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These Directions are adopted to unify the evaluation operations of securities underwriters for the public offering and issuance of securities within the ROC by foreign issuers, and the overseas offering and issuance of securities by TWSE (or TPEx) primary listed companies and emerging stock companies, and to strengthen underwriter functions.
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Underwriter evaluation reports shall be prepared in accordance with the following principles:
- The content of the underwriter's evaluation report must be detailed, truthful, clear and unambiguous, and the wording must be clear and easy to understand. Figures and tables may be attached if necessary by way of explanation. In addition, the report may not contain falsehoods or nondisclosures, and it shall be up to date.
- In evaluating the public offering and issuance of securities within the territory of the Republic of China by a foreign issuer, the underwriter shall adopt necessary advisory and evaluation procedures (including on-site inspections to understand the operational situation of the company; interviews or meetings with directors, managerial officers, and other relevant personnel; the collection, organization, verification, and comparative analysis of relevant data; the referencing of opinions from relevant experts; and other necessary procedures) to obtain sufficient pertinent information to serve as the basis for drafting the evaluation report, in which it shall express concrete evaluation opinions. The underwriter shall faithfully prepare a record of its implementation of these Rules and compile working papers that include the aforementioned record along with the relevant information and documents that it obtains. The working papers shall be prepared and stored in accordance with the following principles:
- The working papers shall be as complete as possible, shall be supported by appropriate itemized data, and shall be systematically prepared, with a table of contents.
- The working papers shall clearly indicate the evaluation procedures implemented and the conclusions reached as a result.
- Evaluation personnel and relevant secondary review personnel shall sign the working papers to declare their responsibility therefor.
- The working papers shall be kept on record at least five years for reference.
- The underwriter may, according to the nature of the business operated by the foreign issuer, appoint an expert with professional knowledge and abundant experience to proceed with the comparison and analysis as to the current operational situation of the foreign issuer and the future development after the public offering, and provide the review opinion based on an independent and fair position to help with the evaluation.
- In the most recent period, from the day of certification (or review) of the statement of assets and liabilities by the certified public accountant, to the day before publication of the prospectus, if any of the circumstances provided under Article 36, paragraph 3 of the Securities and Exchange Act exist with respect to the foreign issuer, all such circumstances shall be disclosed and any effects on shareholders' rights and interests or securities prices shall be estimated.
- The items which must be stated in the evaluation report of the underwriter in accordance with the regulations shall be included completely and the index and the number of pages shall be compiled. In case there are no items which shall be evaluated or there are items which do not need to be evaluated the words "none" or "not applicable" shall be indicated after such items.
- The items which shall be stated both in the evaluation report of the underwriter and the prospectus may be stated only in one of them, and the page on which the information may be found shall be marked in the other publication.
- The financial information in the evaluation report of the underwriter shall either be based on the New Taiwan Dollar or the currency of the country in which the foreign issuers listed its stocks and disclosed the information, but only one kind of currency can be used. In case the above said financial report uses the currency of the country in which the foreign issuer listed its stocks and disclosed its information, the date of balance sheet for each year, the highest, the lowest, and average exchange rate shall be disclosed.
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When a foreign issuer files for registration of public offering and issuance of securities, except in cases of an emerging stock company carrying out a cash capital increase through a new share issue without allocating a certain percentage of the total amount of new shares for external public issuance, the issuer shall expressly set forth or evaluate the following matters:
- A concluding opinion from the underwriter, to be divided into at least two sections. The first section shall describe the type of securities that the foreign issuer is currently filing to register for public offering, the offering procedures, the advisory and evaluation procedures adopted by the underwriter, and their statutory and/or regulatory basis. The second section shall explain the opinions expressed by the underwriter concerning whether the issuer's offering and issuance of securities complies with the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers and other applicable acts and regulations, whether its plan shows feasibility and necessity, and whether the funds utilization plan, the projected timetable, and the expected benefits are reasonable. (If previously issued shares are used to offer and issue Taiwan Depositary Receipts (TDRs) or stocks, the opinions expressed by the underwriter as to whether the foreign issuer's plan is feasible and necessary and whether its funds utilization plan, projected timetable, and anticipated benefits are reasonable need not be explained.) The responsible person of the underwriter, and the supervisor of the underwriting department that issued the evaluation opinion, shall jointly sign the concluding opinion.
If a situation arises with respect to the foreign issuer that could affect the offering and issuance of securities, between the two aforementioned sections there shall be added a middle section that concisely and clearly explains the relevant material facts.
In the case of a shelf registration for TDRs that are to be issued in tranches, in addition to the concluding opinion on the initial issue, to be prepared in accordance with Point 3.1 above, the underwriter shall also produce a concluding opinion for each subsequent tranche, which shall include the items below and shall bear the joint signatures or seals of the underwriter's responsible person and the supervisor of the underwriting department that issued the evaluation opinion:
- A statement on the status of the shelf registration, the status of prior offerings and issuances, and the anticipated status of the given issue.
- An opinion on whether the foreign issuer is in compliance with Article 39 and Article 40, paragraphs 4 and 5 of the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers.
- The guidance and evaluation processes (including the secondary review of the foreign issuer's financial information, the process of collection and deliberation of that information, and the conclusions obtained.)
- Risk factors that the investors shall consider for the current offering and issuance of securities.
