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Chapter Content

Title:

Regulations Governing the Offering and Issuance of Securities by Securities Issuers  CH

Amended Date: 2021.03.29 
   Chapter IV Issuance of Employee Stock Warrants and New Restricted Employee Shares
Article 50    Where an issuer applies for issuance of employee stock warrants or new restricted employee shares, the FSC may reject the application upon the occurrence of any one of the following events:
  1. The applicant has been posting losses for the most recent 2 consecutive years; provided that the said restriction need not apply to the case where the business nature justifies longer preparation period or where a sound business plan is presented to demonstrate capability of improving profitability.
  2. Its assets are insufficient to cover debts.
  3. Major default occurs which has yet to be settled, or less than 3 years have elapsed since the settlement thereof.
  4. Failure of the issuer, which already issued employee stock warrants or new restricted employee shares, to perform terms and conditions thereof, and the situation has not been improved, or less than 3 years have elapsed since the improvement thereof.
  5. Where the FSC deems it necessary to reject or disapprove the issuer's application to protect the public interests.
Article 51     (Deleted)
Article 52    Employee stock warrants may not be transferable, except for those that are inherited.
Article 53    Where an exchange-listed or OTC-listed company reports its issuance of employee stock warrants, the exercise price may not be lower than the closing price of the company stocks as of the issuing date.
    Where an emerging stock company issues employee stock warrants, the exercise price may not be lower than the weighted average trade price for the company's common shares during the period preceding the price determination date, and may not be lower than the net value per share in the financial reports audited and attested or reviewed by a CPA issued for the most recent period, provided that when at the date of issuance the company is already exchange-listed or OTC-listed, the provisions of the preceding paragraph shall apply.
    The exercise price for employee stock warrants issued by a company whose shares are neither listed on an exchange nor traded over-the-counter at securities firms may not be lower than its net value per share as reported in the financial reports for the most recent fiscal period, audited and attested or reviewed by a CPA, and a CPA shall be retained to give an opinion on the reasonableness of the issue price, provided that if the company has already become an emerging stock company on the issuance date, the provisions of the preceding paragraph shall apply.
    Article 14, paragraph 5 shall apply mutatis mutandis to the weighted average trade price for the company's common shares during the period preceding the price determination date referred to in paragraph 2.
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Article 54    With exception for the lock-up period in accordance with the law, an employee may request for exercising the stock option pursuant to the terms and conditions set by the company after 2 full years since the issuance of the employee stock warrants.
    The term of the employee stock warrants may not be more than 10 years.
Article 55    An issuer issuing employee stock warrants shall file the registration statement (Attachment 22) documenting all required items, together with all required documents, to the FSC, may proceed with the issue only after the registration with the FSC becomes effective.
    The aforesaid report shall become effective 7 business days after its receipt by the FSC and FSC-designated institutions, and paragraph 2 of Article 12, and Articles 15 and 16 shall apply mutatis mutandis. However, the waiting period for effective registration is 12 business days in the case of a financial holding, banking, bill finance, credit card, or insurance enterprise.
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Article 56    An issuer reporting issuance of employee stock warrants shall obtain approval by the majority votes in a meeting of Board of Directors which two-thirds or more directors are present. The following matters shall be provided in the terms and conditions regarding the issue and exercise of stock option:
  1. Issue period.
  2. Qualifications and conditions for eligible employee for stock option.
  3. Number of total issued units of the employee stock warrants, number of shares each unit represents, total number of new shares to be issued in connection with exercise of stock options, or the number of shares for shares buy-back as required per Article 28-2 of the Act.
  4. Criteria for setting the terms and conditions for exercising stock option (including exercise price, exercise period, class of shares with which to exercise stock option, measures to be taken in the event of inheritance/employee resignation, etc.).
  5. Performance of contract: by either issuance of new shares or delivery of already issued shares by an exchange-listed or OTC-listed company. However, for emerging stocks or stocks that are neither listed on an exchange nor traded in the business places of securities firms, performance of contract shall be by issuance of new shares.
