1.

Does the company establish and disclose the Corporate Governance Best-Practice Principles based on “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”?

V

The Company has formulated the “Corporate Governance Best Practice Principles for KNH” with reference to the “Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies,” jointly formulated by the Taiwan Stock Exchange Corporation (TWSE) and the Taipei Exchange (TPEx). Each amendment must be resolved and passed by the board of directors and it is disclosed on the Company’s website for shareholders https://en.knh.com.tw/governance4.html.

No material gap was found.

2.

Shareholding structure & shareholders’ rights

(1)

Does the company establish an internal operating procedure to deal with shareholders’ suggestions, doubts, disputes and litigations, and implement based on the procedure?

(2)

Does the company possess the list of its major shareholders as well as the ultimate owners of those shares?

(3)

Does the company establish and execute the risk management and firewall system within its conglomerate structure?

(4)

Does the company establish internal rules against insiders trading with undisclosed information?

V 

   V

   V

    V

(1)   The Company’s “Corporate Governance Best-Practice Principles” expressly states that the spokesman should process suggestions, questions and dispute from shareholders via phone and email, and should retain legal advisors for help, if necessary.

        The Company calls the shareholders’ meeting pursuant to the Company Act and related laws, and formulates the sound parliamentary rules. The Company executes the resolutions made by the shareholders’ meeting strictly in accordance with the parliamentary rules. The resolutions made by the shareholders’ meeting also comply with laws and the Company’s Articles of Incorporation.

(2)   According to Article 25 of the Securities and Exchange Act, the Company shall declare to the competent authority and shall place a public notice, changes in the equity held by the insiders (directors, supervisors, managerial officers, and shareholders holding more than 10 percent of the total shares of the Company), on a monthly basis.

(3)   The Company’s Board of Directors passed the “Regulations Governing Supervision of Subsidiaries” and ”Regulations Governing Management of Transactions with Related Parties” to enforce the risk control and firewall mechanism between the affiliates.

(4)   The Company’s Board of Directors passed the “Procedures for Handling Material Inside Information and Management of the prevention of insider trading” to establish the basis for the Company’s processing of internal material information and disclosure of the information. The Company will periodically review relevant regulations to keep them in line with the existing laws and practices. The Company carried out the educational promotion of the “Material Inside Information and Management of the Prevention of Insider Trading” on the current directors and supervisors on November 12, 2019 and in 2019, the Company carried out the education and training of the “Operational Procedures for Material Inside Information and Management of the Prevention of Insider Trading” on the employees with a total of 548 employees taking part for a total of 513 training hours .

No material gap was found.

                                                                                                                                No material gap was found.                                                                                                                                                           

No material gap was found.

No material gap was found.

3.

Composition and Responsibilities of the Board of Directors

(1)

Does the Board develop and implement a diversified policy for the composition of its members?

(2)

Does the company voluntarily establish other functional committees in addition to the Remuneration Committee and the Audit Committee?

(3)   Has the company established the Board of Directors’ performance evaluation and its evaluation methods, and does the company perform regular performance evaluation each year and submit the results of performance evaluations to the board of directors and use them as reference in determining compensation for individual directors, their nomination and additional office term?

(4)   Does the company regularly evaluate the independence of CPAs?

V

 V

V

V

(1)   The Company’s “Procedures for Election of Director” and the “Corporate Governance Best-Practice Principles” have diversified policies for the composition of the members of the Board. The Company favors gender equality for the composition of the board and has set a goal of having more than one-third of female directors in the board. In 2019, the average number of female directors accounted for 32.87%. It is anticipated that female directors in the 18th board will reach more than one-third of the total board and there is a female independent director.

        As of the publication date of the annual report, the directors who are also the Company's employees accounted for 33%, and independent directors 22%. There are 2 independent directors with a tenure of less than 3 years. Directors aged 71 and above: 1; 61-70: 4; under 60: 4. All directors have extensive industrial experiences in terms of nonwoven, industrial machinery, daily necessities, construction engineering, banking, etc.; they also possess diversified professional capability including operation management, leadership decision-making, risk management, marketing, financial accounting and finance, ensuring the Company’s comprehensive structure. For the diversity of the board members, please refer to “Note 2.“

(2)   The Company has established the Remuneration Committee responsible for proposing to the Board of Directors suggestions on the policies, systems, standards and structures for performance evaluation on directors and managerial officers, and remuneration to them, and also determining and periodically evaluating the remuneration to directors and managerial officers.

(3)   The Company has formulated the “Board of Directors’ Performance Evaluation” on May 14, 2018 and it requires to carry out a performance evaluation within 3 months after the end of year on the board of directors as a whole and each functional committee. When the year ends, all enforcement units collect relevant information on the activities of the board of directors and remuneration committee and the coordinating executive unit "finance office" is responsible for filling out the "Questionnaire of Self-Evaluation of Performance” to measure board of directors and remuneration committee through 5 aspects. For relevant evaluation content, please see the Company’s official website and the annual report 21.