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When a foreign issuer issues corporate bonds; a TWSE (or TPEx) primary listed company issues new shares for cash capital increase; a TWSE (or TPEx) secondary listed company issues new shares for capital increase or issues new shares to sponsors issuance of TDRs; a TWSE (or TPEx) secondary listed company sponsors issuance of TDRs using shares that have already been issued and are held by shareholders; or an emerging stock company issues new shares for a cash capital increase, the contents of evaluations shall be as below (for shelf registrations for TDRs to be issued in tranches, assessments for both the initial issue and each subsequent tranche shall be prepared in accordance with Point 20):
- An explanation and analysis of the overall economic situation, applicable laws and regulations, exchange rate policy, and relevant tax and risk factors in the home country of the foreign issuer, in its principal operating location(s), and in the country in which it is listed.
- An evaluation of the business and financial status of the foreign issuer:
(For a TWSE or TPEx primary listed company or emerging stock company, the evaluation may be based solely on the consolidated financial data.)
- Business status:
- The main scope of business, the current goods and their purposes or service items.
- The supply situation of the key raw materials, and the main sales area of the main goods or businesses of the foreign issuer.
- An analysis of changes in the company's main customers and suppliers in the financial reports for the most recent period and the three most recent fiscal years (the top 10, or those accounting for 5 percent or more of net operating revenues or net purchasing for those fiscal years): For the most recent period and the three most recent fiscal years, the analysis shall specify the name, dollar amount, and proportion of annual operating revenues of each main customer, the reason for changes in main customers, and shall analyze the reasonableness of any such change and whether there is a sales concentration risk, and briefly state the foreign issuer's sales policy. For the financial reports of the most recent period and the three most recent fiscal years, the analysis shall specify the name of each main supplier, and the net amount purchased from each as a percentage of net purchasing and as a dollar amount. For the most recent period and the three most recent fiscal years, the analysis shall analyze the reason for changes in main suppliers and whether there is risk of supplier concentration. However, if it is contractually stipulated that a customer's name may not be disclosed, or if a trading counterparty is an individual and a non-related party, a code may be substituted for the name.
- For the most recent period and the two most recent fiscal years, with respect to the foreign issuer's financial reports and parent company only financial reports, an evaluation of the reasonableness of changes in receivables, the adequacy of its allowance for bad debts and likelihood of collection, and a comparative evaluation against peers in the same industry.
- For the most recent period and the two most recent fiscal years, with respect to the foreign issuer's financial reports and parent company only financial reports, an evaluation of the reasonableness of changes in net inventory and the adequacy of allowances for losses on decline in market value of inventory and on obsolete and slow-moving inventory for the parent and subsidiary companies, and a comparative evaluation against peers in the same industry.
- For the most recent period and the three most recent fiscal years, with respect to the foreign issuer's financial reports, state the operating revenues, gross income, and operating income, with a comparison against peers in the same industry, and explain, on a segment or key product basis, whether changes in operating revenues and gross income are reasonable.
- An evaluation of transactions by the foreign issuer and each of its subsidiaries with related parties (including parent-subsidiary transactions) on the financial reports for the most recent period and the three most recent fiscal years: evaluate the circumstances of business transactions with related parties to determine whether they involve non-arms length transactions. If a transaction is a sale to a related party, then evaluate the credit policy, the transaction terms and conditions, payment collection, and the circumstances and reasonableness of the subsequent production use or resale by the related party with respect to the sold product, and if such transaction does not conform to ordinary transaction rules, evaluate the reason for and reasonableness of the discrepancy. Evaluate whether the principal businesses or products (i.e. any business or product that accounted for 30 percent or more of total operating revenues for each of the two most recent fiscal years) of the issuer and the affiliated enterprises are mutually competitive.
- The long and short term business development plans of the foreign issuer.
- The general situation and the future development trends of the industry to which the foreign issuer belongs, and analysis of the position and growth of the industry to which the foreign issuer belongs in the nation in which the main operation office is located.
- In the case of a foreign issuer sponsoring issuance of Taiwan Depositary Receipts for the first time, its advantages to the development of Taiwan's industries.
- Financial status:
- List the condensed income status from the financial reports for the most recent period and the three most recent fiscal years and analyze changes.
- State the financial analyses in the financial reports for the most recent period and the three most recent fiscal years (including analyses of financial structure, solvency, operating capabilities, profitability, and cash flow), and compare against peers in the same industry.
- If the foreign issuer has invested in another company, holds 20 percent or more of its shares, and that company's total assets are 10 percent or more of the foreign issuer's total assets, state such company's operations and profit status for the most recent fiscal year and for the current fiscal year up to the date of the financial report for the most recent period. In addition, if as of the most recent period operations or financial turnover difficulties have occurred at the aforementioned invested company, evaluate the company's impact on the foreign issuer.
- List any endorsements, guarantees, material commitments, or loans made to or on behalf of others, derivatives transactions, or asset transactions of material significance made by the foreign issuer and each of its subsidiaries (including parent-subsidiary transactions) during the most recent period and the three most recent fiscal years, and in addition, evaluate the impact thereof on the company's financial status.
- When the purpose of the current capital raising plan is to repay debt or to increase working capital, if, according to the projected schedule of cash receipts and expenditures, in the future there will be major capital expenditures or long-term investments whose combined amount reaches 60 percent or more of the current capital raising plan, list the source of the funding, uses, and anticipated benefits.
When 3 years has not elapsed from the actual completion date of any previous plan to issue new shares of securities in connection with cash capital increase, merger or acquisition, or acquisition of shares from another company, to the present filing date, and the previous plan was for purposes of raising capital for debt repayment or increasing working capital, specify the status of achievement of the anticipated benefits of the major capital expenditures or long-term investments in the above-mentioned projected schedule of cash receipts and expenditures.
