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| Article 1-1 |
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| Article 2 |
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| Article 3 |
Capital Increase by Issuing New Shares (Including Preferred Shares with Warrants)
1. State the operational risk for the information compiled in the content of the issuer's prospectus in terms of the overall economy, capital markets, the issuer's industry sector, financial and business condition, and so forth. (For issuance of ordinary corporate bonds placed by negotiated sale, assessment is not required.)
(1) Operational risk for that industry sector:
(i) Compile relevant industry report materials to gain an understanding of the status quo in the industry.
(ii) Meet and talk with business executives of the company and use internal financial and business materials of the company or externally-gathered industry reports and related materials as a basis to gain an understanding of peculiar cyclical demands or substitutable goods in that industry and their effects, and analyze the main factors that affect profitability in that industry sector, and the niches the company occupies within the context of each such factor. (*)
(iii) Compile and analyze materials related to the up-stream, mid-stream, and down-stream industries of that industry sector.
(2) Operational risk of the company:
(i) Business:
(a) Compile domestic and foreign industry report materials to gain an understanding of possible changes in supply and demand in the market, and to analyze advantageous and disadvantageous factors affecting the company's futures development and corresponding countermeasures, to assess the company's ability to respond to changes in the economic climate.
(b) Compile information on the market share of the company's main competitors, to assess the company's competitive niche.
(ii) Technical research and development and patent rights:
(a) Assessment opinions may be obtained from experts as evidentiary support.
(b) Obtain materials on the history, organization, personnel, academic and professional experience, and research results, and future plans, of the company's research and development (R&D) department(s), to gain an understanding of its primary sources of technology and the payment methods and amounts of compensation or royalty payments for technologies, and futures directions in R&D work, and analyze the numbers, average years of service, turnover, departure rate, and so forth of R&D department personnel, and assess the operational risk to the company posed by departure of R&D personnel. (*)
(c) Obtain any major technical cooperation contracts, and assess any operational risk to the company related to their content.
(iii) Human resources analysis: obtain the total numbers of employees, departed employees, laid-off employees, or retired employees, and direct or indirect laborers, and their average ages and average years of service, to assess variation in the departure rate and the risk to company operations. (*)
(iv) Cost analysis of all major products:
(a) Obtain information on the expenses for raw materials, processing, and manufacturing for major products over the past three years, and analyze the risk posed to company operations by variation in cost element rates.
(b) In a case where a construction company has filed (or applied) for offering and issuance, obtain reports on market prices in the local (or neighboring) areas, information on other companies in the same business, and housing price ratios provided by government agencies (such as ratios of appraised current values and government-announced current value or ratios of housing construction costs and land costs), to appraise whether the ratio of allocation between the company and the land owners is reasonable in cases of joint construction and separate sale, joint construction and allocation of housing units, or joint construction and allocation of ownership percentages. (*)
(v) Exchange rate changes: (*)
Analyze the ratios during the past three fiscal years of the company's gains or losses on foreign exchange to its operating income, and ratios of domestic/foreign sales and domestic/foreign purchasing to analyze the risk to company operations posed by exchange rate changes, and the company's hedging measures.
2. The business and financial condition of the issuer:
(1) Business condition:
(i) Obtain basic information and sales agreements for the top 10 customers or any customers accounting for 5 percent or more of the company's annual net operating revenue in the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, and perform sample checking of related vouchers to inspect whether there are any material discrepancies in the sales prices or trading terms and conditions given to those customers, and use means such as written confirmations or on-site observation to gain an understanding of the operations of those customers, their relationships with the company, the objectives of the transactions, and the necessity of the transactions, to assess whether there has been any inflation of earnings. Provided, if it is prohibited by contract to disclose the customer's name, or the trading counterpart is an individual and is not a related party, that party may be represented by a code name. (Attachments 1, 2)
(ii) For the top 10 customers or any customers accounting for 5 percent or more of the company's annual net operating revenue in the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, inspect and analyze whether there has been any irregularity involved in any material increase or decrease in the amount of the company's sales to that customer, and assess whether there is any risk from sales concentration.
(iii) Meet and talk with business executives of the company to gain an understanding of the company's sales policies.
(iv) Obtain basic information and sales agreements for the top 10 suppliers or any suppliers accounting for 5 percent or more of the company's annual net purchases in the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, and perform sample checking of related vouchers to inspect whether there are any material discrepancies in the purchases prices or terms and conditions of trading from those suppliers, and use means such as written confirmations or on-site observation to gain an understanding of the operations of those suppliers, their relationships with the company, the objectives of the transactions, and the necessity of the transactions, to assess whether there has been any false purchase invoices.
(v) For the top 10 suppliers or any suppliers accounting for 5 percent or more of the company's annual net purchases in the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, inspect and analyze whether there has been any irregularity involved in any material increase or decrease in the amount of the company's purchases from that supplier, and assess whether there is any risk from purchasing concentration.
(vi) Obtain the annual purchase quantities and unit prices of the raw materials of the company's main products during the past three fiscal years, and compile information on general market prices, and compare it for any material irregularities.
(vii) Obtain the company's long-term goods supply contracts for the past three fiscal years, and materials concerning any shortages or interruptions in the supply of goods, to assess whether there are any material restrictive covenants in the supply contracts and whether there is any risk of over-concentration of sources of goods.
(viii) Obtain the company's own and consolidated financial statements for the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, and analyze the reasonableness of changes in receivables. Explain the parent/subsidiary companies' bad debt allowance policies, and assess the adequacy of allowances provided, and additionally assess the probability of collection of the accounts receivable, and compare and assess against those of other companies in the same business.
(ix) Obtain the issuer's own and consolidated financial statements for the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, and analyze the reasonableness of changes in net inventories, and explain and assess the adequacy of provisions for loss due to price decline of inventory and loss due to obsolete and slow moving inventories, and compare and assess against those of other companies in the same business.
(x) Obtain the company's internal information and compile relevant industry reports and analyze whether there have been any irregular changes in business results during the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement; additionally, analyze, by department or main product types, changes in operating revenue, operating cost, and gross operating profit in the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement (Attachments 3 and 4). If changes in operating revenue or gross profit reach 20 percent or more during the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, an analysis of price and sales volume shall be performed, and the reasonableness of the fluctuation shall be assessed. (Attachment 5)
(xi) Review the company’s financial reports, internal materials, and legal opinions over the past three fiscal years to the date of issuance of the underwriter’s assessment report, to ascertain the reasonableness of the company’s business transactions with its affiliated enterprises, and whether there have been irregular transactions. If the issuer sells products to its affiliated enterprise, relevant information shall be obtained on the issuer’s credit policy, transaction terms, payment collection, and subsequent use of the products for production or re-sale by the affiliated enterprises shall be obtained, to determine the reasonableness thereof. In the event that such transactions are inconsistent with general trade practices, the reason for such discrepancies and the reasonableness thereof shall be determined.
(xii) Review the company’s and its affiliated enterprises’ financial reports and information on their major business or major products, sales channels, and sales revenue over the past three fiscal years to the date of issuance of the underwriter’s assessment report, to ascertain whether the company and its affiliated enterprises’ main business or products (those accounting for not less than 30 percent of the total operating revenue of each in each of the past two fiscal years) are mutually competing.
(xiii) Increase or decrease in fixed assets and management thereof: (*)
(a) Collect information on increases or decreases in the company’s fixed assets over the past three fiscal years.
(b) Collect information on relevant assets management rules of the issuer to understand its management of fixed assets.
(xiv) Funds management:
(a) Review the financial statements and account books of the past three fiscal years to assess whether there is any violation of Article 15 of the Company Act.
(b) Obtain relevant information on authority to approve fund allocation, the decision makers, and their positions.
(2) Financial condition:
(i) Obtain the company’s profit and loss information for the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, and compare it with that of other companies in the same business to understand the changes therein and assess the advantages and disadvantages thereof. (Attachment 6)
(ii) Obtain the financial ratio analysis statements of the company for the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement, and compare them with those of other companies in the same business to understand the changes therein and assess the advantages and disadvantages thereof. (Attachment 7)
(iii) Review the financial reports certified by a CPA and obtain written company statements or legal opinions from lawyers to determine whether the company has experienced financial difficulties in the past three fiscal years and the impact on the company’s financial condition. (*)
(iv) Review the financial reports certified by a CPA and obtain written company statements to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivatives trading engaged in by the company and its subsidiaries with related parties or other companies over the past three fiscal years to the date of issuance of the underwriter’s assessment report, and perform sample checking of relevant vouchers, to analyze whether there are any irregularities and the impact on the company's financial condition. (Attachment 8). (*)
(v) Investments:
(a) Where there is a material impact on the invested company:
Obtain financial statements and relevant information of the invested company on which there is a material impact to understand its major scope of business and operational conditions, and whether the company has experienced operational or financial difficulties to the most recent quarter, and the impact on the issuing company.
