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Article 1
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These Supplementary Provisions are promulgated pursuant to Article 29, Paragraph 1 of the Taiwan Stock Exchange Corporation Rules Governing Review of Securities Listings ("the Rules").
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Article 2
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The expressions "the fiscal year in which the application for listing is filed" and the "most recent" or a certain number of subsequent "fiscal years" as used in the Rules shall refer to the period from receipt of the application for listing by the TSEC until one day prior to the competent authority's issuance of a letter of approval for the listing agreement, and the given number of full fiscal years immediately preceding or subsequent to that period.
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Article 3
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The expression "within [a certain number of] 'most recent' years" in the Rules refers to a certain period terminated by the date upon which the TSEC receives a market listing application for review, provided that the period from receipt of the application by the TSEC to the day before the issuance date of the competent authority's letter of approval of the listing agreement submitted by the TSEC shall also be included.
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Article 3-1
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The term "information software enterprises" in the Rules refers to those enterprises applying under one of the four principal areas of operations as defined by the Ministry of Economic Affairs Industrial Development Bureau, which are packaged software, professional services, turnkey systems, and systems integration, and whose operating revenue in the most recent two fiscal years conforms to one of the following two conditions:
1. Information software accounts for 50% or more of total operating revenues.
2. Gross profits from information software operations account for 50% or more of total gross operational profits.
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Article 4
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The term "related party" in the Rules refers to persons fulfilling any one of the following conditions:
1. The person is a judicial person or other institution, having the relationship of related party as defined under Statement of Financial Accounting Standards No. 6.
2. A natural person with the relational status of spouse or minor child.
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Article 5
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The terms "parent company," "subsidiary," and "affiliated company" as used in the Rules shall be defined in accordance with the provisions of Statement of Financial Accounting Standards Nos. 5 and 7.
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Article 6
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The term "group enterprise" as used in the Rules refers to a group of corporate entities which, during the fiscal year in which the application for listing is filed and the most recent fiscal year, have a controlling or subordinate relationship with the applicant company.
Under any one of the following conditions, a controlling or subordinate relationship will be deemed to exist:
1. The relationship is one of parent company, subsidiary company, or affiliated company.
2. The applicant company directly or indirectly controls personnel, financial, or business operations; or another company directly or indirectly controls the personnel, financial, or business operations of the applicant company.
A relationship of "direct or indirect control of personnel, financial, or business operations" between two companies refers to any one of the following circumstances:
(1) Obtaining more than half of the director's positions in the other company.
(2) Having an appointee selected as general manger of the other company.
(3) Owning management rights to the other company under a joint venture agreement.
(4) Providing financing for the other company that equals or exceeds one-third of the total assets of the other company.
(5) Providing endorsement for a guarantee for the other company that equals or exceeds one-third of the total assets of the other company.
3. The amount of cross-investment between the applicant company and another company reaches an amount equal to or greater than one-third of the total voting shares or capital of each company, and personnel, financial, or business operations of the other company can be directly or indirectly controlled.
Where any of the following circumstances exist, it will be deemed that there exists a subsidiary or controlling relationship between the applicant company and another company, provided that where the applicant company submits evidence proving that no controlling or subsidiary relationship exists, this restriction will not apply:
1. More than half of the total number of directors, supervisors, and general managers for the applicant company and another company are the same. Calculation of this figure shall include the spouses, children, and relatives in the second degree of the aforementioned persons.
2. More than half of the outstanding shares of voting stock or capital of the applicant company and another company are held by the same the shareholders or capital contributors.
3. Another investing company and its related parties, applying the equity method of valuation with respect to the applicant company, hold more than one-half of the total outstanding shares of voting stock in the applicant company; or where the applicant company and its related parties, applying the equity method of evaluation, hold a total number of shares in another invested company exceeding one-half of the total number of outstanding shares of voting stock.
Calculation of the amount of stock held by or the amount of capital contributions to another company made by the applicant company shall include each of the following stock or capital amounts:
1. The shares held by or capital contributions made to another company by the subsidiary of a company.
2. Shares held by or capital contributions made by a third party for the applicant company.
3. Shares held by or capital contributions made by a third party for a subsidiary company of the applicant company.
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Article 6-1
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The term "company insider" as used in the Rules shall mean a company's directors, supervisors, managerial officers, and those shareholders who hold more than ten percent of the total shares of the company.
The calculation of shares held by company insiders referred to in the preceding paragraph shall include shares held by their spouses and minor children and those held in the name of another person.
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Article 7
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(deleted)
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Article 8
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The term "financial or business affairs are not independent from other person(s)" as used in Article 9, paragraph 1, subparagraph 2 of the Rules shall mean any of the circumstances below:
1. Sources of capital are heavily concentrated in non-financial institutions.
2. The applicant company has entered into contracts that severely limit its operations or that are patently unreasonable such that it creates an adverse influence on the company.
