| Article 3 |
III Cash Capital Increase by Issuing New Shares (Including Preferred Shares with Warrants)
1. The assessment report summary shall include, at a minimum, an industry overview, the issuer's competitive position and operational risks, and fund-raising effectiveness of the offering and issuance of securities in the past three years. (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) division(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 division 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 registered 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 registration 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 registration 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 registration 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.
(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.
(vi) Obtain the company's own and consolidated financial statements for the past three fiscal years and the year of the registration 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.
(vii) Obtain the issuer's own and consolidated financial statements for the past three fiscal years and the year of the registration 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.
(viii) 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 registration up until the date of the most recent financial statement; additionally, analyze, by division 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 registration 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 registration 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)
(ix) 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.
(x) 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.
(xi) 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.
(xii) 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 registration 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 registration 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 management representation letters 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 management representation letters to gain an understanding of any major property transactions, endorsements/guarantees, material commitments, loans of funds to others, or derivative financial product transactions subject to Statement of Financial Accounting Standards No. 36 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 investee company:
ꆼ Obtain financial statements and relevant information of the investee 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 investee enterprises overseas should be listed). (Attachment 9)
ꆼ 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.
ꆼ Obtain relevant information on the use of the issuing company's resources and technologies by the investee company on which there is a material impact to determine the reasonableness of the consideration or technology licensing fees paid by the investee company.
(b) Where there is controlling power over the investee company:
ꆼ The auditing procedures in III, 2, (2), (v), (a) shall apply mutatis mutandis to the current capital increase plan.
ꆼ 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 investee 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: (*)
ꆼ 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 increase at 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 increase 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 with 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.
ꆼ 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 representations or commitments, relevant approval letters and materials for the previous registration 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 statement on internal control is consistent with the review period of the project audit.
4. Implementation of each previous plan for the offering and issuance and private placement of securities:
(1) Obtain relevant information on prior uncompleted plans for the offering and issuance and 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 the offering and issuance and 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 the offering and issuance and private placement of securities whose actual completion dates were within three years from the date of registration, 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) Obtain the company's issuance rules for corporate bonds and its long-term 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. (*)
(5) Refer to the Market Observation Post System to determine whether the company has fully disclosed information as required by the Directions for Public Companies Conducting Private Placements of Securities for each of its previous private placements of securities.
5. 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) Compliance with acts and regulations and the effect on company operations
(i) Review the company's articles of incorporation, financial reports, and the minutes of the board of directors meeting or shareholders meeting where it was resolved to undertake the current fundraising plan, 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 investee 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 the company's annual reports, financial reports, and relevant management representation letters, make inquiries of the company's legal staff or other relevant personnel, and read legal opinions provided by attorneys retained by the company, 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.
(iii) Review the company's annual reports, executed contracts, and relevant management representation letters, and make inquiries of the company's legal staff or other relevant personnel, to identify all of the company's supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts, that could affect investors' rights and interests, and are currently effective or have expired within the past year, and analyze their effect on the company's business.
(iv) Obtain annual reports, financial reports, and relevant management representation letters, and make inquiries of the company's legal staff or other relevant personnel, to determine whether there have been any major management-labor disputes or environmental pollution incidents. (*)
(v) If the funds to be raised through the current plan for offering and issuance of securities will be put to a use that requires the consent of the competent authority for a relevant industry, obtain the original letter of consent from the competent authority for the relevant industry, to determine whether any conditions attached to such approval would have any effect on the current offering and issuance of securities.
If an underwriter retains a lawyer to issue a legal opinion required for an assessment under the preceding paragraph, it shall obtain a written statement issued by the lawyer to ascertain whether the lawyer is free of the circumstances listed below:
(a) The lawyer is the same person as the issuer's regular legal consultant, or as the lawyer retained by the issuer to complete its checklist of legal issues for the offering, or as the certifying CPA of the most recent financial report, or belongs to a firm with which the issuer has a substantive cooperative relationship.
(b) The lawyer was disciplined by the Attorney Discipline Committee of the Ministry of Justice within the past year.
(c) The lawyer has any of the relationships listed below with the issuing company, the certifying CPA of the most recent financial report, or the lead securities underwriter:
ꆼ Is a related party as defined in Statement of Financial Accounting Standards No. 6.
ꆼ Any other law or regulation provides for, or fact proves, direct or indirect control by one party over the other party's personnel, finances, or business operations.
(vi) Obtain a written statement by the lawyer retained by the issuer to complete its fundraising case checklist and issue a legal opinion, to ascertain whether the lawyer is free of the circumstances listed in III, 5, (3), (v), (b) and (c).
6. 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)
7. Evaluate the following matters item by item, and provide an overall assessment of the feasibility, necessity, and reasonableness of the current offering and issuance of securities (the provision regarding necessity need not be applied in the case of an emerging stock company carrying out a cash capital increase through the issuance of new shares for public sale prior to an initial exchange listing or an initial OTC listing, or in the case of an OTC (or exchange) listed company applying to change to an exchange (or OTC) listing and carrying out a cash capital increase for the purpose of achieving equity ownership dispersion):
(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 investee 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 investee 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 business to be invested in 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 investee 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 investee 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 registration 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 registration.
(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.
8. 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.
9. 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.
10. 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 covenants.
(6) Method of performing subscription rights.
(7) Method of payment for shares.
(8) Other important stipulations.
10-1. 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.
11. Other necessary auditing procedures.
12. 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 (*).III Cash Capital Increase by Issuing New Shares (Including Preferred Shares with Warrants)
1. The assessment report summary shall include, at a minimum, an industry overview, the issuer's competitive position and operational risks, and fund-raising effectiveness of the offering and issuance of securities in the past three years. (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) division(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 division 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 registered 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 po |