Understand the amount the issuing company recognized as investment profit/loss and its dividend distributions (the amount of profit remittances from invested enterprises overseas should be listed). (Attachment 9)
Obtain the issuing company’s financial statements and account books for the past three fiscal years to determine whether there is any violation of Article 13 of the Company Act.
Obtain relevant information on the use of the issuing company’s resources and technologies by the invested company on which there is a material impact to determine the reasonableness of the consideration or technology licensing fees paid by the invested company.
(b) Where there is controlling power over the invested company:
The auditing procedures in III-2-(2)-(v)-(a) shall apply mutatis mutandis to the current capital increase plan.
Review the issuing company’s financial statements for the most recent fiscal year and relevant information on product purchase and sale, credit policies, transaction terms, and payment settlement between the company and the invested company to determine their reasonableness and the presence of any irregularities. (Attachment 9-1)
(c) Where there is existing or planned indirect investment in mainland China: (*)
Audit the company’s investments in the mainland China area and, where any of the below circumstances exist, determine whether the company has counted it toward its maximum quota of mainland investment, applied for approval from the Investment Commission of the Ministry of Economic Affairs, and duly disclosed its relevant mainland investments:
Any circumstances in Article 4 of the Regulations Governing Permission for Investment and Technical Cooperation in the Mainland Area applies to the company.
The issuing company has obtained shareholding in a company in a third region that has [investment in] a mainland enterprise accounted for under the equity method, and the issuing company moreover is a director or supervisor of the company in the third region or exercises de facto controlling influence over the operations of the company in the third region.
A company in a third region has initially invested in a mainland enterprise using its own funds or a bank loan or equipment and machinery, and then, because the third-region company experiences a shortage of operating funds or, for purposes of repaying the debt, the issuing company raises funds for a capital infusion to the [third-region company], and the issuing company moreover is a director or supervisor of the company in the third region or exercises de facto controlling influence over the operations of the company in the third region.
The issuing company raises funds to invest in a company in a third region and moreover is a director or supervisor of the company in the third region or exercises de facto controlling influence over the operations of the company in the third region, and at the time of investment there was no investment in any mainland-area enterprise but subsequently the third-region company utilizes the funds from the capital infusion to invest in a mainland-area enterprise.
The issuing company raises funds to purchase machinery and equipment, and subsequently invests in a mainland-area enterprise via investment in a third region using such machinery and equipment as the price of the investment.
The issuing company raises funds to purchase machinery and equipment and subsequently transfers such machinery and equipment to the mainland and provides it for use by a mainland enterprise in processing of customers’ materials, and such machinery is moreover used as the price of investment in the mainland processing plant by the [issuing company], which also participates in its operation.
Calculation of the maximum quota for mainland investment:
Foreign currency conversions with respect to the mainland investment amount shall be based upon the cash foreign exchange buy rate quoted by the Central Bank at the time of the filing to the Investment Commission.
Net value shall be calculated on the basis of the financial statements for the most recent period audited and certified by a CPA
Review the minutes of the directors’ and shareholders’ meetings, the approved dates and amounts of investment passed by the Investment Commission under the Ministry of Economic Affairs, and the amounts invested to date, to understand any indirect investments carried out in mainland China by the company and the amount it recognized as investment profit/loss and amount of profit remitted back in the past three fiscal years, and to determine their impact on the financial condition of the issuing company. (Attachment 10)
(vi) Real property or long-term investments planned for disposal within one year:
(a) Review the company’s board meeting minutes, and relevant internal materials, to determine whether there are real property or long-term investments planned for disposal within one year that meet the threshold requiring public announcement set forth in the Guidelines for Handling Acquisition and Disposal of Assets by Public Companies.
(b) Inquire with the company’s relevant personnel and review relevant information on the names, nature, quantity (or surface area), location, date of acquisition, cost of acquisition, appreciation in reevaluation, book value, anticipated sale price, and profit or losses from disposal of the aforementioned real property or long-term investment, so as to understand the reasons for the disposal thereof and impact on the company’s financial condition. (Attachment 11)
(vii) Obtain information on the company's capital raising and changes in its earnings per share for the past three fiscal years, and perform an overall analysis and assessment to determine whether the funds raised were utilized appropriately, whether reasonable benefits were realized, and the dilution effect on earnings per share.
(viii) Review the company’s statement or commitments, relevant approval letters and materials for the previous report (application) for the issuance and offering of securities or, if the company has only been listed (or traded over-the-counter) in the past three years, those for the application for the initial public offering, and make a sample inspection of relevant documents to determine whether any of the aforementioned statements or commitments have been violated.
If the company became listed (or traded over-the-counter) within the past three years, review the company’s financial reports certified by the CPA to know whether within three years of becoming listed (or traded over-the-counter), there have been any instances where the company’s operating revenue decreased by not less than 30 percent compared to the previous year. If so, analyze such changes by comparing them with those of companies within the same business, and determine the reasonableness of the company’s measures for improvement.
(ix) Inquire with the company’s relevant managers and review the minutes of the directors’ meeting, relevant contracts, verification reports of transfer prices, and other relevant materials, to ascertain whether the company has, in the past three fiscal years, purchased unfinished construction projects and assumed unfulfilled contracts of the seller. If yes, further determine the reason for the seller’s assignment, the basis and reasonableness of the assignment price, the legality of the assignment process, the impact on the rights and obligations of the contracting parties, and whether there are any irregularities in the issuer’s share prices during the assignment period. (*)
3. Issuer’s internal control and audit systems and their implementation:
(1) Obtain relevant information on the company’s internal control and audit systems to determine whether the systems are comprehensive and sound and effectively implemented. (*)
(2) Review the internal control improvement recommendations for the past three fiscal years submitted by the CPA, and carry out sample inspections on any deficiencies to determine whether there are material deficiencies yet to be rectified. (Attachment 12) (*)
(3) If, upon the request of the Financial Supervisory Commission, Executive Yuan, an internal control project audit is to be carried out by the CPA: (Attachment 12)
(i) Review whether the company has carried out self-assessment in accordance with the Guidelines for Establishment of Internal Control Systems by Public Companies.
(ii) Determine whether the unqualified audit opinion (I) issued by the CPA is consistent with the findings of the above tasks.
(iii) Verify that the internal control review report submitted by the CPA is consistent with the following:
(a) Jointly audited and certified by not less than two CPAs.
(b) The date of coverage of the internal control statement is consistent with the review period of the project audit.
4. Transfer of the issuer’s share equity:
Determine whether such transfers are consistent with the Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies.
5. Review the corporate bonds (including overseas corporate bonds), preferred shares, global depositary receipts, and overseas stock currently issued and outstanding, or are planned to be issued within the coming year by resolution of the directors’ or shareholders’ meeting, the terms and status of issuance, as well as information on the market prices of convertible corporate bonds, the market prices of corporate bonds with warrants, and the exchange of exchangeable corporate bonds, to ascertain the impact of their terms of issuance on the rights of the subscribers to the current issue. (Attachments 13, 14, 15, 16, 17, 18)
6. Implementation of each previous plan for offering and issuance or private placement of securities:
(1) Obtain relevant information on prior uncompleted plans for offering and issuance or private placement of securities, and make a sample inspection of the major receipt and expenditure certificates to determine whether the plans have proceeded as scheduled. If the progress is behind schedule, determine the reasonableness of the delay, the impact on shareholders’ equity, and whether an improvement plan is in place.
(2) Review relevant information on each prior uncompleted plan for offering and issuance or private placement of securities to ascertain the contents of the plans, source and utilization of funds, reason for changes, and benefits before and after the changes.
(3) Review relevant information on all prior plans for offering and issuance or private placement of securities whose actual completion dates were within three years from the date of filing (or application), so as to determine whether the original forecasted benefits have been realized. If the benefits are less than the anticipated targets, determine the reasons for such deficiency and determine the reasonableness thereof and the impact on shareholders’ equity.
