11,368,497 12

EARNINGS PER SHARE, NEW TAIWAN DOLLARS

(Note 27)

Basic $ 3.33 $ 3.50

Diluted $ 3.33 $ 3.49

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

- 39 -


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


(In Thousands of New Taiwan Dollars, Except Dividends Per Share)

Equity Attributable to Owners of Far EasTone

Other Equity

Exchange Unrealized Gains

Retained Earnings Differences (Losses) on

Unappropriated on Translating Available-for-sale Noncontrolling

Share Capital Capital Surplus Legal Reserve Special Reserve Earnings Foreign Operations Financial Assets Cash Flow Hedges Interests

(Note 23) (Notes 4, 23 and 29) (Note 23) (Note 23) (Notes 4, 23 and 28) (Notes 4 and 23) (Notes 4 and 23) (Notes 4 and 23) Total (Notes 4 and 23) Total Equity

BALANCE AT JANUARY 1, 2016 $ 32,585,008 $ 12,058,158 $ 15,127,206 $ 824,480 $ 11,436,725 $ 829 $ 14,625 $ (140,666 ) $ 71,906,365 $ 752,531 $ 72,658,896


Legal reserve - - 1,143,672 - (1,143,672 ) - - - - - - Special reserve - - - (54,573 ) 54,573 - - - - - -

Cash dividends - NT$3.174 per share - - - - (10,342,482 ) - - - (10,342,482 ) - (10,342,482 )

Cash dividends from capital surplus - NT$0.576 per share - (1,876,896 ) - - - - - - (1,876,896 ) - (1,876,896 )

Adjustments to share of changes in equities of associates - - - - (1,892 ) - - - (1,892 ) - (1,892 )

Changes in ownership interests of subsidiaries - (14,388 ) - - (12,549 ) - - - (26,937 ) 26,937 -

Cash capital reduction by subsidiaries - - - - - - - - - (15 ) (15 )

Cash dividends distributed by subsidiaries - - - - - - - - - (83,507 ) (83,507 )

Net income for the year ended December 31, 2016 - - - - 11,391,303 - - - 11,391,303 19,372 11,410,675

Other comprehensive income (losses) for the year ended December 31, 2016 - - - - (35,176 ) 3,809 (60,497 ) 48,421 (43,443 ) 1,265 (42,178 )

BALANCE AT DECEMBER 31, 2016 32,585,008 10,166,874 16,270,878 769,907 11,346,830 4,638 (45,872 ) (92,245 ) 71,006,018 716,583 71,722,601


Legal reserve - - 1,134,683 - (1,134,683 ) - - - - - -

Special reserve - - - 13,560 (13,560 ) - - - - - -

Cash dividends - NT$3.129 per share - - - - (10,195,849 ) - - - (10,195,849 ) - (10,195,849 )

Cash dividends from capital surplus - NT$0.621 per share - (2,023,529 ) - - - - - - (2,023,529 ) - (2,023,529 )

Adjustments to share of changes in equities of associates - - - - (5,182 ) - - - (5,182 ) - (5,182 )

Cash capital reduction by subsidiaries - - - - - - - - - (15 ) (15 )

Difference between the price for acquisition or disposal of subsidiaries and

carrying amount - - - - (144 ) - - - (144 ) 4,726 4,582

Changes in percentage of ownership interests of subsidiaries - - - - (50,221 ) - - - (50,221 ) 31,313 (18,908 )

Cash dividends distributed by subsidiaries - - - - - - - - - (62,228 ) (62,228 )

Net income for the year ended December 31, 2017 - - - - 10,856,682 - - - 10,856,682 (3,039 ) 10,853,643

Other comprehensive income (losses) for the year ended December 31, 2017 - - - - 19,026 (516 ) 45,872 106,255 170,637 461 171,098

BALANCE AT DECEMBER 31, 2017 $ 32,585,008 $ 8,143,345 $ 17,405,561 $ 783,467 $ 10,822,899 $ 4,122 $ - $ 14,010 $ 69,758,412 $ 687,801 $ 70,446,213

The accompanying notes are an integral part of the consolidated financial statements.

40


CONSOLIDATED STATEMENTS OF CASH FLOWS



2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 13,162,572 $ 13,789,335

Adjustments for:

Depreciation 10,032,639 9,444,179

Amortization 841,357 791,724

Amortization of concessions 3,078,021 2,581,338

Allowance for doubtful accounts 486,145 421,688

Net loss on financial assets at fair value through profit or loss 3,400 -

Financial costs 461,784 441,781

Interest income (61,789) (43,085)

Dividend income (2,056) (2,011)

Share of the loss of associates 79,524 164,917

Loss on disposal of property, plant, equipment and intangible assets 756,192 683,934

Transfer of property, plant and equipment to expenses 132 -

Gain on disposal of financial assets (52,270) (265)

Reversal of write-down of inventories (22,329) (31,779)

Impairment loss on nonfinancial assets - 313,563

Loss on change in fair value of investment properties 24,677 18,653

Deferred gain (loss) on derivative assets for hedging 37,362 11,438

Net changes in operating assets and liabilities

Financial assets held for trading (598,600) -

Derivative financial assets for hedging (1,700) -

Notes receivable (5,960) (3,741)

Accounts receivable (768,188) (1,071,514)

Accounts receivable - related parties (46,485) 18,759

Inventories (2,260,164) 2,048,609

Prepaid expenses 334,684 70,798

Other current assets 187,571 (14,082)

Notes payable 30,212 1,931

Accounts payable 2,111,440 (400,494)

Other payables (860,579) (158,732)

Provisions (42,177) (9,808)

Unearned revenue 339,596 2,220

Other current liabilities 19,678 357,268

Net defined benefit liabilities (12,055) (10,272)

Cash generated from operations 27,252,634 29,416,352

Interest received 57,860 50,094

Dividend received 2,056 2,011

Interest paid (337,893) (421,965)

Income taxes paid (2,125,391) (1,971,801)

Net cash generated from operating activities 24,849,266 27,074,691

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds of the disposal of available-for-sale financial assets 651,425 190,134

(Continued)