        After the performance evaluation, the Company's 2019 board of directors and remuneration committee have both scored 100, which is excellent. The result has been reported to the board of directors on January 15, 2020.

        The Company’s remuneration committee reviews the rationality of the remuneration for directors and managers and as a reference for the nomination of additional office terms according to the “Board of Directors’ Performance Evaluation Results” and “Rules for Remuneration of Directors, Each Functional Committee Member, Managers and Audit Personnel.”

(4)   The Company evaluates the CPA’s independence and competency once per year. The evaluation result of 2019 has been proposed for a resolution by the board of directors and was reviewed and approved by the Board of Directors on May 9, 2019, the CPA met the Company’s requirement about independence and competency and should be held qualified to act as the Company’s CPA. For the standards for evaluating the CPA’s independence and competency, please see “Board of Directors-Evaluation on the Certified CPA's Independence.”

No material gap was found.

In addition to establishing the remuneration committee, the Company is expected to establish an audit committee in 2020, other functional committees will be established when necessary in the future according to the Company’s development needs.

No material gap was found.

No material gap was found.

4.     Where the company is a TWSE/TPEX listed company, has the company designated an appropriate number of personnel that specializes (or is involved) in corporate governance affairs (including but not limited to providing directors/supervisors with the information needed and assist directors and supervisors in complying with the laws and regulations to perform their duties, convention of board meetings and shareholder meetings, preparation of board meeting and shareholder meeting minutes etc.)?

V

Although the Company has yet appointed a corporate governance manager, it has set up a full-time legal manager under the President’s office to handle the Company’s registration and change matters, and has designated a legal compliance team under the finance department to be responsible for related matters and proceedings of the board of directors and shareholders meeting such as compiling and summarizing the board of directors and shareholders meeting minutes. It is also summarized the corporate governance related matters of the above-mentioned personnel to be reviewed by the vice president of the group administration of the Company to protect the shareholders’ rights and improve functions of the board of directors. It may be established according to the requirements of the Company's future developments.

In the future, the Company may designate a corporate governance manager from appropriate personnel that specializes in corporate governance according to the developments of the Company.

5.     Does the company establish a communication channel and build a designated section on its website for stakeholders (including but not limited to shareholders, employees, customers, and suppliers), as well as handle all the issues they care for in terms of corporate social responsibilities’ meetings?

V

The Company has maintained good communication with investors, employees, consumers, suppliers, distributors, etc., through labor conferences, consumer service lines, procurement, finance and other dedicated units, and sets up an area for stakeholders on the Company website in order to respond to important matters of corporate social responsibility in relation to stakeholders. For the implementation of the stakeholder issues, communication channels, communication content and frequency of different types of stakeholders in 2019, please refer to “CSR-Interested Party.” Communications with various stakeholders will be reported to the Board of Directors on February 24, 2020.

No material gap was found.

6.     Does the company appoint a professional shareholder service agency to deal with shareholder affairs?

V

The Company appointed Shareholders Service Dept. of KGI Securities Co., Ltd. as the Company’s shareholders service entity dedicated to assist in the handling of the shareholders’ meeting affairs.

No material gap was found.

7.     Information Disclosure

(1)   Does the company have a corporate website to disclose both financial standings and the status of corporate governance?

(2)   Does the company have other information disclosure channels (e.g. building an English website, appointing designated people to handle information collection and disclosure, creating a spokesman system, webcasting investor conferences)?

(3)   Has the company published and reported its annual financial report within two months after the end of a fiscal year, and published and reported its financial reports for the first, second, and third quarters, as well as its operating status for each month before the specified deadline?

V

V

V

(1)   The Company has a website: http://www.knh.com.tw/ and has established a dedicated section “Investor” to disclose the Company’s latest financial affairs and a dedicated section “Corporate Governance” to disclose information regarding the Company's execution status of corporate governance.

(2)   The Company set up the website in Chinese and English languages, and had various responsible units collect information by business type, and delegated the dedicated personnel to maintaining the disclosed information. The Company disclosed the information about the spokesman system and investor conference on the Company’s website as required.

(3)   The Company publishes and reports its financial report within two months after the end of each fiscal year, and publishes and reports its financial reports for the first, second, and third quarters, as well as its operating status for each month.

No material gap was found.

No material gap was found.

No material gap was found.

8.     Is there any other important information to facilitate a better understanding of the company’s corporate governance practices (e.g., including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors and supervisors)?