(4) Review whether any offering and issuance of securities by the company within the past year was done in faithful compliance with Article 9, paragraph 1, subparagraphs 4 to 9 of the Regulations Governing the Offering and Issuance of Securities by Issuers and Article 11 of the Regulations Governing the Offering and Issuance of Overseas Securities by Issuers; or whether any plan for private placement of securities was done in faithful compliance with Point 4 of the Directions for Public Companies Conducting Private Placements of Securities.
(5) Obtain the company's issuance rules for corporate bonds and its long-term fund borrowing agreements for the past three fiscal years, to determine whether the company has repaid the principal and paid the interest in a timely manner and whether there are any material restrictions on its finances, business, or other matters. (*)
7. Assess whether any of the following exists with respect to the current offering and issuance of securities:
(1) Carry out an itemized assessment based on the list in Attachment 19.
(2) Carry out an itemized assessment based on the list in Attachments 20 and 21.
(3) Review provisions of the company's board meeting minutes, shareholders' meeting minutes, articles of incorporation, and any other materials for the past three fiscal years, relating to distributions of cash dividends, stock dividends, and bonuses, and employee subscription or purchase of shares issued for cash capital increase, and review whether dividend distributions by the company are in compliance with the applicable provisions of the Company Act and the articles of incorporation, and whether policies concerning future distributions of dividends comply with the provisions made by the competent authority.
(4) Obtain the qualifications of the independent directors and supervisors of the company, and applicable documents certifying that they have carried on their continuing education, to determine the status of the company's compliance with the Corporate Governance Best-Practice Principles for TSEC/GTSM Listed Companies.
(5) Compliance with acts and regulations and the effect on company operations
(i) Obtain a legal opinion issued by a lawyer to determine whether the current plan for offering and issuance of securities complies with Article 130; Article 156, paragraph 5; Article 167, paragraphs 3 and 4; Article 246; Article 247, and Article 278 of the Company Act, and Article 28-4 of the Securities and Exchange Act, and is free of the any events specified in Articles 249, 250, 269, and 270 of the Company Act. If an invested company holds stock of the issuer, assess whether such circumstance violates the principle of reality of capital and would affect the total amount of the capital that the issuer wishes to raise with the current offering and the future execution of the plan for capital increase, and explain whether any specific countermeasures have been adopted and whether adequate written explanations and undertakings have been issued to guarantee the shareholders' equity of the issuer. If the company is applying for a cash capital increase following two consecutive years of losses, determine whether such action complies with the proviso to Article 270 of the Company Act, and analyze the soundness, reasonableness, and feasibility of the company's business plan.
(ii) Obtain a legal opinion issued by a lawyer to determine whether any event specified in a subparagraph of Article 156, paragraph 1 of the Securities and Exchange Act is present.
(iii) Obtain a legal opinion issued by a lawyer and a written statement by the company, and make inquiries of the company's legal staff, to determine the effect on company finances of any major litigation, non-litigious matter, or administrative litigation involving the company or any director, supervisor, general manager, major shareholder with shareholdings of 10 percent or more, or subordinate company thereof, within the past three fiscal years and up until the date of publication of the prospectus, and whether the countermeasures adopted to deal with it are complete and appropriate.
(iv) Obtain a legal opinion issued by a lawyer and a written statement by the company, and make inquiries of the company's legal staff, to determine whether the company or any current director, supervisor, responsible person, general manager, or de facto responsible person thereof has been sentenced by a court judgment to a criminal penalty of imprisonment or greater severity within the past three fiscal years and up until the date of publication of the prospectus.
(v) Obtain a legal opinion issued by a lawyer and a written statement by the company, and make inquiries of the company's legal staff, to identify all of the company's supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts sufficient to affect investors' rights and interests, that are currently effective or have expired within the past year, and analyze their effect on the company's business.
(vi) Obtain a legal opinion issued by a lawyer and a written statement by the company, and make inquiries of the company's legal staff, to determine whether there are any major management-labor disputes or environmental pollution incidents. (*)
(vii) For any use of funds that must be approved by a competent authority in a relevant industry, obtain a legal opinion issued by a lawyer concerning whether any conditions attached to such approval would have any effect on the current offering and issuance of securities.
If an underwriter obtains a legal opinion from a lawyer required for any assessment under subparagraphs 1 to 7 of the preceding paragraph, the lawyer may not be the same person as the issuer's regular legal counsel, a lawyer the issuer engaged to complete a Checklist of Legal Issues for an offering by the issuer, or the certifying CPA, nor may he or she belong to a firm with which it has any substantive cooperative relationship.
8. Review the securities exchange information or OTC securities information related to the share price of the company and related information for the past one month to understand its share price variation (including variation trends, the average range of fluctuation, and comparison with the capitalization-weighted share index). (Attachment 22)
9. Evaluate the following matters item by item, and assess comprehensively the feasibility, necessity, and reasonableness of the current offering and issuance of securities:
(1) Review the minutes of the company’s directors’ or shareholders’ meeting relevant to the current plan and other relevant information, to determine the reasonableness of the current plan, its anticipated schedule, and anticipated benefits.
(2) Obtain the minutes of the company’s directors’ or shareholders’ meeting relevant to the current plan and other relevant information, to analyze and compare the impact of the different sources of capital on the dilution of the earnings per share of the issuer during the current fiscal year, and determine the necessity and reasonableness of the cash capital increase. If the current capital increase is not contributed in cash, assess the reasonableness of the amount of the capital contribution and the necessity of acquiring property or consult opinions provided by financial or business experts.
(3) If the capital increase plan is to be used for reinvestment purposes, the following items shall be assessed:
(i) If the investment is to be made in a business requiring special approval, inquire with the company’s relevant personnel and obtain the letter of approval or permission from the competent authority in charge of the business requiring special approval, and inquire whether any conditions attached to such approval or permission will affect the current offering and issuance of securities, to ascertain the feasibility of the current plan. If approval or permission has not been obtained, inquire whether the feasibility of the current capitalization increase plan will be affected.
(ii) Review the minutes of the company’s directors’ or shareholders’ meeting relevant to the current plan and other relevant information, to understand the use of the current investment plan and relevance of the business operations of the invested enterprise to the company’s business, and further determine the necessity and feasibility of the investment.
(iii) If the issuer holds not less than 20 percent of the common stock of the invested company, review the minutes of the company’s directors’ or shareholders’ meeting relevant to the current plan, to understand the expected schedule for capital utilization, the capital recovery period, the anticipated annual benefits prior to capital recovery, the reasonableness of the anticipated benefits, as well as the impact on the profitability of the issuer and dilution of earnings of per share.
(iv) If the invested business is a major national economic development project, the underwriter shall review the minutes of the company’s directors’ or shareholders’ meeting and information relevant to the current plan, to determine he impact on the issuer’s rate of return on investment of the invested enterprise’s reinvestment plan, fund raising plans, and items within such plans, over the coming five years.
(v) Inquire with the company’s relevant personnel and review the relevant account books and information to determine the necessity of using the resources and technologies of the issuer, and the reasonableness of the consideration or technology licensing fees paid by the invested company.
(4) If the current capital increase plan is to be used for debt repayment or for increasing working capital, the following items shall be assessed:
(i) Review the company’s financial report for the most recent fiscal year and statement of projected monthly cash receipts and expenditures for the fiscal year of the report (application) and the coming fiscal year, and determine the reasonableness of the company’s operational features, accounts receivables collection, payment policies for accounts payable, funds expenditure plans, and the projected schedule of cash receipts and expenditures, as well as their relevance to the financial forecast. Analyze the necessity and reasonableness for the capital increase with respect to the issuer's funding needs and the timing of and reason for its shortage of funds.
(ii) Inquire with the company’s relevant personnel and review the relevant account books and information to determine the necessity and reasonableness of the current capital increase plan based on its impact on financial leverage, debt ratio (or the self-provided capital and risk capital ratios), operating income, profitability, and dilution of earnings per share during the year of filing of the report (application).
(iii) If the current plan for capital increase is to be used to repay debts, obtain the itemized details of the company’s debt repayment to determine the necessity of the original loans, their reasonableness, and tangible benefits.
If the funds are borrowed to acquire land for construction or to pay construction costs, the necessity and reasonableness of the loan should be determined based on the funds expected to be spent from the time of acquisition of land to completion of the construction project, sources of extra capital, the stage-by-stage schedule for fund injection, and the construction schedule. In addition, with respect to the time and amount of the recognized loss and profit, determine the reasonableness of the expected benefits and whether they are realized.