- If the foreign issuer is a holding company, the company shall, in addition to evaluating the operational and financial status of the holding group, list the organization and the related parties of such group, and evaluate the reasonableness of transactions with the related parties (including parent-subsidiary transactions).
- An integrated analysis of the operational and financial status.
- Collect information regarding the implementation of each previous plan by the foreign issuer for issuance of new shares in connection with a cash capital increase, merger or acquisition, or acquisition of shares from another company, or issuance of corporate bonds, or private placement of securities, and explain the audit procedures and the conclusions obtained. (This evaluation is not necessary in cases in which more than three years has passed from the date of actual completion of the plan to the date of filing.)
- The implementation status of any previous plan for issuance of new shares in connection with a cash capital increase, merger or acquisition, or acquisition of shares from another company, or issuance of corporate bonds, or private placement of securities, that has not yet been completed. If a plan's progress fails to meet the projected target, provide a concrete evaluation of the reasonableness of the cause of the delay, the impact on shareholder equity, and whether there is a concrete improvement plan.
- If any previous plan for issuance of new shares in connection with a cash capital increase, merger or acquisition, or acquisition of shares from another company, or issuance of corporate bonds, or private placement of securities, has undergone a material change and has not yet been completed, then the content of the change to the plan, the source and use of the funds, the reason for the change, and the benefits both before and after the change shall be explained.
- For any previous plan for issuance of new shares in connection with a cash capital increase, merger or acquisition, or acquisition of shares from another company, or issuance of corporate bonds, or private placement of securities, for which 3 years has not yet passed from the date of actual completion of the plan to the date of filing, evaluate whether the expected benefits materialized. Where the results of implementation did not meet the expected target, the report shall concretely evaluate the reasonableness of the cause and state its impact on shareholder equity.
- If the foreign issuer has previously issued corporate bonds or taken on long-term debt, the report shall indicate whether all principal and interest have been returned on schedule, shall note any material restrictive covenants applying to the company's current finances, operations, or other matters, and shall explain whether it has experienced any cash flow difficulties during the most recent period and the three most recent fiscal years.
- Has the issuer scrupulously abided by the provisions of the "Directions for Public Companies Conducting Private Placements of Securities in its handling of information disclosure?
- List the amounts of the preferred shares, convertible corporate bonds, corporate bonds with warrants, or other securities which the foreign issuer has issued, and evaluate the impact of the terms and the limitation for such previous issuance on the rights and benefits of the buyers of this issuance.
- Evaluation of the feasibility of this offering and issuance, its necessity, the reasonableness of the method to decide the price, the plan for of the capital usage, the predicted progress and the predicted possible effect and benefit. (In the case of a TWSE (or TPEx) primary listed company carrying out a cash capital increase through the issuance of new shares by public sale prior to initial TWSE listing or TPEx listing, the part of the evaluation regarding necessity is not required; where issued shares are used to publicly offer and issue TDRs or stocks, this evaluation is not necessary except with respect to the method to decide the price.) Any other elements which will affect the feasibility of this issuance shall also be explained.
Where a foreign issuer files for registration of issuance of Renminbi-denominated bonds, the issuer shall carefully evaluate the feasibility, necessity, and reasonableness of the fundraising plan for redemption at maturity. (The evaluation shall address, at a minimum, the source of funds for redemption at maturity, the method for raising funds in Renminbi, and in the case of overseas issuance, whether there will be any risk in connection with transferring the funds to the place of issue overseas for redemption.)
- List the stock price trend chart of the last five fiscal years for the securities representing the TWSE (or TPEx) secondary listed company on the securities exchange markets where they are listed and analyze the change in the stock price and trade volume for the last one year (including the highest, lowest, and average market prices, up to the closing prices for the last business day prior to the registration date, the trend of the change in trade volumes, the average rate of rise and fall, and the comparison with the main stock price index published by the securities exchange of the nation in which the foreign issuer lists its stocks). Except when carrying out the public sale of TDRs prior to an initial TWSE (or TPEx) listing, the evaluation shall also list the difference in the various above-mentioned market prices between the exchange markets on which the listed security is traded. If the period of listing is less than a full one year, then the period for which the above-mentioned items shall be listed may be the actual period of listing, and a note of explanation shall be added.
- Legal and regulatory compliance
- Specify whether, in the review opinions of qualified lawyers retained by the foreign issuer in its home country, its principal operating location(s), and the country in which it is exchange listed, in the most recent fiscal year and up to the date of the securities firm evaluation report, the foreign issuer or any of its subsidiaries has violated any labor-related laws or regulations of that country; any employee strikes have occurred; any material litigious, non-litigious, or administrative proceedings, the signing of any material contract or arbitration matters have occurred, and whether the foreign issuer has violated any rules relating to pollution control.
- Indicate whether any circumstances set forth in Article 7, Article 8, or Article 39 of the Criteria Governing the Offering and Issuance of Securities by Foreign Securities Issuers exist.
- Indicate whether the foreign issuer is in compliance with the Self-regulatory Rules Governing the Provision of Advisory Services by Underwriter Members to Issuing Companies Offering and Issuing Securities of the Taiwan Securities Association.
- Indicate whether a TWSE or TPEx secondary listed company, in the most recent three fiscal years or from the time of listing (for a company not yet listed for three full years) and up to the date of the valuation made by a security firm, has been sanctioned for any violation of regulations of the exchange of the country of original listing, and specify the cause and the status of corrections subsequently made.