41


CONSOLIDATED STATEMENTS OF CASH FLOWS



2017 2016

Disposal of debt investments with no active market 251,631 611,656

Acquisition of financial assets carried at cost (45,000) -

Proceeds of the disposal of financial assets carried at cost 945 -

Acquisition of investments accounted for using the equity method (274,497) (30,000)

Acquisition of property, plant and equipment (7,732,052) (8,906,250)

Proceeds of the disposal of property, plant and equipment 76,351 38,081

Increase in refundable deposits (304,648) (316,693)

Decrease in refundable deposits 281,198 312,106

Acquisition of intangible assets (7,538,693) (9,147,729)

Cash received through merger 236,615 -

Decrease (increase) in other financial assets 238,587 (297,880)

Net cash used in investing activities (14,158,138) (17,546,575)

CASH FLOWS FROM FINANCING ACTIVITIES

(Decrease) increase in short-term borrowings (1,936,000) 2,293,029

(Decrease) increase in short-term bills payable (2,849,490) 2,819,463

Proceeds from issuance of bond payables 14,675,877 -

Repayments of bonds payable (6,200,000) (1,600,000)

Proceeds of long-term borrowings 8,900,057 1,699,831

Repayment of long-term borrowings (12,848,402) (8,141,487)

Increase in guarantee deposits received 98,865 114,190

Decrease in guarantee deposits received (135,010) (131,836)

Decrease in deferred revenue (7,422) (21,179)

Cash dividends paid (12,281,606) (12,302,885)

Net changes in noncontrolling interests (18,924) (15)

Net cash used in financing activities (12,602,055) (15,270,889)

EFFECT OF EXCHANGE RATE CHANGES (512) 6,749

DECREASE IN CASH AND CASH EQUIVALENTS (1,911,439) (5,736,024)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 10,258,743 15,994,767

CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 8,347,304 $ 10,258,743

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

42

Ethical Corporate Management Best Practice Principles

The Far EasTone Telecommunications Co., Ltd. Article Current Articles Amended Articles Explanation

Article 17 (Organization and responsibilities) The Applicable parties should exercise the best effort care of professional standards to keep the Company from exercising unethical behaviors and from time to time to review the result of implementation and continuous improvement to assure of full implementation of ethical business conduct policies. For sound management of ethical business conduct, Business Control Department shall coordinate related departments to implement following ethical management practices and regularly reports to the board of directors.

1. Assisting incorporation of ethics and moral values into the company's operation strategy and adopting ensuring ethical management measures in compliance with laws and regulations.

2. Adopting programs and procedures to prevent unethical conduct.

3. Setting up supervising mechanisms against business activities with higher unethical conduct risks.

4. Promoting and coordinating awareness and educational activities with respect to ethics policy.

5. Developing a whistle-blowing system to ensure its effective operating.

6. Assisting the board of directors and management to audit and assess whether

(Organization and responsibilities) The Applicable parties should exercise the best effort care of professional standards to keep the Company from exercising unethical behaviors and from time to time to review the result of implementation and continuous improvement to assure of full implementation of ethical business conduct policies. For sound management of ethical business conduct, Strategy & Finance Division shall coordinate related departments to implement following ethical management practices and regularly reports to the board of directors.


2. Adopting programs and procedures to prevent unethical conduct.

3. Setting up supervising mechanisms against business activities with higher unethical conduct risks.

4. Promoting and coordinating awareness and educational activities with respect to ethics policy.

5. Developing a whistle-blowing system to ensure its effective operating.

6. Assisting the board of directors and management to audit and assess whether

In accordance with organization adjustment, transfer the coordination responsibilities to Human Resources Department.

43

the preventive measures taken for the purpose of implementing ethical management are operating effectively.

the preventive measures taken for the purpose of implementing ethical management are operating effectively.

44

Status of Directors’ shareholding on April 16, 2018 The list of the Seventh Term Board of Directors of Far EasTone Telecommunications Co., Ltd.

Title Name Shares %

Chairman Douglas Hsu, Representative of Yuan Ding Investment Co., Ltd.

1,066,657,614 32.73 Managing Director

Peter Hsu, Representative of Yuan Ding Investment Co., Ltd.

Jan Nilsson, Representative of Yuan Ding Investment Co., Ltd.

Independence Director

Lawrence Juen-Yee LAU -- --

Kurt Roland Hellström -- --

Chung Laung Liu -- --

Director

Champion Lee, Representative of Yuan Ding Co., Ltd. 4,163,500 0.13

Jeff Hsu, Representative of Yuan Ding Co., Ltd.

Keijiro Murayama, Representative of U-Ming Marine Transport Corp. 331,000 0.01

Bonnie Peng, Representative of Asia Investment Corp. 1,426,303 0.04

Toon Lim, Representative of Ding Yuan International Investment Co., Ltd.

919,653 0.03

Total shares owned by all Directors 1,073,498,070 32.94

The total legal registered shares owned by all Directors 78,204,019 2.40

Director and Employees’ compensation Year 2017 Director and Employees’ compensation has been approved by the 14th meeting of the seventh-term Board of Directors on February 23, 2018. The information regarding compensation to Directors and Employees are as underneath: - It is proposed to distribute NT$261,539,193 for employee compensation and NT$94,154,109 for Directors compensation. The distribution will

take place in cash. - As the compensation to Employees and Directors are different from recognized estimated amount, the difference, reasons, and measures

should be disclosed: Not applicable.

Impact of Stock Dividend Distribution on Business Performance, EPS and Return on Investment Impact of Stock Dividend Distribution on Business Performance, EPS and Return on Investment: Not applicable.

45

ARTICLES

46

The Articles of Incorporation of Far EasTone Telecommunication Co., Ltd. Approved by Annual Shareholder’s Meeting on 2016/6/16

Chapter I. General Provisions Article 1 The Corporation shall be named Far EasTone Telecommunication Co., Ltd. and be incorporated as a company limited by shares

in accordance with the Company Law of the Republic of China.