(5) If the current capital increase plan is going to be used to acquire land for construction or to pay construction costs, the underwriter shall review the minutes of the directors’ and shareholders’ meetings relevant to the current plan and other relevant information, to determine the reasonableness of the expected benefits based on the total capital to be spent from the time of the acquisition of land to the completion of the construction project, sources for extra capital, the stage-by-stage schedule for fund injection and the construction schedule. In addition, with respect to the time and amount of the recognized loss and profit, determine the reasonableness of the possible benefits.
(6) Inquire with the company’s relevant managers and review the minutes of the directors’ and shareholders’ meetings relevant to the current capital increase plan, and examine relevant contracts, acquisition price verification reports, and other related information, to determine, if the current capital increase plan is used to purchase unfinished construction and assume unfulfilled contracts of the seller, the reason for the assignment by the seller, the basis and reasonableness of the assignment price, the legality of the assignment process, and impact on the rights and obligations of the contracting parties.
(7) If the current capital increase is carried out in conjunction with a capital decrease, the following items should be assessed:
(i) Review the minutes of the directors’ and shareholders’ meetings and the shareholders’ meeting handbook relevant to the current capital increase and decrease, as well as other relevant information, and obtain the contents of the current capital increase and decrease plans and relevant timetables for share operations, so as to ascertain whether the capital increase and decrease are being carried out in conjunction and to determine the impact on shareholders’ equity, net value per share, and earnings per share, as well as the issuing price for the capital increase, and whether these matters have been disclosed in the shareholders’ meeting handbook. In addition, the reasonableness and feasibility of the contents and the timetable of the current plans should also be determined.
(ii) Inquire with the company’s relevant personnel and review the relevant account books and materials to determine the reasons for losses, improvement plan, and the impact of the capital decrease on the financial and business situation, and shareholders’ equity. If there is a plan to introduce a new management team or engage in strategic alliance with other companies, obtain the educational background and professional experience of the new management team, the new management strategy, or the strategic alliance plan, so as to understand their feasibility for improving the company’s operational situation and profitability.
(iii) Inquire with the company’s relevant personnel and review relevant account books and materials to determine the impact on the company’s net value per share and earnings per share before and after decrease/increase in capitalization.
(iv) If the company’s incurred losses are not due to factors related to the industry or economic climate, review the CPA’s project audit report on the company’s internal control system to understand whether the company has submitted improvement plans for the deficiencies listed in the report, and review relevant implementation records to ascertain the status of implementation.
(8) Obtain relevant material to assess the handling method to be adopted if a shortage of funds occurs as a result of any change in the tentative price or share [issuance] volume interval, or the reasonableness of the fund use and anticipated benefits when raising additional funds. Also assess whether the tentative share issuance volume interval complies with Article 278 of the Company Act.
10. Obtain the financial report and relevant undertakings of the managing underwriter and the issuing company for the past year, to determine whether they are related parties. If they are related parties, determine the relationship. In addition, determine whether there are major property transactions, financing, or other transactions between the parties.
11. Determine whether any of the material subsequent events set forth in Paragraph 2 of Article 36 of the Securities and Exchange Act has occurred from the date the balance sheet was audited and certified (or reviewed) by a CPA until the presentation of the securities underwriter’s assessment report, so as to assess their impact on shareholders’ equity and share prices.
12. Review the following items with respect to the rules for the issuance and subscriptions of preferred shares with warrants to determine their reasonableness and impact on the rights of the current shareholders and holders of preferred shares with warrants:
(1) The model used to determine the issuance price, subscription price, and the method of determining the number of shares entitled per warrant, as well as their parameters and basic assumptions, sampling data, and deduction process.
(2) Whether with respect to the ownership of dividends during the fiscal year of share subscription it is clearly stated that the shareholders can exercise their rights to claim dividends when they subscribe to the shares.
(3) Call or redemption provisions.
(4) Subscription price and subscription ratio adjustment timing and method.
(5) Restrictive provisions.
(6) Method of performing subscription rights.
(7) Method of payment for shares.
(8) Other important stipulations.
12-1. If the current issue is a cash issue of new shares at below par value, the following matters shall be assessed:
Obtain the directors’ or shareholders’ meeting minutes and relevant materials concerning the current plan, to compare the costs of obtaining funds from various different sources and assess the reasons for and reasonableness of not using other means of fund raising; assess the method of determining the issue price and its impact on shareholder equity, and ascertain whether it was submitted to and passed by the shareholders’ meeting or directors’ meeting pursuant to the Company Act or laws or regulations applicable to securities.
13. Other necessary auditing procedures.
14. Companies, who in the last year have carried out underwriting cases for initial listing (or OTC listing), or in the last year have carried out a capital increase by issuing new shares, or issued domestic convertible corporate bonds, may be exempt from the aforementioned assessment and auditing procedures marked with (*).Capital Increase by Issuing New Shares (Including Preferred Shares with Warrants)
1. State the operational risk for the information compiled in the content of the issuer's prospectus in terms of the overall economy, capital markets, the issuer's industry sector, financial and business condition, and so forth. (For issuance of ordinary corporate bonds placed by negotiated sale, assessment is not required.)
(1) Operational risk for that industry sector:
(i) Compile relevant industry report materials to gain an understanding of the status quo in the industry.
(ii) Meet and talk with business executives of the company and use internal financial and business materials of the company or externally-gathered industry reports and related materials as a basis to gain an understanding of peculiar cyclical demands or substitutable goods in that industry and their effects, and analyze the main factors that affect profitability in that industry sector, and the niches the company occupies within the context of each such factor. (*)
(iii) Compile and analyze materials related to the up-stream, mid-stream, and down-stream industries of that industry sector.
(2) Operational risk of the company:
(i) Business:
(a) Compile domestic and foreign industry report materials to gain an understanding of possible changes in supply and demand in the market, and to analyze advantageous and disadvantageous factors affecting the company's futures development and corresponding countermeasures, to assess the company's ability to respond to changes in the economic climate.
(b) Compile information on the market share of the company's main competitors, to assess the company's competitive niche.
(ii) Technical research and development and patent rights:
(a) Assessment opinions may be obtained from experts as evidentiary support.
(b) Obtain materials on the history, organization, personnel, academic and professional experience, and research results, and future plans, of the company's research and development (R&D) department(s), to gain an understanding of its primary sources of technology and the payment methods and amounts of compensation or royalty payments for technologies, and futures directions in R&D work, and analyze the numbers, average years of service, turnover, departure rate, and so forth of R&D department personnel, and assess the operational risk to the company posed by departure of R&D personnel. (*)
(c) Obtain any major technical cooperation contracts, and assess any operational risk to the company related to their content.
(iii) Human resources analysis: obtain the total numbers of employees, departed employees, laid-off employees, or retired employees, and direct or indirect laborers, and their average ages and average years of service, to assess variation in the departure rate and the risk to company operations. (*)
(iv) Cost analysis of all major products:
(a) Obtain information on the expenses for raw materials, processing, and manufacturing for major products over the past three years, and analyze the risk posed to company operations by variation in cost element rates.
(b) In a case where a construction company has filed (or applied) for offering and issuance, obtain reports on market prices in the local (or neighboring) areas, information on other companies in the same business, and housing price ratios provided by government agencies (such as ratios of appraised current values and government-announced current value or ratios of housing construction costs and land costs), to appraise whether the ratio of allocation between the company and the land owners is reasonable in cases of joint construction and separate sale, joint construction and allocation of housing units, or joint construction and allocation of ownership percentages. (*)
(v) Exchange rate changes: (*)
Analyze the ratios during the past three fiscal years of the company's gains or losses on foreign exchange to its operating income, and ratios of domestic/foreign sales and domestic/foreign purchasing to analyze the risk to company operations p |
| Article 4 |
Issuance of New Shares as a Result of Merger
1. The business and financial conditions of the merged company and the impact of the merger on the business and finances of the issuer:
(1) Business condition:
The auditing procedures in III-2-(1) shall be applied mutatis mutandis to analyze the possible impact of the merger on the business operations of the issuer.