V

(1)   Employee rights and wellness:

        The Company organizes the communication meeting between the labor and management for four times per year, and sets up the “employees mailbox” and “sexual harassment prevention hotline”. The Company also establishes the worker welfare committee, which will hold the meeting at least four times per year to discuss the motions about employees’ welfare, and also provide the gift money for marriage or celebration, or monetary condolences for funeral services, group insurance and accident insurance, etc. Meanwhile, the Company establishes the regulations government employees’ retirement and forms the Labor Pension Supervisory Committee according to the Labor Standards Act. The Company contributes a specific percentage of the salary to the pension account opened at Bank of Taiwan as the labor pension reserve on a monthly basis, in order to cover the future payment of pension to labors. According to the Labor Pension Act, the Company has contributed no less than 6% of the salary to each employee’s personal account maintained at Bureau of Labor Insurance on a monthly basis since July 1, 2005.

(2)   Investor relations and rights of stakeholders:

A. Offer the stakeholders the email, CSR@knh-global.com, to help them communicate with the Company about the issues including environment, society and corporate governance.

B. Set up the email, whistleblower@knh-global.com and hotline at 02-2349909 #2268, as the channels for internal and external stakeholders to report on any corruption or unethical conduct.

(3)   Supplier relations:

A. Qualified raw material suppliers are required to sign the "Code of Conduct for Suppliers" and promise to abide by matters such as labor rights, environmental safety and ethical laws and regulations.

B. In order to verify that the suppliers’ product quality satisfies the Company’s requirements, the Company establishes the “Regulations Governing Management of Suppliers”, and arrange the on-site audit at the suppliers’ premises by the type of supplies and risk level.

C. Carried out 11 times of auditing related to matters such as safety and health at the supplier’s business location in 2019, followed by improvements and tracking.

(4)   Directors’ and supervisors’ training records:

        The directors and supervisors may pursue their continuing education per their personal need, and shall disclose the continuing education on the website designated by the competent authority. For further education courses, please refer to “Board of Directors-Director's Attendance And Continuing Education.”

(5)   Implementation of risk management policies and risk evaluation measures:

A. The Company requires visitors and contractors entering the production area to sign an undertaking of confidentiality related to health and security to protect the Company and its own interests. A total of 206 persons signed the statement in 2019.

B. 3 fire drills with a total of 120 people taking part were held in the Company’s factories in 2019 in order to reduce operational risks, and crisis management drills are held each December or the next January. Its Taipei office building also held a fire talk for 3 days with a total of 45 people/hour taking part.

C. The Company establishes the “Regulations Governing Management of New Product Risk” with respect to new products, and has its R&D unit call related personnel to analyze risk and complete risk assessment report based on the “Failure Mode Analysis Form”. A total of 7 reports have been issued in 2019.

(6)   Implementation of customer relations policies:

        The Company has maintained good relations with its customers. It has accepted audits and evaluations of important customers in an irregular basis, carried out various improvements on product quality and management according to customer needs, and implement matters related to corporate social responsibility. A total of 221 questionnaires for customers’ satisfaction were distributed in 2019, and the average satisfaction attained 96.5 scores.

(7)   Purchasing insurance for directors and supervisors:

        The Company has purchased the liability insurance for the directors and supervisors, and reported the insured value, coverage and insurance premium to the Board of Directors. The liability insurance coverage applicable for 2019 has been reported to the Board of Directors on February 22, 2019.

No material gap was found.

9.    Please description the improvement of the result of Corporate Governance Evaluation System by the Corporate Governance Center of the Taiwan Stock Exchange announced in the last year.

(1)   The evaluation result for the “6th Corporate Governance Evaluation” in 2019: The Company was ranked in the top 21% to 35% for the category of listed companies. Compared to the previous year, improvements to be made are as follows:

◆ The adoption of the candidate nomination system has been formulated in the Company's Articles of Incorporation after the 18th board.

◆ The shareholders’ meeting handbook and supplementary information has been uploaded within thirty (30) prior to the general shareholders’ meeting.

◆ Remuneration committee with independent directors accounting for more than half of the members of the committee has been established.

◆ The implementation of material information being published in both Chinese and English on the same day has been enforced.

◆ A concurrent unit of ethical management has been established and its operation and implementation status is reported to the board of directors.

◆ The specific plan and implementation of corporate social responsibility has been disclosed on the Company's website and in the annual report.

◆ Policies regarding energy conservation, carbon reduction, greenhouse gas (GHG) reduction, water use reduction or other waste management have been formulated.

(2)   Among the indexes that the Company did not score in 2019, the strengthening items of the Company's corporate governance evaluation in 2020 are prioritized as follows:

◆ It is expected that in 2020, an audit committee will be established at the same time as the re-election day of the general shareholders’ meeting in 2020.

◆ It is expected that in 2020, at least 2 independent directors will attend the directors’ meeting in person.

◆ It is expected that English annual financial reports will be updated 7 days prior to the general shareholders’ meeting.

◆ It is expected that English financial reports of first to third quarter will be disclosed on the Company's website and the MOPS.

◆ It is expected that the individual remuneration of directors and supervisors in the Company's annual reports is disclosed voluntarily.