Article 2 The scope of business of the Company shall be as follows: (1) G901011 Type I Telecommunications Enterprise; (2) G902011 Type II Telecommunications Enterprise; (3) F213060 Retail Sale of Telecom Instruments; (4) F113070 Wholesale of Telecom Instruments; (5) JA02010 Electric Appliance and Audiovisual Electric Products Repair Shops; (6) E701030 Restrained Telecom Radio Frequency Equipments and Materials Construction; (7) F401010 International Trade; (8) F204110 Retail sale of Cloths, Clothes, Shoes, Hat, Umbrella and Apparel, Clothing Accessories and Other Textile Products; (9) CC01070 Telecommunication Equipment and Apparatus Manufacturing; (10) I301020 Data Processing Services; (11) IZ11010 overdue receivables management service business; (12) F201070 Retail sale of Flowers; (13) F209060 Retail sale of Stationery Articles, Musical Instruments and Educational Entertainment Articles; (14) F213030 Retail sale of Computing and Business Machinery Equipment; (15) F218010 Retail sale of Computer Software; (16) IZ12010 Manpower Services; (17) JZ99050 Agency Services; (18) I301030 Digital Information Supply Services; (19) I401010 General Advertising Services; (20) IZ99990 Other Industry and Commerce Services Not Elsewhere Classified; (21) JE01010 Rental and Leasing Business; (22) I199990 Other Consultancy; (23) IE01010 Telecommunications Number Agencies; (24) JA02990 Other Repair Shops; (25) F401021 Restrained Telecom Radio Frequency Equipments and Materials Import; (26) CC01060 Wired Communication Equipment and Apparatus Manufacturing; (27) CC01080 Electronic Parts and Components Manufacturing;

47

(28) CC01110 Computers and Computing Peripheral Equipments Manufacturing; (29) CC01120 Data Storage Media Manufacturing and Duplicating; (30) CC01990 Electrical Machinery, Supplies Manufacturing; (31) CD01020 Tramway Cars Manufacturing; (32) E601010 Electric Appliance Construction; (33) E601020 Electric Appliance Installation; (34) E603010 Cables Construction; (35) E603050 Cybernation Equipments Construction; (36) E603080 Traffic Signals Construction; (37) E603090 Illumination Equipments Construction; (38) E605010 Computing Equipments Installation Construction; (39) E701010 Telecommunications Construction; (40) E701020 Channel KU and C of Satellite TV Equipments and Materials Construction; (41) EZ05010 Apparatus Installation Construction; (42) F113050 Wholesale of Computing and Business Machinery Equipment; (43) F114080 Wholesale of Tramway Cars and Parts; (44) F118010 Wholesale of Computer Software; (45) F119010 Wholesale of Electronic Materials; (46) F214080 Retail Sale of Tramway Cars and Parts; (47) F214990 Retail Sale of Other Transport Equipment and Parts; (48) G202010 Parking Garage Business; (49) I103060 Management Consulting Services; (50) I301010 Software Design Services; (51) IG03010 Energy Technical Services; (52) IZ13010 Internet Identify Services; (53) J101050 Sanitary and Pollution Controlling Services; (54) F108031 Wholesale of Drugs, Medical Goods; (55) F208031 Retail sale of Medical Equipments; (56) I301040 Third Party Payment Platform; (57) F399040 Non-Store Retailing (58)ZZ99999 Other business items that are not prohibited or restricted by law, except those that are subject to special approval.

Article 3 The Corporation may provide guarantees for third parties by the regulation of Procedure for Making Endorsements and Guarantees. The Corporation may also act as a shareholder with limited liability of another company. Upon approval of the Board Directors, its investment may exceed forty percent (40%) of the paid-in capital of the Corporation, notwithstanding Article 13 of the

48

Company Law, but the Company shall follow the Company’s “Procedures for Handling Acquisition or Disposal of Assets” for acquiring assets.

Article 4 The head office of the Corporation shall be located in Taipei, Taiwan, ROC. The Board of Directors may decide to establish branch offices within or outside the territory of the Republic of China.

Chapter II. Shares Article 5 The registered capital of the Company is NT$42,000,000,000 and is divided into 4,200,000,000 common shares with a par value

of NT$10 each share. The Board is authorized, at different stage, to issue the shares that are not outstanding.

Article 6 Prior to issuance, the share certificates of the Corporation shall bear the shareholders’ names, shall be numbered serially, shall be signed or sealed by three or more Directors of the Board, and certified by the competent government agent. The share certificates may not be printed to represent the Company’s shares. Registration with the Taiwan Securities Central Depository Co., Ltd. is necessary. On the total number of shares, the Company may, as well, consolidate share certificates for printing, provided that the share certificates shall be put into the Taiwan Securities Central Depository Co., Ltd. for deposit. The Company may, while requested by the Taiwan Securities Central Depository Co., Ltd., consolidate shares to issue share certificates of large denomination. The Company may issue preferred stocks. Where the Company is merged with another company, the Company is not required to come to resolution through a preferred stocks shareholders’ extraordinary meeting.

Article 7 The Company shall handle equity affairs in compliance with “Regulations Governing Equity Affairs of Public Offering Companies” and other laws concerned.

Article 8 No transfer of share certificates shall be permitted within sixty days prior to a regular meeting of shareholders, thirty days prior to a special meeting of shareholders, or within five days prior to the date fixed for distributing dividends, bonuses, or other benefits.

Chapter III. Shareholders’ Meetings Article 9 Shareholders’ meetings shall be convened as follows:

(1) Regular meeting –to be convened by the Board of Directors within six months from closing of every fiscal year; and (2) Special meeting – shall be convened in accordance with relevant laws and regulations.

Article 10 Unless otherwise provided for in the Company Law and these Articles of Incorporation, the shareholders’ meeting shall be duly called pursuant to the Company’s Regulations Governing Shareholders’ Meetings.

Article 11 A notice to convene a regular meeting of shareholders shall be given to each shareholder thirty days in advance. A notice to convene a special meeting of shareholders shall be given to each shareholder fifteen days in advance. The notice shall state the time, place and purpose of the meeting to be convened.

Article 12 Resolutions at a Shareholders’ meeting shall, unless otherwise provided for in the Company Law, be adopted by a majority vote of shareholders present in person or by proxy, who represent a majority of the total number of outstanding shares.

49

Article 13 In case a shareholder is unable to attend the Shareholders’ meeting, he/she may make another person his/her proxy to attend the meeting. They proxy document for this purpose must be provided, however, in the event the same proxy acts for two or more shareholders, his delegated voting power shall not exceed three percent (3%) of the total voting power of the Company’s total issued shares and such portion of shares exceeding three percent (3%) shall not be counted for vote purposes. This limitation shall not apply to holders of proxies engaged in the trust business or the shares transfer agency.