(2) Financial condition:
(i) Review the CPA-certified financial reports of the merged company and obtain a statement by the merged company to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivatives trading engaged in by the merged company and its subsidiaries with related parties or other companies over the past three fiscal years to the date of issuance of the underwriter’s assessment report, and perform sample checking of relevant vouchers, to analyze whether there are any irregularities and the impact on the issuer's financial condition following the merger. (Attachment 8)
(ii) Obtain the details of the merged company’s issuance of long-term and short-term liabilities and loans for the most recent fiscal year and to the date of issuance of the underwriters’ assessment report to understand whether payment of the principal and interests have been carried out on time. Review existing rules governing the issuance of existing corporate bonds and long- and short-term loan contracts to understand whether they impose restrictions on the financial, business, or other operations of the merged company, and to analyze the impact of the above matters on the financial condition of the issuer.
(iii) Investments:
(a) Where there is a material impact on the invested company:
Obtain the latest financial report and relevant information of the invested enterprise for the most recent fiscal year to understand its operational and financial condition.
Review the financial reports and account books of the merged company for the past three fiscal years to understand the amount it recognized as investment profit/loss and its dividend distributions (amount of profit remittances from invested enterprises overseas should also be listed), to understand the impact of the merger on the operations and profitability of the issuer. (Attachment 9)
Obtain relevant information on the use of resources and technology provided by the merged company to the invested company, as well as the price details, to analyze the reasonableness of the consideration paid or technology licensing fees.
Obtain a statement from the company to determine whether the company has experienced operational or financial difficulties until the most recent quarter, and analyze the impact of the merger on the issuer.
(b) Where there is controlling power over the invested company:
In addition to the auditing in accordance with the procedures set forth in IV-1-(2)-(iii)-(a), the audit procedures set forth in III-2-(2)-(v)-(b) shall also apply mutatis mutandis to ascertain relevant issues between the controlling party and the merged company.
(c) The auditing procedures in III-2-(2)-(v)-(c) shall apply mutatis mutandis to the audit of the merged company, to ascertain the impact of the merger on the financial condition of the issuer and whether the amount of indirect investments carried out on mainland China by the issuer after the merger is consistent with applicable laws and regulations.
(iv) If the merged company is a construction company or has a construction department, the audit procedures in III-1-(2)-(iv)-(b) shall be applied mutatis mutandis to determine whether there are irregularities in the gross profit margins of the individual projects and in the forecast sales of projects that are completed but not sold.
(v) If the merged company is an unlisted or non-OTC company:
(a) Obtain the company's profit/loss information for the past three fiscal years and the year of the filing (or application) up to the date of the most recent financial statement, and compare it with that of other companies in the same business, to understand the changes therein and the advantages and disadvantages thereof. (Attachment 6)
(b) Obtain the company's financial ratio analysis statements for the past three fiscal years and the year of the filing (or application) up until the date of the most recent financial statement and compare them with those of other companies in the same business, to understand the changes therein and assess the advantages and disadvantages thereof. (Attachment 7)
(c) Whether there are serious irregular transactions that have not been rectified to date:
Obtain relevant information of the merged company the most recent fiscal year and the year of application on major property transactions, such as purchase and sales contracts, records of actual receipts and payments, and internal decision-making processes, to determine whether such transactions violate relevant laws and regulations, and whether irregularities exist.
Obtain relevant information of the merged company for the past five fiscal years on the sale of real property to related parties or purchase of real property from related parties, such as purchase and sales contracts, records of actual receipts and payments, and internal decision-making processes, to determine whether such transactions violate relevant laws and regulations, and whether irregularities exist.
Obtain relevant information on land purchased or sold by the merged company and neighboring land purchased or sold by related parties during the same general time frame, to determine whether there are any obvious difference in their prices without legitimate cause.
Obtain details of the operating income of the merged company for the past five fiscal years to determine whether there is any operating income from sale of products or lease of real estate to any related party in the last quarter, where such income is not less than 20 percent of the annual operating income, without legitimate cause.
Obtain relevant information on the sale of real property to non-related parties or purchase of such from non-related parties by the merged company in the past five fiscal years, such as sale/purchase contracts, actual records of payments and receipts, and the internal decision-making process, so as to determine whether such real estate transactions are obviously different from other general transactions without legitimate.
Obtain details of loans of funds by the merged company to other parties in the last year, and inquire with the company’s management to determine whether there have been any loans of funds to other persons apart from financing necessitated by inter-company business transactions.
(d) Any serious instances of financial statements not prepared in accordance with laws and regulations and general accounting principles, or failure to effectively establish and implement internal control, audit, and book accounting systems, as well major issues arising therefrom.
Obtain the financial report of the merged company for the most recent fiscal year certified by a CPA; review the CPA’s opinion to determine whether the financial report has been prepared in accordance with laws and regulations and general accounting principles.
Inquire with the company’s personnel to understand whether there are issues in the financial report of the merged company of which the competent authority has requested rectification in writing but that have not been rectified.
Determine whether there have been any serious instances of failure to effectively establish and implement the internal control, internal audit, and book accounting systems.
2. Determine whether any of the following conditions are present in the current issuance of new shares as a result of capital increase due to merger:
(1) Determine whether the current issuance of new shares as a result of capital increase due to merger is consistent with Article 51 of the Operating Rules of the Taiwan Stock Exchange Corporation or Article 16 of the R.O.C. Over-the-Counter Securities Exchange Rules Governing Securities Trading on Over-the-Counter Markets:
(i) Obtain the pro-forma consolidated financial statement prepared by the CPA, together with the financial information of the surviving company and the merged unlisted company or non-OTC company, so as to determine whether the net worth per share of the surviving company in the most recent fiscal year is higher than the net worth per share of the original listed (or OTC) company, or meets the standard for profitability of listed (or OTC) companies prescribed by the Stock Exchange (or the OTC Securities Exchange).
(ii) Obtain the most current roster of shareholders to determine whether the amount of the new shares issued as a result of the merger held by the directors, supervisors, and shareholders holding more than 10 percent of issued and outstanding shares of the merged company, that have been placed under centralized custody is consistent with regulations; obtain letters of consent from the aforementioned individuals stating their willingness to place the new shares under centralized custody.
(iii) Obtain the written reply from the TSEC and OTC Exchange to the company approving the merger.
(iv) Obtain the financial report of the merged unlisted company or non-OTC company during the most recent fiscal year to determine the kind of audit report issued therefor.
(2) Carry out an itemized assessment based on the list in Attachment 19.
(3) Carry out an itemized assessment based on the lists in Attachments 20 and 21.
(4) Compliance with acts and regulations and the effect on company operations
(i) Obtain a legal opinion issued by a lawyer to determine whether the merged company is subject to any of the events listed in the Securities and Exchange Act, Article156, paragraph 1, subparagraphs 1, 2, and 3.
(ii) Obtain a legal opinion issued by a lawyer in accordance with the audit procedures specified below and a written statement by the merged company, and make inquiries of the merged company's legal staff, to determine whether the merged company is or has been involved in any major management-labor disputes or environmental pollution incidents that would affect the company's normal financial or business operations, and that have not yet been corrected:
(a) Major management-labor disputes:
Obtain a written statement from the merged company or interview union officials and employees to understand whether the company has experienced labor strikes or unresolved major labor disputes in recent years, as well as their causes and methods of resolution.
Obtain the approval documents and charter of the employee welfare committee of the merged company, and carry out a sample audit on the merged company’s contributions to the employee welfare fund, to ascertain whether the company has duly contributed to the employee welfare fund in accordance with law, and has duly contributed to the employees’ pension reserve fund account on a monthly basis.
Review the relevant account books and obtain inspection records and relevant correspondence from the labor inspection office to determine whether, in the past three fiscal years, the merged company has experienced any major occupational disasters due to deficient safety or sanitation facilities, or any disposition of partial or complete work suspensions due to violations of the Worker Safety and Health Act, or whether hazardous machinery or equipment have been installed that have not passed inspection, where no application for re-inspection has been filed with the inspection agency.
Ascertain whether the company owes outstanding premiums or late payment penalties to the National Labor Insurance program, and whether such payments have not been settled despite legal recourse.
(b) Major environmental pollution issues:
Obtain an itemized list of the pollution prevention equipment of the merged company, and inquire with the company’s personnel about the installation and operations of the equipment and the emissions permit, to ascertain whether permits have been obtained for the installation, operations, and emission standards of the pollution prevention equipment in accordance with relevant regulations.
Obtain the official disposition letter of any penalties the merged company received from the environmental protection authorities in the past two fiscal years and during the year of application, to determine whether the company has incurred any successive daily penalties from the environmental protection authorities. If yes, determine whether the company has commissioned an inspection institution approved by the environmental protection authorities to carry out inspection and testing, and has forwarded the test result reports, and filed on the basis thereof a pollution rectification completion report with the environmental protection authorities. The matter shall be deemed rectified if the company has not, within three months from filing of the completion report, incurred further penalties.
