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The recommending securities firm shall include, on the pages before the table of contents of its assessment report, its assessment of the industry risk, operational risk, and other major risks disclosed by the applicant company in its prospectus. The information should be in a conspicuous typeface and in language that is clear and easy to understand.
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| 3-1 |
Assessment report overall assessment
- Description of the total number of shares to be underwritten.
- Specific description of the basis for and method by which the applicant company and the recommending securities firm have jointly determined the offer price. At least the following content shall be specified:
- The method, principle, or calculation for determination of the offer price, and a comparison with the application of the internationally accepted market approach, cost approach, and income approach.
- Comparison of the applicant company with TWSE/TPEx listed companies in the same industry sector, in terms of financial condition, profitability and price-earnings ratio.
- If a financial expert's opinion or a value appraisal report by an appraisal organization is taken into consideration in the determination of the offer price, the content and conclusions in the expert's opinion or the appraisal report shall be specified.
- Information on the average stock price and trading volumes of the shares of the applicant company listed on the Emerging Stock market in the past month.
- The recommending securities firm's assessment opinion on the fairness of the offer price jointly determined by it and the applicant company.
- Underwriting risk factors:
List and describe the risks associated with this underwriting (e.g., excessive changes in stock prices, price stabilization strategies, relevant costs of the underwriting and underwriting services fee rates, dilution of profits due to capital-based growth caused by underwriting of new shares).
- Conclusion:
- Based on its own assessment results and expert opinions (the recommending securities firm shall make its own assessment as to whether an expert opinion can or cannot be used as the basis for assessment of the overall risks of the applicant company; when necessary, further assessment efforts shall be made), the recommending securities firm shall in the conclusion of its assessment describe the operational risks, financial risks and potential risks, among other risks, as a basis for whether the TPEx listing of the applicant company is recommended.
- In the conclusion of its assessment of the risks of a foreign applicant company, the recommending securities firm shall list and describe risks relating to the macro economy, changes in the political and economic environments, foreign exchange controls, and whether or not a final and conclusive civil judgment issued by a Republic of China (Taiwan) court will be recognized, in the jurisdiction where the applicant company is incorporated and countries where it has its main operational activities, and other risks.
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| 4 |
For a foreign applicant company, the recommending securities firm shall list and describe risks in connection with the jurisdiction where the applicant company is incorporated and countries where it has its main operation activities, including risks relating to the macro economy, changes in the political and economic environments, relevant laws and regulations, foreign exchange controls, and taxes, and whether or not a final and conclusive civil judgment issued by a Taiwan court will be recognized, and other risks, and assess the adequacy of the countermeasures adopted by the foreign applicant company.
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| 5 |
Industry circumstances and operational risks:
- List and description, taking into consideration the macro economy, of the operational risks of the sector in which the applicant company runs its business (e.g. economic cycles, changes in the upstream/downstream of the industry, future development of the business, and product substitutability, among others).
- List and description of operational risks such as to the applicant company's business operations, technical capabilities, R&D, patents, human resources, and finances (including costs and exchange rate fluctuations), among others.
- For an enterprise that is applying for TPEx listing as a technology-based enterprise, cultural and creative enterprise, enterprise using the "net worth, operating revenue, and cash flow from operating activities" standard, or information software enterprise, the following shall additionally be listed and described:
- Assessment of the levels, sources, certainty and advancement of technologies employed for its product production and development, and the competitive price trends, life cycles, and sustainability of its current major products, and, with respect to new products to be developed, its R&D programs, projected production schedules, costs, market positioning, demand, and projected future operating revenues and benefits of such new products, and the likelihood of accomplishment of those projections, and its R&D-related internal control systems and safeguard measures.