Article 14 Resolutions adopted at a meeting of the shareholders shall be recorded in the minutes of the proceedings which shall be prepared in English and in Chinese and shall be signed and sealed by the chairman of the meeting. The minutes of proceedings shall also include the time and place of the meeting, name of the chairman, number of shares represented by attending shareholders (or proxies) and the manner in which resolutions had been adopted, as well as other essentials of the proceedings. The minutes shall be given to each shareholder within twenty (20) days after the meeting and may be effected by means of a public notice and shall be duly filed according to law along with a list of shareholders present at the meeting and the proxies.

Chapter IV. Directors and Officers Article 15 The Company shall have nine (9) to eleven (11) Directors, to be elected who are competent persons at Shareholders’ meeting.

The tenure of office of Directors will be three (3) years and they will be eligible for re-election. Among the aforesaid number of members of the Board of Directors shall have three (3) Independent Directors. Election of Directors shall adopt candidate nomination system according to Article 192-1 of the Company Act. Regulations governing the professional qualifications, restrictions on shareholdings and concurrent positions held, assessment of being independent, method of nomination, and other matters for compliance with respect to Independent Directors shall follow relevant regulations prescribed by the Competent Authority. The remuneration for Directors shall be determined by the Remuneration Committee and the Board of Directors.

The total number of registered shares owned by all Directors shall be determined pursuant to “Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies”, as amended May 20, 2008.

Article15-1 Pursuant to Article 14-4 of the Securities and Exchange Act, as amended June 5, 2013, the Company will establish an Audit Committee when as the 7th Term Board of Directors is elected into the office in 2015. The Audit Committee shall make up of the entire number of Independent Directors, is responsible for executing powers relegated to Supervisors by the Company Act, Securities and Exchange Act and other laws and regulations. The organizing members, exercise of powers and other matters to be abided by the Audit Committee shall follow related laws, regulations or rules or regulations of the Company. The organization regulations of the Audit Committee shall be stipulated by the Board of Director.

Article 16 A corporate shareholder of this Company shall have the right to designate a number of representatives to be elected as Director(s) of the Company and the right to designate representatives as substitutes or successors of such Director(s).

Article 17 The Managing Directors shall be selected from among the directors. He Directors shall form a Board of Directors. The chairman or the vice chairman of the board shall be elected from the managing directors. He Managing Directors shall form a Board of Managing Directors. During the recess of the board of directors, the managing directors shall regularly exercise the power and

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authority of the board of directors accordingly.

Article 18 A meeting of the Board of Directors shall be convened by its Chairman, provided that the initial meeting of each term of the Board of Directors shall be called by the Director who receives the number of ballots representing the largest of votes. Directors may attend the meeting in person or by proxy. A Director cannot represent more than one absentee Director for a meeting of the Board of Directors. A Director residing in a foreign country may appoint, in writing, a Director residing within the Republic of China as his alternate to attend the meetings of the Board of Directors regularly, provided, the appointment shall be registered with competent government authority. In case a meeting of the Board of Directors is held via visual communication network, then the Directors taking part in such a visual communication meeting shall be deemed to have attended the meeting in person. The notice for the Board meeting shall state the reasons and agenda of the meeting, and shall be sent to each Directors seven (7) days prior to the meeting, provided, however, that in case of emergency the meeting may be convened at any time. The meeting notice provided in preceding paragraph could be issued by email or fax.

Article 19 The Chairman of the Board of Directors shall preside at meetings of the Board of Directors. In case the Chairman of the Board of Directors is on leave or absent or cannot exercise his power and authority for any cause, the Vice Chairman shall act on his behalf. In case of absent of or unavailability of the Vice Chairman as well, the Chairman of the Board of Directors shall designate one of the managing directors to act on his behalf. In the absence of such a designation, the managing directors or the directors shall elect from among themselves an acting chairman of the Board of Directors.

Article 20 The powers of the Board of Directors shall be as follows: (1) make business plans; (2) review and examine important rules; (3) appoint and dismiss officers; (4) determine the establishment, change or revocation of any domestic or foreign branch offices; (5) review and examine budget and financial reports; (6) establish audit committee or any other functional committees; review and approve regulations governing the exercise of power

and duty of these functional committees. (7) implement any other matters designated by resolution of the shareholders or in accordance with the Company Law, and

determine any other important matters.

Article 21 (Omitted)

Article 22 The Company has one President, one General Auditor and several Executives Vice Presidents and Vice Presidents. All managerial officers shall be duly appointed, discharged by the Board of Directors through a majority vote of the attending Directors who represent a majority of the total Directors.

Article 23 The President shall take charge of all affairs of the Corporation in accordance with the order of the Chairman of the Board. The Executive Vice Presidents shall assist the President.

Article 23-1 The Company shall take out liability insurance for Directors and officers with respect to their liabilities resulting from exercising

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their duties during their terms of occupancy.

Chapter V. Accounting Article 24 The business year of the Corporation shall begin on January 1st and end on December 31st of each year. Annual closing of books

shall be made at the closing date / end of each business year.

Article 25 At the end of each fiscal year, the Board of Directors shall, on thirty days prior to the regular Shareholders’ Meeting, prepare the following reports, and forward them to the Audit Committee for examination and for the latter’s preparing examination report: (1) Report on operations; (2) Financial reports; and (3) Proposal concerning distribution of net profits or action to deal with losses. The appointment, dismissal and compensation of the certified accountant responsible for auditing the above books and reports shall be determined by the Board of Directors by a majority vote of the attending Directors representing a majority of the Board members.