- State that none of the following circumstances apply to the lawyer retained by the foreign issuer to issue the legal opinion and review form in accordance with FSC requirements, or to the lawyer retained by the foreign issuer to issue the Chinese-language version of the opinion stating that there are no material discrepancies with respect to that securities public offering and issuance case:
- Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
- Has one of the following relationships with the issuing company, the certified public accountant who certified the issuer's financial report for the most recent period, or the lead underwriter:
- related parties as defined in the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry;
- either party directly or indirectly controls the personnel, financial, or business operations of the other party, as prescribed by other law or regulation or as evidenced by facts.
- If the foreign issuer has filed for registration of the securities public offering and issuance with the Financial Supervisory Commission (FSC), Executive Yuan and the issuance rules have been flexibly adopted in accordance with legal provisions, indicate whether the following matters have been evaluated (if previously issued shares are used to offer and issue TDRs or stocks, this evaluation may be omitted):
- If the foreign issuer conducts a cash capital increase through an issuance of common shares for which existing shareholders have not waived their preemptive rights and adopts the public subscription method to conduct underwriting, it shall specify the preliminary issue price, and that the actual issuance price must be adjusted due to market changes pursuant to Article 6, paragraphs 1 and 3 of the Self-regulatory Rules Governing the Provision of Advisory Services by Underwriter Members to Issuing Companies Offering and Issuing Securities. The foreign issuer shall also explain how any undersubscription will be handled, or in the event of an increase in the amount of funds raised, how the funds will be used and the expected benefits, and the legality and reasonableness thereof.
- If the foreign issuer conducts a cash capital increase, and a shareholders meeting has resolved that all shareholders waive their preemptive rights, and underwriting for all shares is conducted by means of book building or competitive auction, it shall specify the preliminary issue price and volume interval, and that the actual issuance must be adjusted due to market fluctuations pursuant to Article 7, paragraph 1 of the Self-regulatory Rules Governing the Provision of Advisory Services by Underwriter Members to Issuing Companies Offering and Issuing Securities. The foreign issuer shall in addition explain how any undersubscription will be handled, or in the event of an increase in the amount of funds raised, how the funds will be used and the expected benefits, and the legality and reasonableness thereof.
- If the foreign issuer applies for a TWSE (or TPEx) listing by means of a cash capital increase through the issuance of common shares, at the time the foreign issuer files with the FSC it shall set a preliminary price in a reasonable manner, and explain how any undersubscription resulting from a change in the actual issuance price will be handled, or in the event of an increase in the amount of funds raised, how the funds will be used and the expected benefits, and the legality and reasonableness thereof.
- When a foreign issuer sponsors the issuance of TDRs through issuance of new shares in a cash capital increase, the preliminary issue price and volume interval shall be listed, as well as the fact that the actual issue must be adjusted, in the event of market fluctuations, in accordance with Articles 48 and 49 of the Self-regulatory Rules Governing the Provision of Advisory Services by Underwriter Members to Issuing Companies Offering and Issuing Securities; in addition, the method of handling in the event of insufficient subscription proceeds shall be set out, along with the utilization of the funds and anticipated benefits in cases where there is an increase in the offering amount, and the legality and reasonableness of such an increase.
- When a foreign issuer makes a shelf registration for TDRs that are to be issued in tranches, the preliminary issue price and volume interval shall be listed, as well as the fact that the actual issue must be adjusted, in the event of market fluctuations, in accordance with Article 49 of the Self-regulatory Rules Governing the Provision of Advisory Services by Underwriter Members to Issuing Companies Offering and Issuing Securities; in addition, the method of handling in the event of insufficient subscription proceeds shall be set out, along with the utilization of the funds and anticipated benefits when there is an increase in the offering amount and the legality and reasonableness of such an increase.
- If corporate bonds are undersubscribed, it is necessary to indicate the reasonableness of how the undersubscription will be handled.
- State the foreign issuer’s dividend policy, and evaluate its explicitness and whether distributions of dividends in the most recent period and the past 3 fiscal years comply with the company’s articles of incorporation and relevant regulations.
- State whether an event set forth in any subparagraph of paragraph 3, Article 36 of the Securities and Exchange Act has occurred with respect to the foreign issuer during the time period from the balance sheet date of its submitted financial report from the most recent period to the day before publication of the prospectus, disclose any such event and evaluate its impact on shareholder equity or the price of the securities.
- For a foreign issuer that sponsors the issuance of Taiwan Depositary Receipts for the first time, the underwriter shall engage one independent and professional expert in the field to give a consulting opinion, and determine whether to recommend it for TWSE (or TPEx) listing, based on the overall evaluation results and consulting opinions of the field expert, and state the reasons for the underwriter’s recommendation for TWSE (or TPEx) listing.
The expert engaged by the underwriter may not have any of the following relationships with the foreigner issuer or the securities firm:
- Related parties as defined in the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry.
- Either party otherwise has direct or indirect control over the other party's personnel, finance, or business operations, under a law or regulation or as proven by fact.
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- Explain the audit procedures and conclusions obtained regarding the reasonableness of the rules for the current issuance (or conversion) of corporate bonds with respect to each of the items listed below and any impact on the equity interests of the original shareholders and the holders of the convertible corporate bonds: (if the issuance (or conversion) rules do not include an item listed below, please indicate "Not Addressed")
- The method for setting the issuance price and conversion price.
- Yield rate.
- Ownership of bond interest and dividends during the fiscal year of conversion.
- Call and redemption provisions.
- Early redemption rights of bond holders.
- Restrictive covenants.
- Adjustment of the conversion price.
- Method by which conversion obligations will be satisfied (whether by issuing new shares or delivering previously issued shares).
- Method for evaluating the various factors that influence the conditions of issuance, which shall include a concrete description.
- Other important stipulations.