- Information about the backgrounds (work experiences, educational backgrounds, job positions, and seniority), shareholding percentages, and share transfers and changes in shareholding during the 3 most recent fiscal years and up to the most recent period in the year of application, of the company's directors who participate in operational decision making, shareholders holding more than 5% of the total shares, shareholders providing patents or technical know-how as capital contribution, and managers in control of production technologies and technology development, and, regarding those shareholders and managers contributing or in control of technology, the time and circumstances of their actual commitment to the applicant company's business operations; and, an assessment of the potential impact on the applicant company's finances and business operations if those personnel in the future discontinued their participation in its operations, and countermeasures with respect thereto.
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| 6 |
Business condition
- Summary of business operations
- Analysis of changes in the applicant company's major buyers and suppliers (the top 10 buyers and suppliers of the year or those whose business accounts for 5% or more of annual net operating revenue or net purchase amount) during the 3 most recent fiscal years and up to the most recent period in the year of application—Specify, for the 3 most recent fiscal years and up to the most recent period in the year of application, the names of the major buyers, amounts bought, and the percentages such amounts account for of the annual operating revenue, the reasons for any changes in the major buyers and in the sale prices and terms and conditions of sale, and analyze whether such changes are reasonable, and whether there is concentration risk in the sales operations, and give a summary description of the sales policy of the applicant company. Also specify, for the 3 most recent fiscal years and up to the most recent period in the year of application, the names of the major suppliers, the ratios of the net purchases from each major supplier to the applicant company's total annual net purchases of each given year, and the purchase amounts. Analyze, for the 3 most recent fiscal years and up to the most recent period in the year of application, the reasonability of any changes in the major suppliers named, and in the purchase prices and terms and conditions of purchase, and whether there is concentration risk in the purchase operations, and give a summary description of the applicant company's purchase policies.
- Assessment of the reasonableness of changes in accounts receivable, the adequacy of provision of allowance for losses, and possibility of recovery of losses, of the applicant company based on the parent company-only and consolidated financial reports of the 2 most recent fiscal years and up to the most recent period in the year of application, and comparison with companies in the same industry sector.
- Summary of inventory
Analysis of the reasonableness of changes in net balance of inventory, de-stocking activities, the adequacy of provision of allowance for inventory loss from market price decline and for obsolete and slow-moving inventories of the applicant company based on the parent company-only and consolidated financial reports of the 2 most recent fiscal years and up to the most recent period in the year of application, and assessment by comparison with companies in the same industry sector.
- Summary of the business performance of the applicant company in the 3 most recent fiscal years and up to the most recent period in the year of application:
- Comparison of the operating revenue, gross operating profit, and operating profit of the applicant company with those of companies in the same industry sector in the 3 most recent fiscal years and up to the most recent period in the year of application.
- Whether any changes in operating revenue, operating cost, or gross margin by "department" or "major product line" in the 3 most recent fiscal years and up to the most recent period in the year of application were reasonable.
- For any changes in operating revenue or gross profit margin of 20% or more in the 3 most recent fiscal years and up to the most recent period in the year of application, perform a price-volume analysis and assess whether such changes were reasonable.
- In case of a merger with or acquisition of another company for which a full fiscal year has not elapsed, assess factors such as purpose, effects, and fairness of transaction of the merger/acquisition.
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| 7 |
Financial condition
- Analysis of the applicant company's financial ratios for the 3 most recent fiscal years and up to the most recent period in the year of application, and comparative analysis of these ratios against TPEx or TWSE listed companies of the same type and against non-TPEx, non-TWSE-listed companies in the same industry sector. The comparative analysis should cover financial structure, solvency, operating ability, profitability, and cash flow.
- Description of endorsements and guarantees, material undertakings, lendings to others, derivatives trading, and material assets transactions of the applicant company and all its subsidiaries, including transactions between parent company and subsidiaries, in the 3 most recent fiscal years and up to the most recent period in the year of application, and assessment of their impact on the financial condition of the applicant company.
- List any plant expansion plans up to the most recent period in the year of application and the funding sources, work progress, and expected benefits, and evaluate the feasibility of the plans.