Article 26 IF there is profit for the current year, the Company shall set aside 1%~2% of it as compensation for employees and, shall set aside not more than 1% of it as compensation for Directors. If there is accumulated loss on the books of the Company, portion of the profit equaling the loss shall first be set aside to cover the latter. The employees’ compensation may be distributed by shares or by cash. The company shall, by a resolution adopted by a majority vote at a meeting of board of directors attended by two-thirds of the total number of directors, determine the actual profit ratio of distribution, amount, methods, and number of shares, and shall report to the shareholders’ meeting. The board of directors shall also determine the ratio of distribution of directors’ compensation and amount and shall report to the shareholders’ meeting. If the account closing at the end of the fiscal year of the company discloses profit, the company, when allocating its profit, after paying all taxes, making good losses of previous year(s), shall first set aside ten (10) percent of said profit in balance as statutory surplus reserve, and then set aside special surplus reserve as required by the Articles of Incorporation or by resolution of the shareholders’ meeting. The rest of surplus, if any, shall be consolidated with the unallocated earning accumulated in the preceding year(s) as distributable earning, as determined by the shareholders’ meeting to be allocated equally according to all shares to every shareholder as shareholders’ dividend or to be retained.

Article 27 The dividend payout ratio each fiscal year shall be no less than fifty percent 50% of the final surplus which is the sum of

after-tax profit of the fiscal year to withhold previous loss, if any, legal reserve and special reserve as required by law; while cash dividend declared by the Corporation shall be no less than fifty percent (50%) of the total dividends distributed that year; provided, however, depending on whether the Corporation has any financial structure improvement or major capital expenditure plans in the year, the earning unallocated and accumulated in the preceding year may be distributed, and the payout ratio and percentage of cash dividend may be raised or lowered by a resolution adopted at the shareholders’ meeting.

Article 28 Dividends will be paid only to those shareholders whose names are recorded on the shareholders’ register on the date fixed for distributing dividends.

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Chapter VI. Appendix Article 29 Other rules of the Corporation shall be set up separately by the Board of Directors.

Article 30 Provisions of the Company law shall be referred to for matters not provided for in these Articles of Incorporation.

Article 31 These Articles of Incorporation were agreed upon and signed on Mar. 7, 1997. First amended on Jun. 6, 1997; Second amended on Aug. 20, 1998; Third amended on Apr. 28, 1999; Fourth amended on Apr. 21, 2000; Fifth amended on Dec. 28, 2000; Sixth amended on May. 15, 2001; Seventh amended on Jun. 25, 2002; Eighth amended on May 23, 2003; Ninth amended on Feb. 18, 2004; Tenth amended on Jun. 30,2004; Eleventh amended on May 20, 2005; Twelfth amended on May 26, 2006; Thirteenth amended on June 12, 2007; Fourteenth amended on June 15, 2010; Fifteenth amended on June 9, 2011; Sixteenth amended on June 13, 2012; Seventeenth amended on June 13, 2013; Eighteenth amendment on June 11, 2014; Nineteenth amendment on June 18, 2015; Twentieth amendment on June 16, 2016.

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Far EasTone Telecommunications Co., Ltd Ethical Corporate Management Best Practice Principles

Approved by Board of Director Meeting on 2018/5/4

Article 1 (Purpose and applicable subjects and scope) For the purpose of nurture a sustainable development and establishment of an organizational culture of ethical management, the Company specifically stipulates this Ethical Corporate Management Best Practice Principles (the “Principles”). The Principles is applicable to the Company’s directors, managers, employees, mandataries and people who have actual ability of control (the “Applicable parties”). The Principles is applicable also to subsidiaries, non-profit corporations where the Company directly or indirectly contributes over 50% of fund and other group enterprises and organizations, such as institutions or corporations which the Company have actual ability of control.

Article 2 (Prohibition against dishonest behaviors) During the course of business activities, the Applicable parties shall not directly or indirectly offer, promise, ask or accept any illegitimate benefits or show any dishonest behavior, such as violation of honesty, illegal behavior or breach of fiduciary duty in order to gain or maintain benefits (the “dishonest behaviors”). The subjects of foresaid behaviors include public servants, political candidates, political parties or political party workers, public or private enterprises or institutions and their directors, supervisors, managers and employee, actual controllers and other stakeholders.

Article 3 (Forms of benefits) Benefits referred to in the Principles are all things with value, including any form or name of money, gifts, commissions, positions, service, special discounts, kickbacks, etc., except those acceptable under normal social customs, purely accidental, and does not contain effect on specific rights and obligations.

Article 4 (Compliance with laws and regulations) The Company should comply with the Company Act, Securities and Exchange Act, Business Entity Accounting Act, Political Donations Act, Anti-Corruption Act, Government Procurement Act, Act on Recusal of Public Servants Due to Conflicts of Interest, related regulations governing securities listing or other rules governing business behaviors as the basis of implementation of basic prerequisite for ethical corporate management.

Article 5 (Policy) The Company stipulates policies on the basis of ethics in accordance with its business philosophy of incorruptibility, transparency and responsibility and establishes good corporate governance and risk control mechanisms in order to create a sustainable development environment.

Article 6 (Preventive Programs) The Company sets specific ethical management practices and behavior standards for the prevention of dishonest behaviors in

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accordance with the Principles and specifies things to be noticed when the Applicable parties perform respective business.

Article 7 (Scope of Principles of Business Conduct) The Company stipulates preventive programs should at least include precautions against the following behaviors: 1. Offering and accepting bribes. 2. Making illegal political donation. 3. Improper charitable donation or sponsorship. 4. Offering or accepting unreasonable gifts, entertainment or other illegitimate benefits. 5. Misappropriation of trade secrets and infringement of trademark rights, patent rights, copyrights, and other intellectual

property rights. 6. Engaging in unfair competitive practices. 7. Preventing products or services from damaging the rights and interests of stakeholders.

Article 8 (Commitment and implement) The Company shall specify on its website and in its annual reports its ethical business policies and the commitment by the board of directors and the management on rigorous and thorough implementation of such policies, and shall carry out the policies in internal management and in commercial activities.

Article 9 (Ethical business conduct activities) The Company conducts business activities in a fair way based on the principle of ethical business conduct. The Company will consider the legality of contractors, suppliers, or other business counterparties and find out whether these parties have any records of unethical behaviors before engaging in business contact to avoid making transactions with counterparties with records of dishonest behaviors. When the Company enters into any important contract with contractors, suppliers, or other trading counterparties, the contract shall include clauses of conformity with honest business conduct policies and clauses of termination or dissolution of the contract if the counterparty is involved in any dishonest behavior.

Article 10 (Prohibition against offering and accepting bribes) The Applicable parties shall not directly or indirectly offer, promise, ask or accept any improper benefits in whatever form to or from clients, contractors, suppliers, public servants, or other stakeholders when they conduct business.