- Explain, for the current issuance of corporate bonds with warrants and exercise of such warrants, the audit procedures and conclusions obtained with respect to the reasonableness, and impact on the interests of existing shareholders and holders of the corporate bonds with warrants, of the issuance and warrant exercise rule items listed below: (if the issuance or warrant exercise rules do not include an item listed below, please indicate "Not Addressed")
- The method for setting the issue price, exercise price, and the shares per warrant ratio.
- Yield rate.
- Ownership of bond interest and dividends during the fiscal year of warrant exercise.
- Call and redemption provisions.
- Early redemption rights of bond holders.
- Restrictive covenants.
- Adjustment of the exercise price or the shares per warrant ratio.
- Method by which warrant obligations will be satisfied.
- How shares will be paid for (in cash or in bonds of the issuer).
- Method for evaluating the various factors influencing the conditions of issuance, which shall include a concrete description.
- Other important stipulations.
- If the foreign issuer files to issue convertible corporate bonds, it shall separately explain each of the factors listed below with respect to the imputed theoretical value of the current issue of convertible corporate bonds (if the issuance and conversion rules do not include an item listed below, please indicate "Not Addressed"):
- Coupon rate.
- Original maturity.
- Conversion price.
- Conversion period.
- Conversion price reset.
- Early redemption.
- Issuer's early redemption right.
- Items incorporated into the discount factor (e.g. liquidity discount, bond credit risk)
- Standard deviation for the annual rate of return on share prices.
- The reference share price used to calculate the warrant exercise price.
- Other factors determining the issue price.
- If the foreign issuer registers to issue corporate bonds with warrants, it shall also explain each of the factors listed below with respect to the imputed theoretical value of the current corporate bonds with warrants (if the issuance or conversion rules do not include an item listed below, please indicate "Not Addressed"):
- Coupon rate.
- Original maturity.
- Exercise price.
- Exercise period.
- Exercise price reset.
- Early redemption.
- Issuer's early redemption right.
- Items incorporated into the discount factor (e.g. liquidity discount, bond credit risk).
- Standard deviation for annual rate of return on share prices.
- The reference share price used to calculate the warrant exercise price.
- Other factors determining the issue price.
- If a foreign issuer registers to issue corporate bonds, it shall in addition explain the situation with respect to ensuring the creditors' rights for the current corporate bonds. If the bonds are rated by a credit rating institution, obtain its relevant rating items and rating results.
- In the case of a shelf registration by a foreign issuer for TDRs that are to be issued in tranches, the evaluations of individual tranches, except for the initial issue, shall apply mutatis mutandis the provisions of paragraphs 2, 3, 4, 6, 8, 9, and 10 herein, and in addition, shall evaluate whether the foreign issuer complies with Article 39 and Article 40, paragraphs 4 and 5 of the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers.
- Any other matters requiring supplementary explanation.
When a foreign issuer issues corporate bonds; a TWSE (or TPEx) primary listed company issues new shares for cash capital increase; a TWSE (or TPEx) secondary listed company issues new shares for capital increase or issues new shares to sponsors issuance of TDRs; a TWSE (or TPEx) secondary listed company sponsors issuance of TDRs using shares that have already been issued and are held by shareholders; or an emerging stock company issues new shares for a cash capital increase, the contents of evaluations shall be as below (for shelf registrations for TDRs to be issued in tranches, assessments for both the initial issue and each subsequent tranche shall be prepared in accordance with Point 20):
- An explanation and analysis of the overall economic situation, applicable laws and regulations, exchange rate policy, and relevant tax and risk factors in the home country of the foreign issuer, in its principal operating location(s), and in the country in which it is listed.
- An evaluation of the business and financial status of the foreign issuer:
(For a TWSE or TPEx primary listed company or emerging stock company, the evaluation may be based solely on the consolidated financial data.)
- Business status:
- The main scope of business, the current goods and their purposes or service items.
- The supply situation of the key raw materials, and the main sales area of the main goods or businesses of the foreign issuer.
- An analysis of changes in the company's main customers and suppliers in the financial reports for the most recent period and the three most recent fiscal years (the top 10, or those accounting for 5 percent or more of net operating revenues or net purchasing for those fiscal years): For the most recent period and the three most recent fiscal years, the analysis shall specify the name, dollar amount, and proportion of annual operating revenues of each main customer, the reason for changes in main customers, and shall analyze the reasonableness of any such change and whether there is a sales concentration risk, and briefly state the foreign issuer's sales policy. For the financial reports of the most recent period and the three most recent fiscal years, the analysis shall specify the name of each main supplier, and the net amount purchased from each as a percentage of net purchasing and as a dollar amount. For the most recent period and the three most recent fiscal years, the analysis shall analyze the reason for changes in main suppliers and whether there is risk of supplier concentration. However, if it is contractually stipulated that a customer's name may not be disclosed, or if a trading counterparty is an individual and a non-related party, a code may be substituted for the name.
- For the most recent period and the two most recent fiscal years, with respect to the foreign issuer's financial reports and parent company only financial reports, an evaluation of the reasonableness of changes in receivables, the adequacy of its allowance for bad debts and likelihood of collection, and a comparative evaluation against peers in the same industry.
- For the most recent period and the two most recent fiscal years, with respect to the foreign issuer's financial reports and parent company only financial reports, an evaluation of the reasonableness of changes in net inventory and the adequacy of allowances for losses on decline in market value of inventory and on obsolete and slow-moving inventory for the parent and subsidiary companies, and a comparative evaluation against peers in the same industry.