  6. Adjustment of exercise price.
  7. Upon capitalization of retained earnings or capitalization of capital reserves, additional employee stock warrants may be issued or the number of shares subscribable may be adjusted; however, this shall apply only where the articles of incorporation at the time of subscription expressly provide that there is a sufficient number of shares to be made available for subscription.
  8. Procedure for exercising stock option.
  9. Rights and obligations after exercising stock option.
  10. Other important stipulations.
    The issue period as referred to in subparagraph 1 of the preceding paragraph shall be not more than 1 year starting from the date of receipt of the notice of effective registration. In case where there are remaining units to be issued after the issue period expires, the issuer shall submit a new registration filing.
    Any change in any subparagraph of paragraph 1 shall be made only after being approved by the majority votes in a meeting of Board of Directors at which two-thirds or more directors are present.
    In case of any change in any subparagraph under paragraph 1, the issuer shall submit as supplementary documents the minutes of the meeting of the Board of Directors as well as relevant materials after the amendment, and paragraph 2 of Article 12 shall apply mutatis mutandis.
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Article 56-1    To issue employee stock warrants that are not subject to the exercise price restriction set out in Article 53, an issuer is required to obtain the consent of at least two-thirds of the voting rights represented at a shareholders meeting attended by shareholders representing a majority of the total issued shares. The issuer is allowed to register multiple issues over a period of 1 year from the date of the shareholders resolution [provided that the combined number of subscribable shares does not exceed the number approved by the shareholders].
    To conduct the matter under the preceding paragraph, the issuer shall be required to specify the following information in the notice of reasons for convening the shareholders meeting, and may not raise the matter by means of an extraordinary motion:
  1. The total number of employee stock warrants to be issued, the number of shares subscribable per stock warrant, and the number of new shares that will have to be issued to cover exercise of the warrants or the number of shares that will have to be repurchased in accordance with the provisions of Article 28-2 of the Act.
  2. The criteria for determination of the exercise price, and the reasonableness of the price.
  3. Qualification requirements for warrant subscribers, and the number of shares they are allowed to subscribe for.
  4. The reasons why it is necessary to issue the employee stock warrants.
  5. Factors affecting shareholders' equity:
    1. The expensable amount, and dilution of the company's earnings per share.
    2. Where previously issued shares will be used to cover the warrants, explain what financial burden this will impose on the company.
    Matters required by paragraph 1 to be submitted for resolution at a shareholders meeting shall be set out in the company's articles of incorporation.
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Article 57    An issuer registering issuance of employee stock warrants shall, after the reporting to the FSC has taken effect, on the day next following the arrival of the notification of effective registration, make public announcement for the main content of the requirements for issuance and subscription. If performance of contract is conducted by means of issuance of new shares, any possible dilution of the shareholders' equity shall also be publicly announced.
    An issuer registering issuance of employee stock warrants shall, after the registration has become effective, input the status of the issuance into the website specified by the FSC for reporting of information on the day following the issuance or the expiry of the issuance period.
    For an issuer registering issuance of employee stock warrants, where the issuer executes its contractual obligations using already issued shares, once the registration with the FSC has become effective, the issuer shall, within 2 days of a directors' meeting resolving that the company shall repurchase its own shares for use as employee stock warrants as part of the execution of its contraction obligations, publicly announce the cost of the shares which it anticipates to obtain, the difference between the price of the employee stock warrants and the company's cost of obtaining the shares, and any effects on shareholders' equity.
    Any change in the main content regarding the terms and conditions of the issuance as referred in paragraph 1 shall be made only after being approved by the majority votes in a meeting of Board of Directors at which two-thirds or more directors are present, and public announcement shall be made after the minutes of the meeting of the Board of Director and relevant materials regarding the amendment have been submitted to the FSC for recordation.
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Article 58    When executing its obligations regarding stock warrants, the issuer is not subject to Article 140 of the Company Act providing that the execution price of the stocks may not be lower than the par value.