- Investee enterprises covered in parent company-only and consolidated financial reports
- Description of the applicant company's equity investments in other enterprises up to the most recent period in the year of application, and assessment of the operations and profitability of major investee enterprises (those in which the applicant company's holdings amount to 20% or more of the shares or have a book value or original investment amount of NT$50 million or more) for the most recent fiscal year and up to the most recent period in the year of application.
- The applicant company's share of profits and losses of, and the distribution of dividends by, the applicant company's subsidiaries, affiliates, and joint ventures recognized by the equity method in the 3 most recent fiscal years and up to the most recent period in the year of application, and the amounts of profits repatriated from offshore investee enterprises.
- For ongoing investment projects of the applicant company up to the most recent period in the application year, where the projected total investment amount reaches 20% or more of the share capital stated on the financial report of the most recent fiscal year, or exceeds NT$500 million, assessment and description of the following are required, provided that in the case of issuers of shares with no par value or a par value per share that is not NT$10, the above 20% of the paid-in capital shall be replaced with 10% of the equity attributable to owners of the parent company:
- Purpose, starting time, and expected completion date of the investment.
- Funding sources of the investments: if the source is loans, the recommending securities firm shall assess their impact on the future operations of the applicant company; if the source is its own funds, the recommending securities firm shall calculate the lost interest income or lost return on investment.
- Benefits of investment: including projected market supply and demand after completion of investment, annual returns on investment, and expected period for recovery of costs.
- Current business and financial condition of the investee enterprise or project.
- Business or technical experts' assessment opinions on the investment project.
- Based respectively on the offer price and the average price of the applicant company on the Emerging Stock market for the most recent month, calculate, using the intrinsic value method, the possible impact on the financial statements following TPEx listing of its stock, of costs from its issued employee subscription warrants for which the final determination date of share-based payment transactions has not yet arrived.
- If a state-owned enterprise applying for TPEx listing of its stock has submitted financial reports audited by an auditing agency rather than by CPAs, the recommending securities firm shall engage CPAs to comment on any quantitative differences that would exist between the results of an audit conducted under generally accepted accounting principles and those of the audit by the auditing agency, and the impact on the financial report.
- The recommending securities firm shall assess the fairness of the issuance rules for employee subscription warrants and equity securities by an applicant that is a foreign company according to the laws and regulations of the jurisdiction where it is incorporated, and the impact on the shareholders' equity.
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| 8 |
Assessment of related-party transactions
The recommending securities firm shall assess the following matters with respect to related-party transactions on the applicant company's parent company-only and consolidated financial reports for the 3 most recent fiscal years and up to the most recent period in the year of application:
- It shall carry out assessment procedures with respect to any related-party transactions of a material amount or of a special nature (including comparisons with same-industry transactions and transactions between the applicant company and non-related parties) in order to ascertain the necessity of such transactions, the legality of the decision-making process, and the reasonableness of the price and the circumstances of the payment and receipt of funds.
- It shall ascertain whether there are receivables in material amounts overdue from affiliated enterprises. If so, it shall ascertain the reason and whether there are any material irregularities in the circumstances.
- If there are any large transfers of money between the applicant company and affiliated enterprises, shareholders, or related parties, the recommending securities firm shall ascertain the reasons and whether there are any material irregularities in terms of interest rates and receipts and payments of interest.
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| 9 |
Operations of major subsidiaries
- The recommending securities firm shall assign personnel to make site visits to gain an understanding of the operations of the applicant company's major subsidiaries, and prepare assessment opinions concretely specifying whether there are any material operational risks or other material irregularities.
- For a domestic applicant company whose production or profit sources come mainly from an overseas major subsidiary(ies), the recommending securities firm shall prepare an assessment opinion concretely specifying the measures that the applicant company takes, and its implementation of the measures, to supervise the overseas major subsidiary(ies) with respect to matters including their financial operations and funds allocation, accounts handling, operation of their internal control and internal auditing, and earnings-related decision-making.