Article 11 (Prohibition against making illegal political donation) Any donation made by the Applicable parties to political parties, or organizations which participate in political activities or individuals should conform the Political Donation Act and related internal procedures. No business benefit or dealing advantages shall be obtained through such donation.

Article 12 (Prohibition against improper charitable donation or sponsorship) Charitable donation or sponsorship made by the Applicable parties should conform to applicable laws and regulations and internal procedures and shall not be used as disguised bribery.

Article 13 (Prohibition against unreasonable gifts, entertainment or other illegitimate benefits)

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The Company and the Applicable parties shall not directly or indirectly provide or accept any gifts, special treatment and improper benefits to establish business relationship or affect commerce transactions, except for souvenirs or promotion gifts with value no more than NT$2,000 or with logos of suppliers, distributors or customers based on local customs and courtesy.

Article 14 (Prohibition against infringement of intellectual property rights) The Company and the Applicable parties shall observe applicable laws and regulations dealing with intellectual property rights; may not use, disclose, dispose of, or damage intellectual property or other acts infringing intellectual property rights without prior consent of the intellectual property rights holder.

Article 15 (Prohibition against engaging in unfair competition practices) The Company shall engage in business activities in accordance with applicable competition laws and regulations, and may not engage in unfair competition practices.

Article 16 (Preventing products and services from damaging stakeholders) The Company and the Applicable parties shall observe applicable laws and regulations in the course of provision of products and services to ensure the information transparency of products and services to ensure the transparency of information, with a view to prevent damaging the rights of consumers or other stakeholders to be caused by such products and services.

Article 17 (Organization and responsibilities) The Applicable parties should exercise the best effort care of professional standards to keep the Company from exercising unethical behaviors and from time to time to review the result of implementation and continuous improvement to assure of full implementation of ethical business conduct policies. For sound management of ethical business conduct, Strategy & Finance Division shall coordinate related departments to implement following ethical management practices and regularly reports to the board of directors.


2. Adopting programs and procedures to prevent unethical conduct. 3. Setting up supervising mechanisms against business activities with higher unethical conduct risks. 4. Promoting and coordinating awareness and educational activities with respect to ethics policy. 5. Developing a whistle-blowing system to ensure its effective operating. 6. Assisting the board of directors and management to audit and assess whether the preventive measures taken for the purpose

of implementing ethical management are operating effectively.

Article 18 (Compliance with laws and regulations in business execution) The Applicable parties should observe laws and regulations and preventive measures in executing business.

Article 19 (Act on recusal due to conflict of interests) The Company stipulates policies to prevent conflict of interests in order to identify, monitor, and manage unethical conduct risks caused by such conflict, and offers appropriate channels for the directors, managers and other stakeholders attending the board of director meeting to voluntarily elaborate any possible conflict of interest facts between the Company and them.

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The Company’s directors, , managers, and other stakeholders attending board meetings shall highly self-disciplined, shall state the important aspects of the relationship of interest at the given board meeting when any proposed agenda item to be discussed in the meeting of the board of directors has conflict of interests against himself or a corporate entity by which himself represents, if his or her participation is likely to prejudice the interest of the Company, he/she shall recusal and be not allowed to participate in discussion and voting, and he/she is not allowed to exercise as proxy on behalf of other directors. Directors shall also be self-disciplined and not be allowed to support each other. The Applicable parties shall not obtain any illegitimate benefit for themselves, their spouses, parents, children or any other people through their position or influence in the Company.

Article 20 (Accounting and internal control) The Company establishes an effective accounting and internal control system respecting operating activities with higher unethical business operation risk. The Company has no off-the-book accounts or secret accounts and frequently carries out review to ensure the effective design and implementation of the system. The Company’s Internal Audit department shall regularly check compliance of the foresaid system and prepare the audit report for reporting to the board of directors. The Internal Audit may engage certified public accountant to carry out the audit, and may engage professionals to assist if necessary.

Article 21 (Operating procedures and behavior guidelines) The Company stipulates handling procedures or behavior standards to prevent dishonest behaviors. The contents include the following: 1. Recognition criteria for offering or accepting illegitimate benefits. 2. Handling procedures for offering legal political donation. 3. Handling procedures and amount standards for offering legitimate charitable donation or sponsorship. 4. Regulations, reporting and handling procedures to avoid conflict of interest related to work. 5. Confidentiality for secret and sensitive data obtained from business. 6. Standards and handling procedures for suppliers, customers, and counterparties involved in dishonest behaviors. 7. Handling procedures for discovery of violation of Principles of Business Conduct. 8. Disciplinary punishment for violators.

Article 22 (Training and assessment) The Company’s chairman, president, or senior management shall communicate the importance of corporate ethics to its directors, employees, and mandataries on a regular basis. The Company undertakes educational propaganda of the Principles for the Applicable parties on a regular basis. The Company periodically gives training and communication to the Company’s staff and actual controller. Operating units shall communicate with counterparties which have business contacts with the Company and make them understand the determination, policies, and preventive measures of the Company’s ethical management conduct and results of violation of ethical behaviors. The Company shall combine the ethical business conduct policies with employees’ performance assessment.

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Article 23 (Reporting System) The Company establishes a mailbox to be used by Company’s internal people and outsiders. When material misconduct or likelihood of material impairment to the Company is investigated to be true by the department in charge of handling the correspondence received, the department shall immediately prepare a report and notify the independent directors in writing.

Article 24 (Punishment and appeal system) When the Applicable parties violated ethical management practice, such misconduct will be penalized by the Company as appropriate under the circumstances. The Company shall set up an appeal system for people who violate the Principles in order to seek remedy in accordance with related regulations.

Article 25 (Disclosure of information) The Company shall disclose the measures taken for implementing ethical corporate management policy, the status of implementation, and the effectiveness of promotion on the corporate website, annual reports and prospectuses, and shall disclose the contents of the Principles on the Market Observation Post System(MOPS).

Article 26 (Review and revision of the Principles) The Company shall from time to time observe the developments of domestic and foreign standards for ethical corporate management and encourages the Applicable parties to submit their suggestions for reviewing and improving ethical corporate management policies and measures to be taken in order to upgrade effectiveness of the Company’s ethical business management conduct.