Inquire with the management of the merged company to ascertain whether there have been cases of disputes related to public hazards where the company did not have equipment to effectively prevent such hazards, or was unable to maintain normal operations of the equipment and provide records of regular maintenance of the equipment.
Review the correspondence with the competent authority to determine whether the company, due to issues of environmental pollution, has been ordered by any relevant agency to suspend work or suspend or terminate business operations, or had any pollution-related license revoked.
Obtain correspondence with the environmental protection agency and inquire whether the company has disposed of waste materials recklessly or has failed to store, clean, or dispose of waste materials in accordance with relevant regulations, or has caused serious environmental pollution resulting in death, serious injury, or harm to human health and resultant illnesses during the treatment process.
Review the correspondence with the environmental protection authorities to determine whether the company is an enterprise announced by the central competent authority through public notice as a controlled location or a site under remediation due to soil or groundwater pollution.
Obtain correspondence with the environmental protection authorities and a lawyers’ opinion to determine whether the company’s responsible person has been sentenced by a final and unappealable court judgment of manufacture, processing, or import of any prohibited environmental agent.
(iii) Obtain a legal opinion issued by a lawyer in accordance with the following audit procedures and a written statement from the merged company, and make inquiries with the legal staff of the merged company, to determine whether there has been any act of breach of good faith by the merged company or any of its current directors, supervisors, general manager, or de facto responsible person in the past three fiscal years:
(a) For the issuing company:
Obtain a written statement from the merged company or inquire with the bills clearing house as to whether the company has been blacklisted in the past three fiscal years or has any record of dishonor of negotiable instruments due to insufficient funds, where such record has not yet been expunged.
Obtain a written statement from the merged company and contracts for short-term and long-term loans, and carry out sample audit of such loans and their re-payment status, to determine whether the company has had any delinquent loan payments over the past three fiscal years.
Obtain a statement from the merged company or take into reference lawyers’ opinions or inquire in writing with the relevant agencies to determine whether the merged company has within the past three years:
violated the Labor Standards Act and been sentenced by a final and unappealable criminal judgment (provided, however, that this restriction does not apply where the company has been re-inspected by the inspection agency within the past two years and found to have rectified the issue);
violated the Tax Assessment Act and been convicted by a final and unappealable criminal judgment;
engaged in other serious fraudulent or unlawful conduct, or any other conduct that resulted in loss of company credit, thus impairing the company’s interests, shareholders’ equity, or public interests.
(b) For the directors, supervisors, general manager, or de facto responsible person:
Obtain a statement or inquire with the bills clearing house whether the company’s directors, supervisors, general manager, or de facto responsible person have been blacklisted in the past three fiscal years, or have any record of dishonor of negotiable instruments due to insufficient funds, where such records have not been expunged.
Obtain a statement from each of the company’s directors, supervisors, general manager, or de facto responsible person, or take into reference lawyers’ opinions to determine whether such persons engaged in any of the following during the past three fiscal years:
obtained loans from financial institutions and had delinquent loan payments;
violated the Labor Standards Act and been sentenced by a final and unappealable criminal judgment;
violated the Tax Act and been convicted by a final and unappealable judgment;
committed offenses of corruption, malfeasance of office, fraud, violation of trust, or misappropriation, and been sentenced by a court of law to a punishment of imprisonment or greater severity;
operated any other company involved in inappropriate conduct such as fraudulent insolvency;
any other conduct in grave violation of law or regulation or the principle of good faith.
(iv) Obtain a legal opinion issued by a lawyer to determine whether the current plan for offering and issuance of securities complies with Articles 278, 316, 317-1, and the proviso to subparagraph 1 of Article 270 of the Company Act, and whether the current merger and issuance of new shares against capital increase complies with the Fair Trade Act. If it is applying for a cash capital increase following two consecutive years of losses, analyze the soundness, reasonableness, and feasibility of its business plan.
(v) Obtain a legal opinion issued by a lawyer and a written statement by the merged company, and make inquiries of the merged company's legal staff, to determine whether the merged company or any current director, supervisor, major shareholder with shareholdings of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company thereof is involved in any pending major litigation, non-litigious matter, or administrative litigation from the past three years up to the date of publication, and analyze the effects on the financial condition of the issuer following the merger.
(vi) Obtain a legal opinion issued by a lawyer and a written statement by the merged company, and make inquiries of the merged company's legal staff, to identify all of the merged company's supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts sufficient to affect investors' rights and interests, that are currently effective or have expired within the past year, and analyze their effect on the business of the issuer following the merger.
(vii) For any use of funds by the merged company that must be approved by a competent authority in a relevant industry, obtain a legal opinion issued by a lawyer concerning whether any conditions attached to such approval would have any effect on the current offering and issuance of securities.
If an underwriter obtains a legal opinion from a lawyer required for any assessment under subparagraphs 1 to 7 of the preceding paragraph, the lawyer may not be the same person as the issuer's regular legal counsel, a lawyer the issuer engaged to complete a Checklist of Legal Issues for an offering by the issuer, or the certifying CPA, nor may he or she belong to a firm with which it has any substantive cooperative relationship.
3. Determine the reasonableness of the current issuance of new shares as a result of capital increase due to merger and the impact of the merger on the issuer:
(1) Obtain the minutes of the directors’ meetings and the shareholders’ meetings of both companies, as well as the contents of the public notices, to analyze the reasonableness of the process.
Interview the management and decision-makers of both companies and obtain information on their internal assessment of the merger to analyze the reasonableness of the merger objectives and the reasonableness and feasibility of the merger plan.
(2) (deleted)
Based on the relevant public notices and applications submitted by both companies to the relevant agencies, analyze the reasonableness of the projected progress timetable.
(3) Obtain the method of determining the share-swap ratio, the basis of its calculation, comments from financial experts, and the CPA’s verification and opinion on the share-swap ratio, and analyze the reasonableness of the share-swap ratio.
(4) Obtain the company’s plan for the integration of its financial, business, personnel, and information operations after the merger, and analyze the feasibility and reasonableness thereof.
(5) Interview the R&D, technical, production, sales, and administrative personnel of both companies, and taking into account the projected development plan, analyze the impact on the issuer’s finances, business, and shareholders’ equity over the three years after the merger, and its expected benefits and reasonableness.
4. Other necessary auditing procedures.Issuance of New Shares as a Result of Merger
1. The business and financial conditions of the merged company and the impact of the merger on the business and finances of the issuer:
(1) Business condition:
The auditing procedures in III-2-(1) shall be applied mutatis mutandis to analyze the possible impact of the merger on the business operations of the issuer.
(2) Financial condition:
(i) Review the CPA-certified financial reports of the merged company and obtain a statement by the merged company to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivatives trading engaged in by the merged company and its subsidiaries with related parties or other companies over the past three fiscal years to the date of issuance of the underwriter’s assessment report, and perform sample checking of relevant vouchers, to analyze whether there are any irregularities and the impact on the issuer's financial condition following the merger. (Attachment 8)
(ii) Obtain the details of the merged company’s issuance of long-term and short-term liabilities and loans for the most recent fiscal year and to the date of issuance of the underwriters’ assessment report to understand whether payment of the principal and interests have been carried out on time. Review existing rules governing the issuance of existing corporate bonds and long- and short-term loan contracts to understand whether they impose restrictions on the financial, business, or other operations of the merged company, and to analyze the impact of the above matters on the financial condition of the issuer.
(iii) Investments:
(a) Where there is a material impact on the invested company:
Obtain the latest financial report and relevant information of the invested enterprise for the most recent fiscal year to understand its operational and financial condition.
Review the financial reports and account books of the merged company for the past three fiscal years to understand the amount it recognized as investment profit/loss and its dividend distributions (amount of profit remittances from invested enterprises overseas should also be listed), to understand the impact of the merger on the operations and profitability of the issuer. (Attachment 9)
Obtain relevant information on the use of resources and technology provided by the merged company to the invested company, as well as the price details, to analyze the reasonableness of the consideration paid or technology licensing fees.
Obtain a statement from the company to determine whether the company has experienced operational or financial difficulties until the most recent quarter, and analyze the impact of the merger on the issuer.