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| 10 |
Legal compliance and impact on company operations
The recommending securities firm of a domestic applicant company shall engage a lawyer(s) to issue an opinion on whether any of the matters listed below have applied within the past 3 years to the applicant company or any of its incumbent directors, shareholders holding more than 10% of total shares, general manager, or de facto responsible persons. On the basis of that opinion, the recommending securities firm shall concretely assess the impact of such matters on the operations of the applicant company, and the countermeasures it is taking:
- Whether the applicant company has violated any applicable law or regulation
- The laws and regulations of the central competent authority for the sector of industry the applicant company belongs to, and major laws and regulations affecting that industry sector.
- Information required to be publicly disclosed under the laws and regulations governing disclosure of information of public companies.
- Other laws and regulations.
- Whether any of the incumbent directors, shareholders holding more than 10% of total shares, general manager, or de facto responsible persons, has violated any applicable law or regulation, and in so doing has violated the principle of good faith or compromised the performance of their duties.
- Whether there has been any infringement of copyright, patent, trademark, or any other intellectual property rights.
- Any pending material litigation, non-litigious proceeding, or administrative dispute.
- Whether the applicant company has been involved in any material labor dispute or environmental pollution event.
The recommending securities firm of a foreign applicant company shall engage a lawyer(s) to issue a legal opinion on whether any of the matters listed below have applied within the past 3 years to the applicant company or any of its incumbent directors, shareholders holding more than 10% of total shares, general manager, or de facto responsible persons. On the basis of that opinion, the recommending securities firm shall concretely assess the impact of such matters on the operations of the applicant company, and the countermeasures it is taking:
- Whether the foreign applicant company has violated any applicable law or regulation
- Whether it has violated any labor safety and health laws of the jurisdiction where it is incorporated or of the country(ies) where it has its main operation activities to the extent that it has been required to suspend part or all of its operations, where the circumstances furthermore were serious.
- Whether it has violated any pollution control and prevention regulations of the jurisdiction where it is incorporated or of the country(ies) where it has its main operation activities, where the circumstances furthermore were serious.
- Other laws or regulations.
- Protection of shareholder rights and interests
- Whether any legal restrictions on where a shareholders' meeting can be convened, the voting system, or provisions regarding the exercise of other shareholders' rights imposed by the law of the jurisdiction where the applicant company is incorporated may affect the exercise of the rights and interests of shareholders of the applicant company. If yes, describe the measures being taken to protect the exercise of shareholders' rights within Taiwan.
- Whether the articles of incorporation or organizational documents include specific provisions on the protection of the exercise of shareholders' rights and interests.
- Whether the applicant company has entered into any contract that imposes any material restriction on its operations or that is apparently unreasonable.
- Whether the applicant company has been involved in any material labor dispute.
- Same as points 2 to 4 of the preceding paragraph.
The opinions on which the recommending securities firm bases its assessment of the impact on the applicant company's operations of the matters in the subparagraphs of paragraphs 1 and 2 may not include opinions of the applicant company's regular legal advisors or the lawyers appointed by the applicant company to complete the Legal Matter Checklist for TPEx Stock Listing Application by Issuer. To ensure the independence of the lawyer(s)' opinions, the lawyer(s) engaged to issue the above opinions may not work for a firm that has any substantial cooperation relationship with the applicant company's regular legal advisors, with the lawyers appointed by the applicant company to complete the Legal Matter Checklist for TPEx Stock Listing Application by Issuer, or with the CPAs that audit and attest the applicant company's financial reports.
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| 11 |
Provide an assessment opinion specifying whether any of the circumstances exist under which listing of shares is advised against as described in the subparagraphs of paragraph 1, Article 10 of the Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx (Attachment 1), or whether any of the circumstances exist under which listing of shares is advised against as described in the subparagraphs of paragraph 1, Article 9 of the Taipei Exchange Rules Governing the Review of Foreign Securities for Trading on the TPEx (Attachment 2).