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Article 59    When a holder of employee stock warrants requests for exercising of stock option, the holder shall fill out an exercise request form and submit it to the issuer or its agent. After receiving the said request and collecting full payment for the stocks, in the case of exercise with already issued shares, the issuer or its agent shall deliver the stocks on the next business day; in the case of exercise by issuing new shares, the issuer or its agent shall enter the name of the holder into the shareholder register and deliver the new stocks or the certificates of payment for exercise of the stock option to the holder within 5 business days.
    The aforesaid stocks or the certificates of payment for exercise of the stock option issued by an exchange-listed, OTC-listed, or emerging stock company in accordance with the preceding paragraph may be traded in the stock exchange market or in the business places of securities firms from the day of delivery to shareholders.
    An issuer delivering stocks pursuant to the paragraph 1 shall announce the number of newly-issued additional shares in the preceding quarter within 15 days after the end of that quarter.
    For new stocks issued in accordance with paragraph 1, the year, month, and day of the FSC notice of effectiveness may be taken as the year, month, and day of incorporation or amendment of registration for issuance of new shares set forth in Article 162, paragraph 1, subparagraph 2 of the Company Act. After the issuance of new shares, the issuer shall also apply to the competent authority governing company registration at least once per quarter to amend registration of paid-in capital, attaching the original FSC letter of approval for issuance of employee stock option certificates.
    For issuance of certificates of payment for the exercise of stock warrants in accordance with paragraph 1, the issuer shall, before the end of each fiscal year, present the consent letter from the FSC which previously approved the issuance of employee stock warrants and photocopy of the certificates of payment for exercise of the stock option, and apply to the competent authority in charge of the corporate registration to register the change in its capital, as well as issuance of new shares.
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Article 60    Except in case where physical certificate is not printed, before the formal delivery of certificates of payment for the exercise of stock warrants, the said certificate shall be certified by the certifying organization in accordance with the Regulations Governing Certification of Corporate Stock and Bond Issues by Public Companies.
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Article 60-1    The term “new restricted employee shares” as used in these Regulations means new shares issued by an issuer for employees pursuant to Article 267, paragraph 9 of the Company Act, with vesting conditions such as service-based conditions or performance-based conditions attached, under which the rights in the shares are restricted until the vesting conditions are met.
    With respect to new restricted employee shares issued by an issuer pursuant to Article 267, paragraph 9 of the Company Act and to these Regulations, when employees fail to meet the vesting conditions, the issuer may redeem or buy back the already-issued new restricted employee shares in accordance with the terms of the issuance rules, and is exempted from the restriction of Article 167, paragraph 1 of the Company Act prohibiting the company from redeeming or buying back its shares.
    New restricted employee shares that are bought back or redeemed under the preceding paragraph are deemed shares that have never been issued by the company, and the company shall apply for alteration of the corporate registration in respect of the shares accordingly.
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Article 60-2    To file for registration of issuance of new restricted employee shares, an issuer shall be required to have a resolution adopted by a majority of the voting rights of the shareholders present at a meeting of shareholders representing two-thirds or more of the total number of issued shares of the company. The issuer is allowed to register multiple issues over a period of 1 year from the date of the shareholders resolution [provided that the combined number of subscribable shares registered does not exceed the number approved by the shareholders meeting].
    If the total number of shares represented by the shareholders present is insufficient to satisfy the requirements of the preceding paragraph, the resolution may be adopted by two-thirds of the voting rights of the shareholders present at a meeting of shareholders representing a majority of the total number of issued shares of the company.
    To conduct the matters under the preceding two paragraphs, the issuer shall be required to specify the following information in the notice of reasons for convening the shareholders meeting, and may not raise the matters by means of an extraordinary motion:
  1. The total number of shares to be issued.
  2. The terms and conditions of issuance.
  3. Qualifications and conditions for employees and the numbers of shares distributable or subscribable.
  4. The reasons why it is necessary to issue the new restricted employee shares.
  5. The expensable amount, the dilution of the company's earnings per share, and any other impact on shareholders equity.
Article 60-3    To issue new restricted employee shares, the issuer shall submit the Registration Statement for Issuance of New Restricted Employee Shares (Attachment 22-1), provide all the information required therein, along with the required documents, to the FSC, and may proceed with the issue only after the registration with the FSC becomes effective.
