S
M
L

Search Result

Title Taipei Exchange Assessment and Auditing Procedures for Recommending Securities Firms Handling Applications for TPEx Listing of Stocks CH
Date 2023.06.28 ( AMENDMENT )

Article Content

1     These Procedures are adopted pursuant to Article 6 of the Taipei Exchange ("TPEx") Procedures for the Review of Securities for TPEx Listing and Article 11 of the TPEx Procedures for Review of TPEx Trading of Foreign Securities, to provide a standardized assessment process for recommending securities firms providing advisory services on initial applications for TPEx listing of stock and to strengthen their pre-listing advisory functions.
2     These Procedures provide general principles. A recommending securities firm may, in its discretion and depending on the actual needs on a case-by-case basis, include additional assessment and auditing procedures to implement its advisory functions.
    The term "financial reports" as used in these Procedures means the consolidated financial reports. If an applicant company does not have a subsidiary, it means the individual financial reports.
    All relevant documents, statements, and other information collected pursuant to these Procedures shall be serially numbered and cross-referenced for ease of reference. Upon completion of the audit, all the information and relevant attachments shall be compiled in book form and filed as working papers, and Standards on Auditing (TWSA) 230 Audit Documentation shall apply mutatis mutandis to the preparation of these working papers.
    The working papers are the basis on which the recommending securities firm prepares the assessment report. The TPEx will conduct random inspections on its advisory practices.
3     Assessment report overall assessment
  1. Description of the total number of shares underwritten.
  2. The recommending securities firm shall specifically describe the basis and method by which the offer price is determined jointly by it and the applicant company. At least the following content shall be specified:
    1. Method, principle, or calculation used to determine the offer price, and comparison with the application of the internationally accepted market approach, cost approach, and income approach.
    2. 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.
    3. If a financial expert's opinion or a value appraisal report by an appraisal organization has been taken into consideration in the determination of the offer price, the contents and conclusions in the expert's opinion or appraisal report shall be specified.
    4. Information on the average stock price and trading volume of the shares of the applicant company listed on the Emerging Stock market in the past month.
    5. The recommending securities firm's assessment opinion on the fairness of the offer price jointly determined by it and the applicant company.
  3. Underwriting risk factors
    4. 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).
  4. Conclusion
    1. 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 an investment risk disclosure for investors.
    2. 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.
    3. Whether or not TPEx listing of the stock of the applicant company is recommended, based on the outcome of the recommending securities firm's overall assessment of the applicant company.
4     For a foreign applicant company, the recommending securities firm shall perform overseas field research to ascertain the operations of the company, conduct interviews or meetings with its directors, managerial officers, and other relevant personnel, and collect, compile, verify, analyze, and compare relevant information (to obtain sufficient and adequate information, the recommending securities firm may consult relevant experts for opinions and take other necessary measures), to specifically assess risks associated with the macro economy, changes in the political and economic environments, relevant laws and regulations, foreign exchange controls, and taxes in the jurisdiction where the foreign applicant company was incorporated and countries where it has its main operation activities, and whether or not a final and conclusive civil judgment issued by a Taiwanese court will be recognized there, and other relevant risks, and assess the adequacy of the countermeasures adopted by the foreign applicant company.
5     Industry circumstances and operational risks:
  1. Operational risks of the sector in which the applicant company runs its business:
    1. Collect relevant industry sector report materials to ascertain the current circumstances of the industry sector the applicant company belongs to.
    2. Interview the operating officers of the applicant company and use the internal financial and business information of the applicant company and relevant industry reports and information collected from external sources, to ascertain risk factors such as those associated with the cyclical demand specific to the industry of the applicant company or with substitutable products and the impact of the risk factors, and assess the risk factors impacting the profitability of the industry sector the applicant company belongs to, and the adequacy of relevant countermeasures adopted by the applicant company.
    3. Collect and assess information about the upstream, middle stream and downstream sectors of the industry the applicant company belongs to.
  2. Operational risks of the applicant company:
    1. Business activities:
      1. Collect relevant industry reports and information and present information, broken down by products or services, including market shares, associated machinery and equipment, human resources, and other relevant factors, together with a comparison with TWSE and TPEx listed companies or well-known companies in the same industry sector. Also, collect relevant market share information to ascertain the status of the applicant company among others in the same industry sector, and assess its operational risks and the adequacy of relevant countermeasures adopted by it.
      2. Ascertain the key factors relating to the achievement or non-achievement of the business objectives of the applicant company.
