PART I Dividends and Distributions  Changes in Share Capital  105 Preemptive Rights  Under the Republic of China Company Law and our articles of incorporation, when we issue new shares  for cash, existing stockholders who are listed on the stockholders’ register as of the record date have preemptive  rights to subscribe for the new issue in proportion to their existing shareholdings. Under our articles of  incorporation, our employees, except for the directors and executives involved with the approval and passage of  the share issuance, have rights to subscribe for between 10% and 15% of any new issue.  In addition, in accordance with the Republic of China Securities and Exchange Law, a public company that  intends to offer new shares for cash must offer to the public at least 10% of the shares to be sold except in certain  limited circumstances. This percentage can be increased by a resolution passed at a stockholders’ meeting, held  in accordance with the Company Law and our articles of incorporation which would diminish the number of new  shares subject to the preemptive rights of existing stockholders.  Under the Republic of China Company Law, any change in our authorized share capital requires an  amendment to our articles of incorporation, which in turn requires approval at our stockholders’ meeting.  Authorized but unissued common shares may be issued, subject to applicable Republic of China law, upon terms  as our board of directors may determine.  Under our articles of incorporation, if we do not have current or retained earnings (excluding reserves) but  our legal reserve exceeds 50% of our paid-in capital, we may use the excess amount to distribute dividends. In  addition, under the Republic of China Company Law, if we do not incur a loss, we are also permitted to make  distributions to our stockholders of additional common shares by capitalizing reserves (including the legal  reserve, the premium derived from the issuance of new shares and the income from endowments received by us).  However, amounts payable by capitalizing our legal reserve are limited to 50% of the total accumulated legal  reserve and this capitalization can only be effected when the accumulated legal reserve exceeds 50% of our paid- in capital.  We are not permitted to distribute dividends or make other distributions to stockholders in any year in which  we do not have any net income or retained earnings (excluding reserves). The Republic of China Company Law  also requires that 10% of our annual net income, less prior years’ losses and outstanding tax, if any, be set aside  as a legal reserve until the accumulated legal reserve equals our paid-in capital. We may also set aside special  reserve as determined by our stockholders at a stockholders’ meeting. In addition, our articles of incorporation  provide that at least 50% of the remaining portion of the net income, less prior years’ losses, outstanding taxes,  the legal reserve and any special reserve, plus undistributed retained earnings from prior years will be distributed  as dividends to stockholders. Under our articles of incorporation, not less than 50% of the total amount of the  distributed dividends must be in cash, but if the cash dividends to be distributed are less than NT$0.10 per share,  the dividends may be distributed in the form of shares. Pursuant to our current articles of incorporation, prior  to distributing any dividends to our stockholders, we were required to first distribute (i) between 2% and 5% of  the distributable earnings to employees as bonuses and (ii) not more than 0.2% of the distributable earnings to  directors and supervisors as compensation. Also, in accordance to a clarification letter issued by the Ministry of  Economic Affairs of Taiwan for the explanation of Article 64 of the Business Accounting Law on January 24,  2007, starting from January 1, 2008, employee bonuses are now categorized as an expense instead of as  distributable earnings.  At each annual general stockholders’ meeting, our board of directors submits to the stockholders for their  approval any proposal for the distribution of dividend or the making of any other distribution to stockholders  from our net income for the preceding fiscal year. All common shares outstanding and fully paid as of the  relevant record date are entitled to share equally in any dividend or other distribution so approved. Dividends  may be distributed in cash, in the form of common shares or a combination of the two, as determined by the  stockholders at the meeting. 