(b) Where there is controlling power over the invested company:
In addition to the auditing in accordance with the procedures set forth in IV-1-(2)-(iii)-(a), the audit procedures set forth in III-2-(2)-(v)-(b) shall also apply mutatis mutandis to ascertain relevant issues between the controlling party and the merged company.
(c) The auditing procedures in III-2-(2)-(v)-(c) shall apply mutatis mutandis to the audit of the merged company, to ascertain the impact of the merger on the financial condition of the issuer and whether the amount of indirect investments carried out on mainland China by the issuer after the merger is consistent with applicable laws and regulations.
(iv) If the merged company is a construction company or has a construction department, the audit procedures in III-1-(2)-(iv)-(b) shall be applied mutatis mutandis to determine whether there are irregularities in the gross profit margins of the individual projects and in the forecast sales of projects that are completed but not sold.
(v) If the merged company is an unlisted or non-OTC company:
(a) Obtain the company's profit/loss information for the past three fiscal years and the year of the filing (or application) up to the date of the most recent financial statement, and compare it with that of other companies in the same business, to un |
| Article 4-1 |
Issuance of New Shares Due to Acquisition of Shares of Another Company
1. The business and financial conditions of the company whose shares are acquired and the impact of the acquisition of the shares of that company and issuance of new shares on the business and finances of the issuer:
(1) Business condition:
The auditing procedures in III-2-(1) shall be applied mutatis mutandis to analyze the possible impact of the acquisition of the shares of the other company and issuance of new shares on the business operations of the issuer.
(2) Financial condition:
(i) Review the CPA-certified financial reports of the company whose shares are acquired and obtain a statement by that company to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivatives trading engaged in by that company and its subsidiaries with related parties or other companies over the past three fiscal years to the date of issuance of the underwriter’s assessment report, and perform sample checking of relevant vouchers, to analyze whether there are any irregularities and the impact on the issuer's financial condition following the acquisition of the shares of the company and issuance of new shares.
(ii) The auditing procedures in IV-1-(2)-(ii) shall be applied mutatis mutandis to analyze the impact of the issuance of new shares due to acquisition of shares of another company on the finances of the issuer.
(iii) The auditing procedures in IV-1-(2)-(iii) shall be applied mutatis mutandis to analyze the impact of the issuance of new shares due to acquisition of shares of another company on the finances of the issuer.
(iv) The auditing procedures in IV-1-(2)-(iv) shall be applied mutatis mutandis to analyze the impact of the issuance of new shares due to acquisition of shares of another company on the finances of the issuer.
2. Assess whether any of the following circumstances exists with respect to the current issuance of new shares due to acquisition of another company’s shares:
(1) Conduct an itemized assessment of the matters enumerated in Attachment 20 and Attachment 21.
(2) Compliance with acts and regulations and effects on company operations
(i) Obtain a legal opinion issued by a lawyer to determine whether the current plan for offering and issuance of securities complies with Article 156, paragraph 6, Article 278, paragraph 1, and the proviso to subparagraph 1 of Article 270 of the Company Act. If it is applying for a cash capital increase following two consecutive years of losses, analyze the soundness, reasonableness, and feasibility of its business plan.
(ii) Obtain a legal opinion issued by a lawyer and a written statement by the company whose shares are acquired, and make inquiries of that company's legal staff, to determine whether that company or any current director, supervisor, major shareholder with shareholdings of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company thereof is involved in any pending major litigation, non-litigious matter, or administrative litigation from the past three years up to the date of publication, and analyze the effects thereof on the financial condition of the issuer following the acquisition of the shares of the company and issuance of new shares.
(iii) Obtain a legal opinion issued by a lawyer and a written statement by the company whose shares are acquired, and make inquiries of that company's legal staff, to identify all of that company's supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts sufficient to affect investors' rights and interests, that are currently effective or have expired within the past year, and analyze their effect on the business of the issuer following the acquisition of the shares of the company and issuance of new shares.
(iv) For any fund use by the company whose shares are acquired that must be approved by a competent authority in a relevant industry, obtain a legal opinion issued by a lawyer concerning whether any conditions attached to such approval would have any effect on the current offering and issuance of securities.
If an underwriter obtains a legal opinion from a lawyer required for any assessment under subparagraphs 1 to 4 of the preceding paragraph, the lawyer may not be the same person as the issuer's regular legal counsel, a lawyer the issuer engaged to complete a Checklist of Legal Issues for an offering by the issuer, or the certifying CPA, nor may he or she belong to a firm with which it has any substantive cooperative relationship.
3. The reasonableness of the current issuance of new shares due to acquisition of shares of another company and the impact on the issuer:
(1) Obtain the minutes of the directors’ meetings of both companies, as well as the contents of the public notices, to analyze the reasonableness of the process.
Interview the management and decision-makers of both companies and obtain information on their internal assessment of the issuance of new shares due to acquisition of another company’s shares, to analyze the reasonableness of the objectives of acquiring the other company’s shares and the feasibility and necessity of the plan to issue new shares due to acquisition of the other company’s shares.
Based on the relevant public notices and applications submitted by both companies to the relevant agencies, analyze the reasonableness of the projected progress timetable.
(2) Obtain the method of determining the share-swap ratio, the basis of its calculation, comments from financial experts, and the CPA’s verification and opinion on the share-swap ratio, and analyze the reasonableness of the share-swap ratio.
(3) Interview the R&D, technical, production, sales, and administrative personnel of both companies, and taking into account the projected development plan, analyze the impact on the issuer’s finances, business, and shareholders’ equity over the three years after the issuance of new shares due to acquisition of shares of another company, and its expected benefits and reasonableness.
4. Other necessary auditing procedures.Issuance of New Shares Due to Acquisition of Shares of Another Company
1. The business and financial conditions of the company whose shares are acquired and the impact of the acquisition of the shares of that company and issuance of new shares on the business and finances of the issuer:
(1) Business condition:
The auditing procedures in III-2-(1) shall be applied mutatis mutandis to analyze the possible impact of the acquisition of the shares of the other company and issuance of new shares on the business operations of the issuer.
(2) Financial condition:
(i) Review the CPA-certified financial reports of the company whose shares are acquired and obtain a statement by that company to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivatives trading engaged in by that company and its subsidiaries with related parties or other companies over the past three fiscal years to the date of issuance of the underwriter’s assessment report, and perform sample checking of relevant vouchers, to analyze whether there are any irregularities and the impact on the issuer's financial condition following the acquisition of the shares of the company and issuance of new shares.
(ii) The auditing procedures in IV-1-(2)-(ii) shall be applied mutatis mutandis to analyze the impact of the issuance of new shares due to acquisition of shares of another company on the finances of the issuer.
(iii) The auditing procedures in IV-1-(2)-(iii) shall be applied mutatis mutandis to analyze the impact of the issuance of new shares due to acquisition of shares of another company on the finances of the issuer.
(iv) The auditing procedures in IV-1-(2)-(iv) shall be applied mutatis mutandis to analyze the impact of the issuance of new shares due to acquisition of shares of another company on the finances of the issuer.
2. Assess whether any of the following circumstances exists with respect to the current issuance of new shares due to acquisition of another company’s shares:
(1) Conduct an itemized assessment of the matters enumerated in Attachment 20 and Attachment 21.
(2) Compliance with acts and regulations and effects on company operations
(i) Obtain a legal opinion issued by a lawyer to determine whether the current plan for offering and issuance of securities complies with Article 156, paragraph 6, Article 278, paragraph 1, and the proviso to subparagraph 1 of Article 270 of the Company Act. If it is applying for a cash capital increase following two consecutive years of losses, analyze the soundness, reasonableness, and feasibility of its business plan.
(ii) Obtain a legal opinion issued by a lawyer and a written statement by the company whose shares are acquired, and make inquiries of that company's legal staff, to determine whether that company or any current director, supervisor, major shareholder with shareholdings of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company thereof is involved in any pending major litigation, non-litigious matter, or administrative litigation from the past three years up to the date of publication, and analyze the effects thereof on the financial condition of the issuer following the acquisition of the shares of the company and issuance of new shares.
(iii) Obtain a legal opinion issued by a lawyer and a written statement by the company whose shares are acquired, and make inquiries of that company's legal staff, to identify all of that company's supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts sufficient to affect investors' rights and interests, that are currently effective or have expired within the past year, and analyze their effect on the business of the issuer following the acquisition of the shares of the company and issuance of new shares.