      3. Collect relevant local and foreign industry reports and information to ascertain possible changes in market supply, and use the information to assess favorable and unfavorable factors that may affect the future development of the applicant company and the adequacy of relevant countermeasures adopted by it.
    2. Technology, R&D, and patents:
      1. The recommending securities firm may obtain technical experts' assessment opinions as supporting evidence.
      2. Obtain information about the history, organization, staff, education and work experiences, research accomplishments and future projects of the R&D department of the applicant company to ascertain major sources of technologies, how and how much compensation or royalties for technology are paid, and in which direction the R&D work will develop, and analyze information on the R&D department, such as the number of staff, the average seniority, employee turnover, and attrition rate, for the 3 most recent fiscal years and for the fiscal year of application as of the most recent period, and assess the operational risks of departure of R&D staff to the applicant company.
      3. Obtain major technical cooperation contracts of the applicant company and assess the operational risks of the contracts to the applicant company based on the terms and conditions thereof.
      4. In the case of a company applying for TPEx listing of its stock as a technology-based enterprise, a cultural and creative enterprise, a company using the "net worth, operating revenue, and cash flow from operating activities" standard, or an information software enterprise, obtain information about the competitive advantages, life cycles, and potential for continuing development of the applicant company's present core products, the R&D plan for its new products, and levels and sources of its production and development technologies, to assess relevant market positioning, demands, and R&D-related internal control systems and safeguarding measures.
      5. In the case of a company applying for TPEx listing of its stock as a technology-based enterprise, a cultural or creative enterprise, a company meeting the "net worth, operating revenue, and cash flow from operating activities" standard, or an information software enterprise, obtain information about the work experience and qualifications, shareholding percentages, transfers of shares during the 3 most recent fiscal years and the year of application, and time and circumstances of actual commitment to business operations with respect to persons participating in operations and decision-making of the applicant company, including directors, shareholders with a more than 5 percent shareholding, shareholders providing patent rights or technical know-how as capital contribution, and managerial officers in control of production technologies and technology development, so as to assess the operational risks to the applicant company if such persons in the future were not to continue to participate in its operations, and countermeasures with respect thereto.
    3. Human resources:
      1. Prepare a table, broken down by product, of per capita yearly production quantity and value of the applicant company for the 3 most recent fiscal years and for the year of application as of the most recent period, with an analysis of the reasons for any major changes therein.
      2. Obtain information about the total number of employees, number of resigning employees, number of laid off or retired employees, direct or indirect labor numbers, and average age and average years of service of employees of the applicant company for the 3 most recent fiscal years and for the year of application as of the most recent period, to assess changes in the attrition rate, their reasonableness, and the associated operational risks to the applicant company.
    4. Costs of major products:
      1. Obtain information about the raw material, labor, and manufacturing costs of the major products of the applicant company for the 3 most recent fiscal years and for the year of application as of the most recent period, review relevant account books and financial statements to ascertain agreement of amounts, and assess whether there is any major irregularity of changes in the percentage of individual cost elements, as compared against companies of the same type, and the associated operational risks to the applicant company.
      2. Obtain information about the annual purchase quantity and unit price of the main raw materials of the applicant company's major products for the 3 most recent fiscal years and for the year of application as of the most recent period, review relevant account books, and assess price changes and ascertain whether there are any material irregularities as compared with general market price information.
      3. Obtain copies of the applicant company's long-term supply contracts and information about supply shortage or interruptions in the 3 most recent fiscal years and the year of application as of the most recent period, to assess whether the supply contracts contain any major restrictive clauses and if there are risks in over-concentration of sources of supply.
      4. In the case of a construction company applying for TPEx listing of its stock, obtain reports on market prices in the local (or neighboring) areas, information about peer companies, and building-land price ratios available from government agencies (such as ratios of assessed present values and government-announced present values, or ratios of building construction prices and land prices, etc.), to assess whether the ratio of allocation between the applicant company and landowners is reasonable in cases of joint construction and separate sale, joint construction and allocation of building units, or joint construction and allocation of ownership percentages.
    5. Exchange rate changes:
      6. Obtain information about the ratios of the applicant company's gains or losses on foreign exchange to its operating income and ratios of domestic/foreign sales and domestic/foreign purchases for the 3 most recent fiscal years and for the year of application as of the most recent period, to assess the operational risks of exchange rate changes to the applicant company and its risk aversion measures.