    A registration filed in accordance with the preceding paragraph shall become effective 7 business days after the day the Registration Statement for Issuance of New Restricted Employee Shares is received by the FSC and the FSC-designated institutions, and the provisions of Article 12, paragraph 2, and Articles 15 and 16 shall apply mutatis mutandis. However, the waiting period for effective registration shall be 12 days for financial holding, banking, bill finance, credit card, or insurance enterprises.
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Article 60-4    An issuer registering the issuance of new restricted employee shares shall specify the following particulars in the issuance rules:
  1. The terms and conditions of issuance (including the issue price, vesting conditions, class of issued shares, and measures to be taken when employees fail to meet the vesting conditions or in the event of inheritance).
  2. Total amount of the issue.
  3. Qualifications and conditions for employees.
  4. Following distribution or subscription, the rights that are subject to restriction until vesting conditions are met.
  5. Other important stipulations (including custodial trust of the shares).
    With respect to registration for the issuance of new restricted employee shares under the preceding paragraph, if 1 year has passed from the date of receipt of the notice of effective registration and it remains necessary to issue remaining shares not yet issued, a new registration filing shall be submitted.
Article 60-5    The issue price of new restricted employee shares is not subject to the restriction in Article 140 of the Company Act prohibiting a stock issue price lower than par value, and new restricted employee shares may be distributed gratuitously.
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Article 60-6    (deleted)
Article 60-7    When the FSC grants effective registration for an issuer registering the issuance of new restricted employee shares, the issuer shall, on the day following the day of receipt of the effective registration, publicly announce the main content of the issuance rules, and shall simultaneously announce any possible dilution of shareholders’ equity.
    After the registration has become effective for the issuer’s issuance of new restricted employee shares, the issuer shall, on the day following the date of issuance of the shares, input the status of the issuance into the website specified by the FSC for reporting of information.
    After issuing the new restricted employee shares, the issuer shall, on the day following the time that the employees meet the vesting conditions, input the status of the lifting of the restrictions on the new restricted employee shares into the website specified by the FSC for reporting of information.
    If an issuer redeems or buys back already-issued new restricted employee shares pursuant to Article 60-1, paragraph 2, it shall, on the day following the redemption or buyback of the shares, input the status of the redemption or buyback into the website specified by the FSC for reporting of information.
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Article 60-8    The number of shares subscribable through employee stock warrants registered for issuance by an issuer under Article 56-1, paragraph 1 and the total number of shares subscribable through employee stock warrants issued and outstanding from all previous issues thereunder, in combination with the total of the new restricted employee shares registered for issuance under Article 60-2 and all new restricted employee shares issued in all previous issues and for which the vesting conditions have not yet been met, may not exceed 5 percent of the total number of the issuer’s issued shares. And the above in combination with the number of shares subscribable through employee stock warrants registered for issuance by an issuer under Article 56, paragraph 1 and the total number of shares subscribable through employee stock warrants issued and outstanding from all previous issues thereunder may not exceed 15 percent of the total number of the issuer’s issued shares.
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Article 60-9    Where an issuer issues employee stock warrants under Article 56-1, paragraph 1, the cumulative number of shares subscribable by a single warrant holder of the employee stock warrants, in combination with the cumulative number of new restricted employee shares obtained by the single warrant holder, may not exceed 0.3 percent of the issuer’s total issued shares. And the above in combination with the cumulative number of shares subscribable by the single warrant holder of employee stock warrants issued by an issuer under Article 56, paragraph 1, may not exceed 1 percent of the issuer’s total issued shares. However, with special approval from the central competent authority of the relevant industry, the total number of employee stock warrants and new restricted employee shares obtained by a single employee may be exempted from the above-mentioned restriction.
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