When assessing whether there exists with respect to the applicant company the circumstances under Article 10, paragraph 1, subparagraph 10, item B of the Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx or under Article 9, paragraph 1, subparagraph 7, item B of the Taipei Exchange Rules Governing the Review of Foreign Securities for Trading on the TPEx, additionally list and describe the following matters, as applicable:
- For each time, if any, during the 3 most recent years that the TPEx or TWSE listed company reduced its shareholding in the applicant company, specify the reasons for such reduction, the shareholding reduction percentage, the parties to whom the equity was assigned or the specified persons contacted to purchase the shares, the transaction share price and the impact on the shareholders' equity of the TPEx or TWSE listed company, and whether the reduction was reviewed by the TPEx or TWSE listed company's audit committee and approved by resolution of its board of directors and submitted to a shareholders' meeting. If the TPEx or TWSE listed company does not have an audit committee, specify whether the reduction was approved by two-thirds or more of its entire board of directors.
- For each time, if any, during the 3 most recent years that the TPEx or TWSE listed company's shareholding in the applicant company was reduced because of forfeiture of rights to subscribe shares issued by the applicant company for cash capital increase, specify the basis on which the share price for each cash capital increase was set, the standards imposed for the specified persons contacted to purchase the shares, whether an opinion was obtained from an independent expert(s) on the fairness of the price of the new shares issued for cash capital increase, and whether it was reviewed by the applicant company's audit committee or a special committee and approved by resolution of its board of directors, and whether the transfer of shares was conducted in compliance with the applicant company's operation procedures relating to the release of shares. In the case of a special committee, specify whether the relevant provisions of the Regulations Governing the Establishment and Related Matters of Special Committees of Public Companies for Merger/Consolidation and Acquisition have been applied mutatis mutandis to the composition, qualifications, review methods, and other related matters of the special committee. If the applicant company has not established an audit committee or a special committee, specify whether the transaction was approved by two-thirds or more of its entire board of directors.
Provide an assessment opinion specifying whether the professional qualifications of and exercise of duties by the members of the remuneration committee established by the applicant company and relevant matters are consistent with what is prescribed under the securities laws and regulations of Taiwan.
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| 12 |
Assess whether the applicant company fairly and adequately presents the status of its promotion of sustainable development initiatives in its prospectus in accordance with the Taipei Exchange Rules Governing Information to be Published in Prospectuses for Applications for Trading of Securities on the TPEx.
Assess whether the corporate governance evaluation self-assessment report prepared by the applicant company fairly and adequately presents the operational status of its corporate governance.
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| 13 |
Assess whether the applicant company meets the provisions of any of the Supplemental Directions for TPEx stock listing applications by group enterprises, construction companies, software companies, investment holding companies, financial holding companies, or private institutions participating in public infrastructure projects.
Assess whether a foreign applicant company meets the provisions of Articles 16 to 19 regarding group enterprises, or of Articles 20 to 22 regarding investment holding companies, of the Taipei Exchange Rules Governing the Review of Foreign Securities for Trading on the TPEx.
Assess whether a foreign applicant company meets the provisions of Article 4, paragraph 6, regarding TPEx stock listing applications by construction companies, of the Taipei Exchange Rules Governing the Review of Foreign Securities for Trading on the TPEx.
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| 14 |
If the applicant company is applying in the capacity of an investment holding company for TPEx trading of its stock, the recommending securities firm also shall also provide item-by-item assessments for its holding company subsidiary(ies) of the matters set out in Article 5, Article 7, paragraph 4, Article 10, and Article 11 of these Directions.
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| 14-1 |
If an overseas subsidiary of a domestic TPEx or TWSE listed company is applying for TPEx trading of its stock, the recommending securities firm shall assess the legality of the decision-making process of the domestic TPEx or TWSE listed company, whether the TPEx trading of stock of the overseas subsidiary may have a material adverse impact on the operations and financial condition of the domestic TPEx or TWSE listed company, and the proposed countermeasures.
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