Article 27 (Implementation) The Principles shall enter into force after being approved by the Audit Committee and the board of directors, and shall be reported at the shareholders’ meeting afterwards. The same procedure shall be followed to amend the Principles.

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Far EasTone Telecommunications Co., Ltd. Directors Election Guidelines

Approved by Annual Shareholder’s Meeting on 2015/6/18.

Article 1 These guidelines shall apply to the election of directors of the Corporation, unless the laws and Company’s articles of incorporation other relevant regulations shall apply thereto.

Article 2 The election of the Corporation’s directors shall be on the basis of accumulation of votes. Ballot of the eligible voter shall be assigned with code of certificate of present voter. The ballots to be prepared by Board of directors shall indicate serial number of present voter and the number of votes he represented.

Article 3 The election of the Independent and non-Independent Directors of the Corporation shall be held at the same time in accordance with the number of persons to be elected, with voting rights be separately calculated for the Independent and non-independent Director. Those receiving ballots representing the highest numbers of voting rights will be sequentially elected. When two or more candidates win same votes thus exceeding the seats, the ones with the same number of voting rights shall draw lots to determine. In the event of absent tied candidate or candidates, the presiding person of the election shall draw the lot representing the absent candidate(s). Election of Directors shall adopt the candidates nomination system in accordance with Article 192-1 of the Company Act and with respect to the qualification, independent condition and other matters of electing Independent Directors, “Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies” and other related laws and regulations shall govern.

Article 4 In the beginning of the election, the chairman shall designate two canvassers and two tally clerks to carry out relevant missions. The canvasser shall be limited to shareholder of the Corporation.

Article 5 The canvasser shall perform the following missions: (1) Prior to casting of votes, open the vote box to the participants and have a seal attached onto the cover of box. (2) Maintain good order for vote casting and prevent any negligence or irregularities in voting. (3) Upon completion of voting, remove the seal from box cover, take out the ballots and count the number of ballots. (4) Check to see if there are any invalid votes and have the valid votes hand over to tally clerk. (5) Conduct supervision over the votes recorded by tally clerk and votes won by the eligible directors/supervisors.

Article 6 Where a candidate is a natural person, the voters shall expressly enter the candidate’s account name and shareholder account number on the ballots if he is a shareholder, and shall expressly enter the candidate’s name and ID document number on the ballots if he is not a shareholder. Where a candidate is a government or a corporate shareholder, other than the shareholder account number, the voters may enter as well the name of the government or a corporate shareholder and name of the representative. In case of several representatives, the names of representatives shall be entered.

Article 7 A ballot is null and void if:

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(1) Not in the ballot form as required under the Regulations; (2) Bearing two or more candidates on a same ballot; (3) Remaining blank bearing no entries from the vote; (4) Bearing entries not satisfactory to Article VI or bearing other irrelevant wording; (5) Bearing vague, illegible wording; (6) Bearing a candidate who proves nonconforming in qualifications.

Article 8 Ballot boxes shall be produced and prepared by the Corporation, and be opened and examined by the ballot examiner to the public prior to casting of votes.

Article 9 After all ballots are cast into ballot box, the canvasser shall join the tally clerk in opening of ballot box.

Article 10 The canvasser shall supervise over the count of ballots of tally clerk.

Article 11 In case of any doubts about the ballots, the canvasser shall be requested to conduct a verification to see the validity of the ballots. The invalid ballots shall be segregated from the valid ones and be certified as invalid ballots by the canvasser after having counted number of ballots and the voting rights.

Article 12 According to results of the votes, the canvasser shall conduct a check on the valid ballots and invalid ballots and produce a record indicating the number of valid ballots and voting rights, the invalid ballots and the voting rights and then the chairman shall announce the names of the elected Directors and Supervisors.

Article 13 Board of Directors shall issue notice of being elected to the Directors-elected.

Article 14 These guidelines shall become effective upon having been approved by meeting of shareholders and the same provision shall also apply to revision thereto.

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Far EasTone Telecommunications Co., Ltd

Regulations Governing the Conduct of Shareholders’ Meetings Approved by Annual Shareholder’s Meeting on 2014/6/11

Article 1 These Regulations governing all affairs of the Company’s shareholders’ meetings.

Article 2 The Company’s Shareholders’ meeting shall be held at a place where the Company is headquartered or a place facilitating and appropriate to shareholders (or proxies thereof), and shall be held not earlier than 9:00 the morning or later than 3:00 in the afternoon. The meeting notice of the Shareholders’ meeting shall state the registration time, location and other important information. The aforesaid registration time shall start at least thirty minutes before the beginning of the meeting. The registration location shall bear clear indication and staffed with sufficient and competent personnel. When calling a Shareholders’ meeting, the Company shall adopt electronic transmission as one of the methods for exercising voting power, and such exercise shall be specified in the meeting notice. Shareholders who exercise their voting power via electronic transmission shall be deemed as attending the shareholders' meeting in person, but they shall be deemed as having waived their exercise of voting power with respect to any temporary motions and amendments/alternates to original motions, proposed at the Shareholders’ meeting. Shareholders (or by proxies) shall attend the Meeting carrying attendance card, sign-in card or other certificate of attendance. The proxy solicitor shall provide Citizen ID for verification purpose. While attending the Shareholders’ Meeting, Shareholders (or by proxies) may submit sign-in cards rather than personal registration with signatures. The attendance at a Shareholders' meeting shall be counted based on the quantity of shares. The number of shares shall be counted based on the certificate of attendance as furnished plus the quantity of shares for which the voting power is exercised via electronic transmission. The Company may appoint the retained Attorneys-at-Law, CPAs or other people concerned to attend a Shareholders’ meeting as an observer. The Shareholders’ meeting staff shall wear identity certificates or sashes. A Shareholders’ meeting shall be chaired by the chairman if it is called by the chairman. In absence of the Cha irman or his being unable to exercise his functions, the Vice Chairman shall act in his place. In absence of a Vice Chairman or while the Vice Chairman is unable to exercise his functions, the Chairman shall appoint a Director to act in the place otherwise a Director shall be elected from among themselves to act in the place. Where the Board of Directors meeting is called by a person beyond the Board of Directors, the meeting shall be chaired by the convener. Where there are two or more qualified conveners, one shall be elected from among themselves to chair the meeting. To be eligible to substitute to chair a Shareholder’s Meeting, it requires a Director having been serving with a tenure for more than six months, and with a familiarity of both the daily operation and finance condition of the company. The same requirements apply to representative of an institutional Director. The Company shall record in sound or videotape the Shareholders’ meeting throughout the process and shall keep the videotape or

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record for a minimum of one year. If a shareholder files a lawsuit pursuant to Article 189 of the Company Law, the video and audio records shall be conserved until the conclusion of the litigation.