6     Business condition:
  1. Summary of business:
    1. Interview the sales managers of the applicant company to ascertain the applicant company's sales policy.
    2. Obtain basic information about the top 10 sales clients or clients with respect to which the sales amount accounts for 5% or more of the annual net operating revenue in the 3 most recent fiscal years and in the year of application up to the most recent period and their sales contracts, check on a random basis the relevant source documents to verify the accuracy of amounts of sales to each such client and assess the presence or absence of major discrepancies in the sale prices and trading conditions with the clients, and verify through written confirmation or on-site observation to ascertain these clients' operation status, their relationship with the applicant company, trading purposes and the necessity of the transactions, to assess the authenticity of the sales transactions.
    3. For the top 10 sales clients or clients with respect to which the sales amount accounts for 5% or more of the annual net operating revenue in the 3 most recent fiscal years and the year of application up to the most recent period, verify and assess whether there is any irregularity in any significant increase or decrease in the applicant company's sales amount with them and if there are sales concentration risks.
    4. Interview the purchasing managers of the applicant company to ascertain the applicant company's purchasing policy.
    5. Obtain basic information about the top 10 suppliers or suppliers with respect to which the purchase amount accounts for 5% or more of the annual net purchase amount in the 3 most recent fiscal years and the year of application up to the most recent period and their supply contracts, check on a random basis the relevant source documents to verify the accuracy of the amounts of purchases of raw materials from each such supplier and assess the presence or absence of major discrepancies in the purchase prices and trading conditions with the suppliers, and verify through written confirmation or on-site observation to ascertain these suppliers' operation status, their relationship with the applicant company, trading purposes and the necessity of the transactions, to assess the authenticity of the purchase transactions.
    6. For the top 10 suppliers or suppliers with respect to which the purchase amount accounts for 5% or more of the annual purchase amount in the 3 most recent fiscal years and the year of application up to the most recent period, verify and assess whether there is any irregularity in any significant increase or decrease in the applicant company's purchase amount with them and if there are purchase concentration risks.
    7. Obtain copies of the applicant company's parent-company-only and consolidated financial reports for the 2 most recent fiscal years and the year of application up to the most recent period, to assess the fairness of changes in net receivables and the possibility of recovery of receivables, as well as the policy of the parent company and subsidiaries for provision of allowance for losses and the adequacy of allowance, and compare with companies in the same industry sector.
  2. Summary of inventory:
    3. Obtain copies of the applicant company's parent-company-only and consolidated financial reports for the 2 most recent fiscal years and the year of application up to the most recent period, to assess the reasonableness of changes in net balance of inventory and de-stocking activities, as well as the policy of the parent company and subsidiaries for provision of allowances for inventory valuation losses and obsolescence losses and the adequacy of allowances, and compare with companies in the same industry sector.
  3. Summary of business performance in the 3 most recent fiscal years and the year of application up to the most recent period
    1. based on the applicant company's internal information and collected relevant industry reports and information, assess whether there are any irregular changes in the business performance for the 3 most recent fiscal years and the year of application up to the most recent period, and if there are any circumstances showing unsuitability for TPEx listing of its stock.
    2. Analyze changes in the operating revenue, operating costs, and gross operating profits by product or by segment for the 3 most recent fiscal years and the year of application up to the most recent period.
    3. For a change in operating revenue or gross profit margin that is 20% or more in any of the 3 most recent fiscal years or the year of application up to the most recent period, perform a price-volume analysis and assess whether the change is reasonable.
  4. In case of a merger with or acquisition of another company for which a full fiscal year has not elapsed, assess factors such as the purpose, effects, and fairness of transaction of the merger/acquisition.
7     Financial condition:
  1. Prepare an analysis of the applicant company's financial ratios (including those concerned with its financial structure, solvency, operating ability, profitability, and cash flows) for the 3 most recent fiscal years and the year of application up to the most recent period, compare these ratios against at least 3 TPEx or TWSE listed companies of the same type and against non-TPEx, non-TWSE listed companies in the same industry sector for assessment of changes therein, and explain why these companies are chosen for the comparison.
  2. Review the financial reports audited and attested by CPAs and obtain the applicant company's statements or attorney letters to ascertain whether there has been any major litigation or financial difficulty in the 3 most recent fiscal years and the year of application up to the most recent period; also obtain information about the endorsements, guarantees, material commitments, lendings to others, derivatives trading, and major asset transactions of the applicant company and of all its subsidiaries (including transactions between parent company and subsidiaries) for the 3 most recent fiscal years and the year of application up to the most recent period, to assess their impact on the financial condition of the applicant company.