- For the most recent period and the three most recent fiscal years, with respect to the foreign issuer's financial reports, state the operating revenues, gross income, and operating income, with a comparison against peers in the same industry, and explain, on a segment or key product basis, whether changes in op
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In the event of a merger-related issue of new shares for capital increase, the following items shall be specified or evaluated:
- The provisions of Points 3.1 and 3.2 shall apply mutatis mutandis to a merger-related issue of new shares for capital increase.
- Collect information on the following items pertaining to the target company's operating and financial status, and on the post-merger impact upon the foreign issuer's operational and financial status, and explain procedures for the audit thereof and the conclusions reached:
- The circumstances of business transactions by the target company and each of its subsidiaries (including parent-subsidiary transactions) with related parties during the 3 most recent fiscal years and the current fiscal year up to the issue date of the underwriter's evaluation report.
- Anything else unusual concerning the target company's financial status.
- Legal and regulatory compliance and its impact on company operations:
- Indicate whether the current merger-related issue of new shares for capital increase has been the subject of a resolution on legal and regulatory compliance.
- Indicate whether the current merger-related issue of new shares for capital increase is compliant with Articles 53-1 to 53-8 of the Taiwan Stock Exchange Corporation (TWSE) Operating Rules, or with Chapter II-1, Section 1 of the Taipei Exchange Rules Governing Securities Trading on the TPEx.
- Indicate whether the current merger-related issue of new shares for capital increase has obtained permission from or is compliant with the fair trade commission or relevant regulations in the country of registration, country of listing, and country of business operations.
- Indicate any major litigation, non-litigious matter, or administrative litigation involving the target company or any of its directors, supervisors, major shareholders with shareholdings of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company, within the past 3 fiscal years and up to the date of publication of the prospectus.
- Indicate the target company's and each of its subsidiaries' 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 fiscal year.
- Indicate whether any of the circumstances under Articles 7 and 8 of the Regulations Governing the Offering and Issuance of Securities by Foreign Issuers exists.
- If the underwriter engages a lawyer to provide a legal opinion needed to carry out the evaluation of any of the matters listed above, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
- Has a legal services retainer agreement with the foreigner issuer; is the same person as either the lawyer that the foreign issuer hired to complete a Checklist of Legal Issues for the merger, or the certified public accountant hired to certify the foreign issuer's financial report for the most recent period; or belongs to a firm with which the foreign issuer has a substantive relationship of cooperation.
- Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
- One of the following relationships exists between the lawyer, on the one hand, and the foreign issuer, the target company, the certified public accountant who certified the foreigner issuer's financial report for the most recent period, the independent expert who furnished an opinion regarding the reasonableness of the share exchange ratio, or the lead underwriter:
- Are related parties as defined under the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry.
- 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.
- Provide a statement affirming that neither of the descriptions set out under sub-items b and c under Point 4-1.3.G applies to any lawyer hired by the foreign issuer to furnish a legal opinion and a Checklist of Legal Issues as required by the FSC, or any lawyer hired by the foreign issuer to furnish the Chinese-language version of the opinion stating that there are no material discrepancies with respect to its securities offering and issuing case.
- Collect information on the following items pertaining to the reasonableness of the current merger-related issue of new shares for capital increase, and on the post-merger impact on the foreign issuer, and explain the procedures for the audit thereof and the conclusions reached:
- The purpose, procedures and the reasonableness of the current merger.
- The feasibility and necessity of the current merger plan, and the reasonableness of the projected timetable.
- Explain the method and basis for setting of the share exchange ratio, and evaluate its reasonableness.
- Plan for integration of the finances, business, personnel, and information following the foreign issuer's merger, and the feasibility and reasonableness of the plan.
- With respect to research and development, technology, production capacity, and sales profitability, evaluate the impact and expected benefits over the 3 years following the merger on financial matters, operations, and shareholders' equity of the foreign issuer, and the reasonableness.
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| 4-2 |
In the event of an issue of new shares in connection with acquiring the shares of another company, the following items shall be specified or evaluated:
- The provisions of Points 3.1 and 3.2 shall apply mutatis mutandis to an issue of new shares in connection with acquiring the shares of another company.
- Collect information on the following items pertaining to the operating and financial status of the company whose shares are to be acquired, and on the impact that the issue of new shares in connection with the share acquisition will have upon the foreign issuer's operations and finances, and explain the procedures for the audit thereof and the conclusions reached:
- The circumstances of business transactions by the company whose shares are to be acquired and each of its subsidiaries (including parent-subsidiary transactions) with related parties during the 3 most recent fiscal years and the current fiscal year up to the issue date of the underwriter's evaluation report.
- Anything else unusual concerning the financial status of the company whose shares are to be acquired.
- Legal and regulatory compliance and its impact on company operations:
- Indicate whether the current issue of new shares in connection with acquiring the shares of another company has been the subject of a resolution on legal compliance, or relevant provisions.
- Indicate any major litigation, non-litigious matter, or administrative litigation involving the company whose shares are to be acquired or any of its directors, supervisors, major shareholders with shareholdings of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company, within the past 3 fiscal years and up to the date of publication of the prospectus.
- Indicate the supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts of the company whose shares are to be acquired and each of its subsidiaries, that could affect investors' rights and interests, and are currently effective or have expired within the past year.
- Indicate whether any of the circumstances under Articles 7 and 8 of the Regulations Governing the Offering and Issuance of Securities by Foreign Issuers exists.
- If the underwriter engages a lawyer to provide a legal opinion needed to carry out the evaluation of any of the matters listed above, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
- Has a legal services retainer agreement with the foreigner issuer; is the same person as either the lawyer that the foreign issuer hired to complete a Checklist of Legal Issues for the share acquisition, or the certified public accountant hired to certify the foreign issuer's financial report for the most recent period; or belongs to a firm with which the foreign issuer has a substantive relationship of cooperation.
- Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
- One of the following relationships exists between the lawyer, on the one hand, and the foreign issuer, the company whose shares are to be acquired, the certified public accountant who certified the foreigner issuer's financial report for the most recent period, the independent expert who furnished an opinion regarding the reasonableness of the share exchange ratio, or the lead underwriter:
- Are related parties as defined under the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry.
- 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.
- Provide a statement affirming that neither of the descriptions set out under sub-items b and c under Point 4-2, 3.E applies to any lawyer hired by the foreign issuer to furnish a legal opinion and a Checklist of Legal Issues as required by the FSC, or any lawyer hired by the foreign issuer to furnish the Chinese-language version of the opinion stating that there are no material discrepancies with respect to its securities offering and issuing case.
- Collect information on the following items pertaining to the reasonableness of the current issue of new shares in connection with acquiring the shares of another company, and on the impact that the issue of new shares in connection with the share acquisition will have upon the foreign issuer, and explain the procedures for the audit thereof and the conclusions reached:
- The purpose, procedures and the reasonableness of the current issue of new shares in connection with acquiring the shares of another company.
- The feasibility and necessity of the current issue of new shares in connection with acquiring the shares of another company, and the reasonableness of the projected timetable.
- Explain the method and basis for setting of the share exchange ratio, and evaluate its reasonableness.
- With respect to research and development, technology, production capacity, and sales profitability, evaluate the impact and expected benefits over the 3 years following the issue of new shares in connection with acquiring the shares of another company upon financial matters, operations, and shareholders' equity of the foreign issuer, and the reasonableness.
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| 4-3 |
In the event of an issue of new shares in connection with an acquisition or demerger conducted in accordance with law, the following items shall be specified or evaluated:
- The provisions of Points 3.1 and 3.2 shall apply mutatis mutandis to an issue of new shares in connection with an acquisition or demerger conducted in accordance with law.
- Collect information on the following items pertaining to the operating and financial status of the target company to be acquired or the division to be demerged, and on the post-acquisition or post-demerger impact on the foreign issuer's operating and financial status, and explain procedures for the audit thereof and the conclusions reached:
- The circumstances of business transactions by the target company to be acquired or the division to be demerged and each of its subsidiaries (including parent-subsidiary transactions) with related parties during the 3 most recent fiscal years and the current fiscal year up to the issue date of the underwriter's evaluation report.
- Anything else unusual concerning the financial status of the target company to be acquired or the division to be demerged.
- Legal compliance and its impact on company operations:
- Indicate whether the current issue of new shares in connection with an acquisition or demerger conducted in accordance with law has been the subject of a resolution on legal and regulatory compliance.
- Indicate whether the current issue of new shares in connection with an acquisition or demerger conducted in accordance with law is compliant with Articles 53-9 to 53-18, or Article 53-19 to 53-29 of the TWSE Operating Rules, or with Chapter II-1, Sections 1, 3, and 4 of the Taipei Exchange Rules Governing Securities Trading on the TPEx.
- Indicate whether the current issue of new shares in connection with an acquisition or demerger conducted in accordance with law has obtained permission from or is compliant with the fair trade commission or relevant regulations in the country of registration, country of listing, and country of business operations.
- Indicate any major litigation, non-litigious matter, or administrative litigation involving the target company or (the company of) the division to be demerged or any of its directors, supervisors, major shareholders with shareholding of 10 percent or more, responsible person, general manager, de facto responsible person, or subordinate company, within the past 3 fiscal years and up to the date of publication of the prospectus.
- Indicate the supply/sales contracts, technical cooperation contracts, construction contracts, and other important contracts of the target company or of (the company of) the division to be demerged, and each of its subsidiaries, that could affect investors' rights and interests, and are currently effective or have expired within the past fiscal year.
- Indicate whether any of the circumstances under Articles 7 and 8 of the Regulations Governing the Offering and Issuance of Securities by Foreign Issuers exists.
- If the underwriter engages a lawyer to provide a legal opinion needed to carry out the evaluation of any of the matters listed above, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
- Has a legal services retainer agreement with the foreigner issuer; is the same person as either the lawyer that the foreign issuer hired to complete a Checklist of Legal Issues for the acquisition or demerger, or the certified public accountant hired to certify the foreign issuer's financial report for the most recent period; or belongs to a firm with which the foreign issuer has a substantive relationship of cooperation.
- Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
- One of the following relationships exists between the lawyer, on the one hand, and the foreign issuer, the target company, the certified public accountant who certified the foreigner issuer's financial report for the most recent period, the independent expert who furnished an opinion regarding the reasonableness of the share exchange ratio, or the lead underwriter:
- Are related parties as defined under the regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry.
- 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.
- Provide a statement affirming that neither of the descriptions set out under items b and c under Point 4-3.3.G applies to any lawyer hired by the foreign issuer to furnish a legal opinion and a Checklist of Legal Issues as required by the FSC, or any lawyer hired by the foreign issuer to furnish the Chinese-language version of the opinion stating that there are no material discrepancies with respect to its securities offering and issuing case.
- Collect information on the following items pertaining to the reasonableness of the current issue of new shares in connection with an acquisition or demerger conducted in accordance with law, and on the post-acquisition or post-demerger impact upon the foreign issuer, and explain procedures for the audit thereof and the conclusions reached:
- The purpose, procedures and the reasonableness of the current acquisition or demerger conducted in accordance with law.
- The feasibility and necessity of the current acquisition or demerger conducted in accordance with law, and the reasonableness of the projected timetable.