Article 3 The chairman may call to order to the meeting where a shareholders’ meeting is attended by shareholders (or proxies thereof) representing a majority of the total issued shares. The chairman may announce extension of the time if the attendance is below the specified quorum within the specified time limit. The chairman may announce two extensions in maximum and the total period of extension shall not exceed an hour. In the event the total attendance is still below the specified quorum with two extensions but represents up to one-third of the total issued shares through shareholders (or proxies thereof), decision may be resolved on ordinary issues through a quasi-resolution by a majority vote of the attending shareholders (or proxies thereof). In the event the total number of shares represented by shareholders (or proxies thereof) is up to the specified quorum after the quasi-resolution is made, the chairman shall bring the quasi-resolution to the shareholders’ meeting for acknowledgement retroactively.

Article 4 The shareholders’ meeting’s agenda shall be determined by the board of directors if the meeting is called by the board of directors. The meeting shall be handled according to the established agenda, which shall not be changed unless resolved by the shareholders’ meeting. The preceding provision is applicable mutatis mutandis to a shareholders’ meeting called by another person entitled to call the shareholders’ meeting beyond the board of directors The chairman shall not announce adjournment of the meeting until the issues set forth in the two preceding paragraphs (including occasional motion) unless duly resolved.

Where the Chairman announces adjournment against the aforementioned provision at a shareholders’ meeting, one may be elected by a majority vote of the attending shareholders to chair and continue the meeting. After the meeting is adjourned as resolved, shareholders shall not elect a new chairman to continue the shareholders’ meeting at the same location or a location elsewhere.

Article 5 A shareholder (or proxy) shall submit floor requisition, bearing attendance certificate code, shareholder account number and subjects so that the chairman will appoint the floor order before speaking in floor. A shareholder (or proxy) who does not speak up shall be deemed having not spoken up even he has submitted the floor requisition. Where the contents actually spoken are found differing from the entry in the floor requisition, only the contents of the verified speech shall govern.

Article 6 A proposal shall be posed in writing. Except the proposals enumerated on the agenda, a proposal posed by a shareholder to amend the provided proposals, alternatives or other proposals by means of occasional motion shall be seconded by other shareholders (proxies). This same is applicable to a proposal to change agenda, to adjourn. The total number represented by the proposing shareholder and seconding shareholders shall be up to 100,000 shares minimum.

Article 7 Explanation to a proposal shall not exceed five minutes. Speech as an inquiry or in reply shall not exceed three minutes per person and may be extended for another three minuets if permitted by chairman. The chairman may stop a shareholder (or proxy) from speaking if he speaks beyond the specified time limit, specified issues or permitted times. When a shareholder (or proxy) speaks in floor, other shareholders (proxies) shall not interrupt unless agreed upon

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by the chairman and the speaking shareholder (or proxy) otherwise the chairman shall stop the interruption. Article 15 shall apply if such shareholder (or proxy) objects the chairman in stopping the interruption.

Article 8 On the same issue, each shareholder shall not speak more than twice. Where a corporation is authorized to attend a shareholders’ meeting, such corporation shall appoint only one proxy to attend the meeting. Where a corporation appoints more than two proxies to the meeting, only one proxy may speak in floor.

Article 9 After an attending shareholder (or proxy) speaks, the chairman may reply himself or by appointing another person. Amidst discussion of a proposal, the chairman may, in due time, announce conclusion of the discussion or announce discontinuation of the discussion as necessary.

Article 10 On a proposal the discussion process of which is announced concluded or discontinued, the chairman shall announce voting pursuant to the number of shares represented. The staff to monitor resolution and to tally votes shall be appointed by the chairman and shall be subject to consent by attending shareholders (proxies). The staff to monitor voting shall only be shareholders.

Article 11 Unless otherwise provided for in law or Articles of Incorporation, decisions in the shareholders' meeting shall be resolved by a majority vote of the attending shareholders (proxies). Where any shareholder who exercises voting power via electronic transmission does not object to the motion, and neither does the other present shareholders upon the chairperson’s inquiry, the motion shall be deemed as ratified as validly as if voted by ballot. Where any shareholder objects to the motion, a vote by ballot shall be applied, and the chairperson may decide to vote on a case by case basis, or adopt a package vote or split vote against various motions (including the motion for election), and count votes separately. In case of an amendment or alternative to a same proposal, the chairman will determine the order of voting. Where one among them is resolved, all others shall be deemed vetoed and call for no more voting process. The results of voting and election shall be announced on the spot after the vote counting and be kept for records.

Article 12 During the process of the meeting, the chairman may announce an intermission as the actual situation may justify.

Article 13 In case of an air-raid alarm during process of a meeting, the meeting shall be discontinued forthwith for evacuation. The meeting may be resumed an hour after the “all-clear” announcement.

Article 14 The chairman may command security guards or discipline personnel to help maintain the order of the meeting. Such security guards or discipline personnel shall wear armbands to identify their capacity while on duty to maintain the order.

Article 15 The shareholders (proxies) shall accept instructions by the chairman, the security guards or discipline personnel in maintaining the order. The chairman, the security guards or discipline personnel may expel those who interfere with the shareholders’ meeting.

Article 16 Any matters insufficiently provided for herein shall be subject to the Company Law, Securities Trading Law and other laws concerned.

Article 17 These Regulations and amendment hereof shall come into enforcement after binge resolved in the shareholders’ meeting.

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Documents

Far EasTone Telecommunications Co., Ltd. 2018 Annual ... · 0 Far EasTone Telecommunications Co., Ltd. 2018 Annual Shareholders’ Meeting Handbook June 14, 2018 Taipei City, R.O.C