    3. The recommending securities firm shall perform the following assessment and auditing procedures for the above major asset transactions:
    1. Obtain a summary statement of major asset transactions for the 3 most recent fiscal years and the year of application up to the most recent period, check if any counterparty in such transactions is a related party, and assess the necessity of the transactions and the legality of the decision-making process.
    2. Obtain materials relating to the above major asset transactions, such as purchase contracts and transaction source documents, to assess the reasonableness of the prices and payment processes and ascertain whether there are any major restrictive clauses or irregularities.
    3. Perform necessary procedures to verify the authenticity and completeness of the above materials.
  3. Obtain information about the applicant company's plant expansion plans as of the most recent period of the application year, assess their funding sources, expected benefits, and feasibility, and ascertain the progress of work.
  4. Investee enterprises covered in parent-company-only and consolidated financial reports
    1. Summary of investee enterprises
      1. Obtain financial statements of the investee enterprises and other relevant information to ascertain their major business activities and general operating conditions.
      2. Obtain minutes of meetings of the board of directors of the applicant company to ascertain its purpose of investment, decision-making process, years of investment, original investment amounts, number of shares and shareholding ratio in the subsidiaries and associates.
      3. Review the applicant company's parent-company-only and consolidated financial reports and account books to ascertain its share of the profit or loss of subsidiaries, associates, and joint ventures accounted for using the equity method, and how its share of the profit or loss of associates and joint ventures accounted for using the equity method is recognized, distributions of dividends, and amounts of profits repatriated from overseas investee enterprises.
      4. Review information such as financial reports and account books for the 3 most recent fiscal years and the year of application up to the most recent period to assess whether there is any violation of Article 13 of the Company Act.
      5. Where the applicant company in the most recent fiscal year or in the fiscal year in which it applies for TPEx listing satisfies any of the criteria of "major subsidiary" set out in Article 2-1, paragraph 2 of the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants or Article 5 of the Directions for Auditing and Attestation of Financial Statements of Financial Institutions by Certified Public Accountants, the recommending securities firm shall send personnel to make site visits to ascertain the applicant company's operating conditions and assess whether there are any significant operational risks or other material irregularities. If none of the above criteria is met, the recommending securities firm may, based on the materiality principle, determine in its own discretion whether it is necessary to send its personnel to make site visits for such ascertainment and assessment.
        6. Before sending personnel to make site visits to ascertain operating conditions and assess significant operational risks or other material irregularities pursuant to the above requirements, the recommending securities firm shall first determine the main items to be audited and relevant auditing procedures, which shall include the following:
        1. Ascertain the organization, production, business, and other relevant operations of these major subsidiaries.
        2. Obtain a brief overview of the cycles, such as sales and collection cycles, purchase and payment cycles, production inventory cycles, and research and development cycles, and information about relevant operating procedures of these major subsidiaries, and make site visits to ascertain their operating conditions and assess whether there are any significant operational risks or other material irregularities.
        3. Ascertain relevant operating procedures of these major subsidiaries for the purchase of properties, plants and equipment as well as investment properties, and make site visits to ascertain their operating conditions and assess whether there are any significant operational risks or other material irregularities.
        4. Visit the major subsidiaries to observe their maintenance of inventories and properties, and obtain copies of the lists of inventories, properties, plants and equipment as well as investment properties of these companies, and conduct random inspections on the properties, plants and equipment, investment properties, and inventories.
      6. For a domestic applicant company whose production or profit sources for the most recent fiscal year or for the most recent period in the year of application come mainly from an overseas major subsidiary(ies), the recommending securities firm shall perform the following assessment and auditing procedures:
        1. Ascertain whether the applicant company's senior management has a grasp over the business and financial operations and relevant movement and allocation of its overseas major subsidiary(ies), so as to ensure that their relevant internal control systems are soundly established and effectively operating.
        2. Ascertain whether the applicant company supervises the account treatment of its overseas major subsidiary(ies), so as to ensure that the accounting systems of its overseas major subsidiary(ies) are soundly established and effectively operating.
        3. Ascertain whether the applicant company's internal auditors periodically or from time to time visit its overseas major subsidiary(ies) for a random on-site audit on the implementation of their internal controls, so as to ensure that their internal control systems are soundly established and effectively operating.
        4. Ascertain whether the applicant company has a grasp or control over the earnings-related decisions of its overseas major subsidiaries.