- Explain the method and results of the valuation of operations or assets used as payment as well as the method and basis for setting of the share exchange ratio, and evaluate its reasonableness.
- Plan for integration of finances, business, personnel, and information following the foreign issuer's acquisition or demerger conducted in accordance with the law, and its feasibility and reasonableness.
- With respect to research, development, technology, production capacity, and sales profitability, evaluate the impact and expected benefits over the 3 years following the acquisition or demerger conducted in accordance with the law on financial matters, operations, and shareholders' equity of the foreign issuer, and the reasonableness.
- Other important stipulations pertaining to the plan for the acquisition or demerger conducted in accordance with law.
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| 5 |
Issuance of overseas securities by a TWSE (or TPEx) primary listed company or emerging stock company:
- When a TWSE (or TPEx) primary listed company registers to issue overseas stocks, the items under Point 4.1 to 4.10 shall be specified or evaluated, and the provisions under Point 6, paragraphs 2A, 3, 4, 7, 8, 9, 10, and 11 of the Taiwan Securities Association Directions for Information to be Published in Securities Underwriter Evaluation Reports for the Public Offering and Issuance of Overseas Securities by Securities Issuers shall apply mutatis mutandis.
- When a TWSE (or TPEx) primary listed company files for registration for a sponsored issue of overseas depositary receipts using either new shares issued for a capital increase or using shares that have already been issued, the items under Points 4.1 to 4.10 shall be specified or evaluated, and the provisions under Point 4, paragraphs 2A, 3, 4, 7, 8, 9, 10, 11, 12, and 13 of the Taiwan Securities Association Directions for Information to be Published in Securities Underwriter Evaluation Reports for the Public Offering and Issuance of Overseas Securities by Securities Issuers shall apply mutatis mutandis.
- When a TWSE (or TPEx) primary listed company or emerging stock company files for registration to offer and issue overseas corporate bonds, the items under Point 4.1 to 4.10 shall be specified or evaluated, and the provisions under Point 5, paragraphs 2A, 3, 4, 7, 8, 9, 10, 11, 12, 13, 14, and 15 of the Taiwan Securities Association Directions for Information to be Published in Securities Underwriter Evaluation Reports for the Public Offering and Issuance of Overseas Securities by Securities Issuers shall apply mutatis mutandis.
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| 6 |
When shareholders of a TWSE (or TPEx) secondary listed company engage a depository institution to issue TDRs in Taiwan for issued shares they hold, contents of evaluations shall be as below:
- A concluding opinion from the underwriter, to be divided into at least two sections. The first section shall explain the procedures for registration of the current issue of unsponsored TDRs by the holders of the company's already-issued shares, and the evaluation procedures used by the underwriter and their legal basis. The second section shall explain the opinions expressed by the underwriter concerning whether the current issue of unsponsored TDRs complies with the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers and other applicable laws and regulations, whether the setting of the price has been fully explained, and whether the motives and purpose are reasonable. With respect to any circumstances on the part of the holders of the company's already-issued shares, or of the company itself, sufficient to affect the current issue of unsponsored TDRs, an additional section shall be added between the two above-mentioned sections providing a summary of the important facts.
- An explanation of the audit procedures used and conclusions reached with respect to information collected on the industry to which the company belongs.
- An explanation of the audit procedures used and conclusions reached with respect to information collected on the following aspects of the foreign issuer's financial status:
- A listing of the foreign issuer's profit and loss status and financial ratios, as shown in the financial reports for the most recent period and the three most recent fiscal years, and an analysis of their changes and a comparison with the company's peers in the same industry.
- The status of any endorsements or guarantees, material commitments, loans to other parties, derivatives trades, or major asset transactions of the foreign issuer and each of its subsidiaries (including parent-subsidiary transactions) for the most recent period and for the preceding three fiscal years, and an evaluation of their impact on the company's financial status.
- Capital raised by the foreign issuer during the most recent period three most recent fiscal years and changes in earnings per share over the same period.
- An explanation of the audit procedures used and conclusions reached with respect to information collected on the reasonableness and feasibility of the following aspects of the current issue of unsponsored TDRs:
- The method of price determination for the current issue of unsponsored TDRs and its basis.
- The motives and purpose of the current issue of unsponsored TDRs.
- Whether the content of the deposit agreement for the current issue of unsponsored TDRs conforms with the relevant laws and regulations.
- Whether there are any discrepancies between the fees to be borne for the current issue of unsponsored TDRs and the initial issue of the TDRs.
- Whether the issuer has complied with Article 36, paragraph 5 of the Regulations Governing the Offering and Issuance of Securities by Foreign Securities Issuers.
- Whether, with the addition of the shares represented by the current issue, the ratio of the given company's shares traded in Taiwan to total issued shares remains below 50 percent.
- The status of trading of the foreign issuer's shares, during the most recent three fiscal years and up to the date of issuance of the underwriter's evaluation report, by the shareholders who engaged the depository institution to issue the current issue of TDRs in Taiwan for issued shares of the foreign issuer held by them.
- Whether there were any irregularities noted in the legal opinion issued by a lawyer with respect to the current issue of unsponsored TDRs.
- An explanation of the audit procedures used and conclusions reached with respect to information collected for any other necessary supplemental explanations.
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| 7 |
If any material subsequent event occurs following the date of publication of the prospectus, all relevant provisions of these Directions shall be observed and the prospectus and evaluation shall be updated.
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| 8 |
These Directions shall be submitted to the board of directors for approval and filed with the FSC for recordation before implementation. The same shall apply to any amendments hereto.
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