(iv) For any fund use by the company whose shares are acquired that must be approved by a competent authority in a relevant industry, obtain a legal opini |
| Article 4-2 |
The below-listed matters shall be specified or assessed in the event of issuance of new shares due to an acquisition or split duly conducted in accordance with law:
1. The business and financial conditions of the acquired company or split division and the impact of the acquisition or split on the business and finances of the issuer:
(1) Business condition:
The auditing procedures in III-2-(1) shall be applied mutatis mutandis to analyze the possible impact of the acquisition or split on the business operations of the issuer.
(2) Financial condition:
(i) Review the CPA-certified financial reports of the acquired company or the split division and obtain a statement by the acquired company or the split division to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivatives trading engaged in by the acquired company or split division and any subsidiaries thereof with related parties or other companies over the past three fiscal years to the date of issuance of the underwriter’s assessment report, and perform sample checking of relevant vouchers, to analyze whether there are any irregularities and the impact on the issuer's financial condition following the acquisition or split.
(ii) The auditing procedures in IV-1-(2)-(ii) shall be applied mutatis mutandis to analyze the impact of the acquisition or split on the finances of the issuer.
(iii) The auditing procedures in IV-1-(2)-(iii) shall be applied mutatis mutandis to analyze the impact of the acquisition or split on the finances of the issuer.
(iv) The auditing procedures in IV-1-(2)-(iv) shall be applied mutatis mutandis to analyze the impact of the acquisition or split on the finances of the issuer.
2. Assess whether any of the following circumstances exists with respect to the current acquisition or split duly conducted in accordance with laws and regulations:
(1) Whether the current acquisition or split duly conducted in accordance with laws and regulations is consistent with Article 51-2 of the Operating Rules of the Taiwan Stock Exchange Corporation and Article 16-3 of the R.O.C. Over-the-Counter Securities Exchange Rules Governing Securities Trading on Over-the-Counter Markets, and obtain the opinions provided in the response letter from the Stock Exchange or Over-the-Counter Securities Exchange approving the acquisition or split and issue of new shares in accordance with laws and regulations.
(2) Conduct an itemized assessment of the matters enumerated in Attachment 20 and Attachment 21.
(3) Compliance with acts and regulations and the effect on company operations
(i) Obtain a legal opinion issued by a lawyer to determine whether the current acquisition or split and assignment and capital increase comply with Articles 8, 28, 29, 30, 32, and 33 of the Business Mergers and Acquisitions Act, Article 278, paragraph 1, of the Company Act, and the provisions of the Fair Trade Act.
(ii) Obtain a legal opinion issued by a lawyer and a written statement by the acquired company or the spun-off department, and make inquiries of that company or department's legal staff, to determine whether any current director, supervisor, major shareholder with shareholdings of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company thereof is involved in any pending major litigation, non-litigious matter, or administrative litigation from the past three years up to the date of publication, and analyze the effects thereof on the financial condition of the issuer following the acquisition or split.
(iii) Obtain a legal opinion issued by a lawyer and a written statement by the acquired company or the spun-off department, and make inquiries of that company or department's legal staff, to identify all of that company's supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts sufficient to affect investors' rights and interests, that are currently effective or have expired within the past year, and analyze their effect on the business of the issuer following the acquisition or split.
(iv) For any fund use by the acquired company or spun-off department that must be approved by a competent authority in a relevant industry, obtain a legal opinion issued by a lawyer concerning whether any conditions attached to such approval would have any effect on the current offering and issuance of securities.
If an underwriter obtains a legal opinion from a lawyer required for any assessment under subparagraphs 1 to 4 of the preceding paragraph, the lawyer may not be the same person as the issuer's regular legal counsel, a lawyer the issuer engaged to complete a Checklist of Legal Issues for an offering by the issuer, or the certifying CPA, nor may he or she belong to a firm with which it has any substantive cooperative relationship.
3. The reasonableness of the current acquisition or split and issuance of new shares and the impact of the acquisition or split on the issuer:
(1) Obtain the minutes of the directors’ and shareholders’ meetings of both companies, as well as the contents of the public notices, to analyze the reasonableness of the process.
Interview the management and decision-makers of both companies and obtain information on their internal assessment of the acquisition or split plan, to analyze the reasonableness of the objectives of the acquisition or split plan and the feasibility and necessity of the acquisition or split plan.
Based on the relevant public notices and applications submitted by both companies to the relevant agencies, analyze the reasonableness of the projected progress timetable.
(2) Explain the appraised value of the business and assets of the acquired company or split division, and any matters related to assumption by the issuer of rights or obligations of the acquired company or split division, and assess the reasonableness thereof.
(3) Obtain the price appraisal method and findings for any business or assets used as the price of acquisition; the method and basis of calculation of the share-swap ratio; the total volume and types and volumes of shares acquired by the split company or its shareholders; comments from financial experts, and the CPA’s verification and opinion on the share-swap ratio, and analyze the reasonableness thereof.
(4) Obtain the company’s plan for the integration of its financial, business, personnel, and information operations after the acquisition or split, and analyze the feasibility and reasonableness thereof.
(5) Interview the R&D, technical, production, sales, and administrative personnel of both companies, and taking into account the projected development plan, analyze the impact on the issuer’s finances, business, and shareholders’ equity over the coming three years after the acquisition or split, and the expected benefits and reasonableness thereof.
4. Other necessary auditing procedures.The below-listed matters shall be specified or assessed in the event of issuance of new shares due to an acquisition or split duly conducted in accordance with law:
1. The business and financial conditions of the acquired company or split division and the impact of the acquisition or split on the business and finances of the issuer:
(1) Business condition:
The auditing procedures in III-2-(1) shall be applied mutatis mutandis to analyze the possible impact of the acquisition or split on the business operations of the issuer.
(2) Financial condition:
(i) Review the CPA-certified financial reports of the acquired company or the split division and obtain a statement by the acquired company or the split division to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivatives trading engaged in by the acquired company or split division and any subsidiaries thereof with related parties or other companies over the past three fiscal years to the date of issuance of the underwriter’s assessment report, and perform sample checking of relevant vouchers, to analyze whether there are any irregularities and the impact on the issuer's financial condition following the acquisition or split.
(ii) The auditing procedures in IV-1-(2)-(ii) shall be applied mutatis mutandis to analyze the impact of the acquisition or split on the finances of the issuer.
(iii) The auditing procedures in IV-1-(2)-(iii) shall be applied mutatis mutandis to analyze the impact of the acquisition or split on the finances of the issuer.
(iv) The auditing procedures in IV-1-(2)-(iv) shall be applied mutatis mutandis to analyze the impact of the acquisition or split on the finances of the issuer.
2. Assess whether any of the following circumstances exists with respect to the current acquisition or split duly conducted in accordance with laws and regulations:
(1) Whether the current acquisition or split duly conducted in accordance with laws and regulations is consistent with Article 51-2 of the Operating Rules of the Taiwan Stock Exchange Corporation and Article 16-3 of the R.O.C. Over-the-Counter Securities Exchange Rules Governing Securities Trading on Over-the-Counter Markets, and obtain the opinions provided in the response letter from the Stock Exchange or Over-the-Counter Securities Exchange approving the acquisition or split and issue of new shares in accordance with laws and regulations.
(2) Conduct an itemized assessment of the matters enumerated in Attachment 20 and Attachment 21.
(3) Compliance with acts and regulations and the effect on company operations
(i) Obtain a legal opinion issued by a lawyer to determine whether the current acquisition or split and assignment and capital increase comply with Articles 8, 28, 29, 30, 32, and 33 of the Business Mergers and Acquisitions Act, Article 278, paragraph 1, of the Company Act, and the provisions of the Fair Trade Act.
(ii) Obtain a legal opinion issued by a lawyer and a written statement by the acquired company or the spun-off department, and make inquiries of that company or department's legal staff, to determine whether any current director, supervisor, major shareholder with shareholdings of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company thereof is involved in any pending major litigation, non-litigious matter, or administrative litigation from the past three years up to the date of publication, and analyze the effects thereof on the financial condition of the issuer following the acquisition or split.
(iii) Obtain a legal opinion issued by a lawyer and a written statement by the acquired company or the spun-off department, and make inquiries of that company or department's legal staff, to identify all of that company's supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts sufficient to affect investors' rights and interests, that are currently effective or have expired within the pas |
| Article 5 |
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| Article 6 |
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| Article 7 |
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| Article 8 |
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| Article 9 |
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| Article 10 |
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| Article 11 |
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