    2. Major equity investment projects
      1. Review information about the purposes, starting time and expected completion dates of the investment projects in the minutes of meetings of the board of directors, and obtain relevant operational information related to the investment projects.
      2. Funding sources of the investments: in the case of loans, the recommending securities firm shall assess their impact on the future operations of the applicant company; in case of own funds, the recommending securities firm shall calculate the lost interest income or returns on equity investment.
      3. Collect supply-and-demand information about the markets of the products of the enterprises in the investment projects to ascertain whether the projected market supply and demand is reasonable, and based on the projected operation plan calculate the returns on investment and period of recovery of costs.
      4. Obtain the financial reports of the invested enterprises or operational reports of the projects to ascertain their operational and financial positions.
      5. Ascertain the estimated investment benefits based on business or technical experts' assessment opinions.
  5. The recommending securities firm shall assess and calculate, based respectively on the offer price and the average price of the applicant company on the Emerging Stock market for the most recent month, 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.
  6. 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 obtain and ascertain comments by CPAs 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 reports.
  7. 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.
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:
  1. 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.
  2. 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.
  3. 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.
9     Supervise and ensure that the applicant company promotes and emphasizes sustainable development, and 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.
    Supervise and ensure that the applicant company has conscientiously performed self-assessment based on the various specific indicators for corporate governance evaluation, and assess whether its corporate governance evaluation self-assessment report fairly and adequately presents the operational status of its corporate governance.
10     The recommending securities firm shall carry out enhanced assessment and auditing of the following matters:
  1. With respect to the operation of the board of directors, it shall obtain a list of names of all person who have attended board meetings of the applicant company as voting or non-voting participants in the 3 most recent fiscal years and up to the most recent period in the year of applicant, and the minutes of those board meetings, and perform on-site observation to assess whether the board of directors is soundly constituted, whether the meetings convened operate effectively, whether important decisions or changes are well considered before they are made, and whether the procedures for submitting and deliberating proposals are reasonable.
  2. Enhanced assessment of the independence of the independent directors.
  3. With respect to the establishment of the remuneration committee, it shall obtain the remuneration committee charter adopted by the applicant company, ascertain the professional qualifications of its members and obtain the meeting minutes of the committee, to assess whether it is soundly constituted and compliant with requirements, whether the committee members have independence, whether the meetings convened operate effectively, whether the proposals it submits are well considered, and whether the discussions of the above proposals are reasonably discussed at meetings of the board of directors.
11     Supervise and ensure that the responsible person, directors, supervisors, and shareholders holding more than 10% of total shares of the applicant company attend training courses on securities legislation to enhance their understanding of the legal system and concepts applicable to securities markets, and to jointly guard against the occurrence of insider trading following TPEx listing. Among these, courses on corporate governance should be arranged with recognized continuing education system institutions under subparagraphs A, B, and D of Article 6 of the Directions for the Implementation of Continuing Education for Directors and Supervisors of TWSE Listed and TPEx Listed Companies. The recommending securities firm also shall supervise and ensure that beginning from the fiscal year that the advisory contract is signed the applicant company's independent directors pursue continuing education every year for at least three hours in legal affairs, finance, or accounting and obtain certification documents issued by continuing education system institutions as specified above.
12     The recommending securities firm of a domestic applicant company shall contact a lawyer(s) to obtain materials including a lawyer(s)' legal opinion on the matters listed below, to assess the legal compliance during the past 3 years of the domestic applicant company and its incumbent directors, shareholders holding more than 10% of total shares, general manager, and de facto responsible persons, and the impact of such matters on the operations of the company, and whether it has taken comprehensive and adequate countermeasures with respect thereto:
  1. Whether the applicant company has violated any applicable law or regulation
    1. 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.
    2. Information required to be publicly disclosed under the laws and regulations governing disclosure of information of public companies.
    3. Other laws and regulations.
  2. 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 duties.
  3. Whether there has been any infringement of copyright, patent, trademark, or any other intellectual property rights.
  4. Any pending material litigation, non-litigious proceeding, or administrative dispute.
  5. 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 lawyer(s)' legal opinion on the matters listed below, to assess the legal compliance during the past 3 years of the applicant company and its incumbent directors, shareholders holding more than 10% of total shares, general manager, and de facto responsible persons, and the impact of such matters on the operations of the company, and whether it has taken comprehensive and adequate countermeasures with respect thereto:
  1. Whether the foreign applicant company has violated any applicable law or regulation:
    1. 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.
    2. 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.
    3. Other laws or regulations.
  2. Protection of shareholder rights and interests:
    1. 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.
    2. Whether the articles of incorporation or organizational documents include specific provisions on the protection of the exercise of shareholders' rights and interests.
  3. Whether the applicant company has entered into any contract that imposes any material restriction on its operations or that is apparently unreasonable.
  4. Whether the applicant company has been involved in any material labor dispute.
  5. Same as points 2 to 4 of the preceding paragraph.
    6. 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.
13     The recommending securities firm of a domestic applicant company, when assessing whether any circumstance exists under which TPEx listing of shares is advised against under any of the subparagraphs of paragraph 1, Article 10 of the Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx or under any of the supplemental specific standards for determination thereof, shall perform audit sampling of relevant evidence and documents for the circumstances under each subparagraph, except for those under subparagraphs 1, 3 and 7, which require a lawyer(s)' opinion, and subparagraph 6, which requires a CPA opinion, to assess whether there exists any circumstance under which listing is inadvisable, and furthermore complete the relevant content of Attachment 1 of the Taipei Exchange Directions for Information to be Included in Recommending Securities Firms' Assessment Reports for Applications for TPEx Listing of Stock.
    The recommending securities firm of a foreign applicant company, when assessing whether any circumstance exists under which TPEx listing of shares is advised against under any of the subparagraphs of paragraph 1, Article 9 of the Taipei Exchange Rules Governing the Review of Foreign Securities for Trading on the TPEx or under any of the supplemental specific standards for determination provided in Articles 10 to 14-2, shall perform audit sampling of relevant evidence and documents for the circumstances under each subparagraph, except for those under Article 9, paragraph 1, subparagraphs 1 and 4, which require a lawyer(s)' opinion, to assess whether there exists any circumstance under which listing is inadvisable, and furthermore complete the relevant content of Attachment 2 of the Taipei Exchange Directions for Information to be Included in Recommending Securities Firms' Assessment Reports for Applications for TPEx Listing of Stock.
    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.
    When the recommending securities firm assesses whether there exists with respect to the applicant company any circumstance 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, it shall obtain the following information, to assess whether the TPEx or TWSE listed company, when taking any action to disperse its equity ownership in order to reduce its shareholding percentage in the applicant company, has done anything detrimental to the rights and interests of the shareholders of the TPEx or TWSE listed company:
  1. Review the minutes of audit committee meetings, board meetings, or shareholder meetings of the TPEx or TWSE listed company, regarding any reduction of the shareholding percentage in the applicant company during the 3 most recent years, as to the reason, the planned amount of the reduction of shareholding percentage in the applicant company, the parties to whom the equity was to be 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. 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.
  2. 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, the recommending securities firm shall review each opinion was obtained from an independent expert(s) on the fairness of the price of the new shares issued for cash capital increase by the applicant company, and the minutes of the applicant company's audit committee or special committee and board of directors, with regard to the reasonableness of the share price and the specified persons contacted to purchase the shares, of any cash capital increase during the 3 most recent years. The recommending securities firm shall also obtain the applicant company's operation procedures relating to the release of shares as passed by its board of directors, and examine relevant provisions including those regarding specified persons contacted for purchase of shares and the basis for setting of the share price, and assess whether those provisions were effectively implemented. 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.
14     The recommending securities firm of a domestic applicant company shall provide an item-by-item assessment of 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, to determine whether there is any circumstance under which TPEx listing of the applicant company's shares is advised against.
    The recommending securities firm of a foreign applicant company shall provide an item-by-item assessment of whether the 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, to determine whether there is any circumstance under which TPEx listing of the applicant company's shares is advised against.
    The recommending securities firm of a foreign applicant company shall assess whether the 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, to determine whether there is any circumstance under which TPEx listing of the applicant company's shares is advised against.
15     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 (however, subparagraph 1, item E need not be applied), Article 12, and Article 13 of these Directions.
15-1     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 take the necessary assessment and auditing procedures, to 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.
16     Other matters to be evaluated
    For matters not covered in these auditing procedures due to the characteristics of the applicant company's specific industry sector, the recommending securities firm may add auditing procedures and describe the circumstances and relevant impact.
17     If any material subsequent event occurs from the date of completion of the assessment report up to before the date of publication of the prospectus for the TPEx stock listing, the recommending securities firm shall provide updated descriptions and assessments for each of the items above that is affected.
18     These Procedures, and any amendments hereto, shall be implemented upon review and recordation by the competent authority.
Top