3. The applicant company jointly shares a line of credit with another person in which its own credit utilization cannot be distinguished, provided that the sharing of a line of credit between a parent company and a subsidiary shall not be subject to this restriction.
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Article 9
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The phrase "material labor dispute sufficient to affect normal financial and business operations of the company" as used in Article 9, paragraph 1, subparagraph 3 of the Rules refers to any one of the following circumstances:
1. The occurrence of a material labor dispute.
2. Failure to make allocations to the employee welfare fund, to organize an employee welfare committee, or to make monthly allocations to the special account holding labor pension funds in accordance with the law.
3. The occurrence of a material workplace accident due to inadequate safety or sanitation facilities, or a disposition issued with respect to violation of the Labor Safety and Sanitation Law requiring suspension of part or all of operations, or dangerous machinery or facilities have been installed without passing inspection, provided that where approval is obtained after an application for re-inspection, the above shall not apply.
4. Failure to make payment for labor insurance premiums and default penalties following initiation of a lawsuit for the same.
The phrase "material environmental pollution sufficient to affect normal financial and business operations of the company" as used in the same subparagraph means any of the following circumstances with respect to the company or venues for its activities:
1. Failure to obtain permits required by law for [pollution] discharge or installation or operation [of pollution control equipment].
2. A pollution incident in which the environmental protection authority has imposed penalties accruing on a daily basis, or failure to make rectification within a specified period of time where rectification has been ordered.
3. Involvement in a public nuisance incident where the company has no effective pollution control facilities, or failure to provide records of normal operation and regular maintenance of pollution prevention equipment.
4. A pollution incident in which the competent authority has ordered the company to stop work, suspend operations, or terminate operations or the relevant pollution permits have been revoked.
5. Careless disposal of waste materials, or failure to store, clean up, or process such materials in accordance with regulations, or a material pollution incident occurring during processing of such materials, resulting in death, serious bodily harm, or endangerment of health leading to illness.
6. Designation of the company's land as a controlled site or a pollution remediation site due to soil or underground water pollution.
7. Manufacturing, processing, or importation by a juristic person of banned or counterfeited agricultural chemicals, resulting in a conclusive judgment against the responsible person.
The phrase "has not made improvement" in the same subparagraph shall mean the existence of any of the above circumstances after receipt of the company's application for listing by the TSEC, provided that with respect to a material environmental pollution incident as referred to in Subparagraph 2 of the preceding paragraph, the standard for determining whether rectification has been made shall be that the company has requested inspection and testing by an agency authorized by the competent environmental authority, that such agency has prepared a report on the inspection, and that the report is the basis for a report to the environmental authority on completion of rectification procedures, and further, that the company has received no additional penalty within three months of issuing the report.
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Article 10
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The term "material non-arms-length transaction" as used in Article 9, paragraph 1, subparagraph 4 of the Rules shall mean the occurrence of any of the following circumstances with respect to the applicant company, provided that publicly-owned enterprises operated under the relevant accounting laws shall not be subject to this restriction:
1. Where the purpose, terms, or price of purchase or sale of goods, or where the occurrence of a transaction, or its form or substantive nature or the procedure involved, are at variance with those of a normal transaction or are obviously unreasonable.
2. Where, in regard to transactions for acquisition or disposal of assets that require public announcement and reporting in accordance with the competent authority's Guidelines for Handling Acquisition and Disposal of Assets by Public Companies, the company fails to reasonably demonstrate the legality of its internal decision-making process, the necessity of the transaction, ample disclosure of related financial statements, or reasonable price and payment terms and conditions.
3. Occurrence of any of the following circumstances with regard to real estate transactions during the most recent five years, as determined by the signing date of any such transaction:
(1) A real estate purchase from a related party involves any circumstances set forth in the Standards for Determining the Existence of Non-arms-length Transactions in Real Estate Deals promulgated by the competent authority.
(2) A sale of real estate to a related party in which the price of the sale is lower than the pre-calculated or assessed values obtained in accordance with the methods given under the standards for determining the existence of material non-arms-length transactions in real estate deals under the Guidelines for Purchase of Real Estate by Public Companies.
(3) Terms of payment in a purchase or sale of real estate with a related party obviously different from those of ordinary real estate transactions, and for which there is no legitimate reason.
(4) The applicant company purchases or sells land at approximately the same time in an area adjacent to land purchased or sold by a related party, where there is an obvious difference in price, and where there is no legitimate reason for such difference.
(5) The revenues from sales of products or leasing of real estate to a related party in the final quarters of the most recent five fiscal years exceeds 20% of yearly operating revenues, and where no legitimate reason exists for the excess.
(6) Purchase or sale of real estate to a non-related party where other evidence exists to show that the transaction is obviously at variance with normal transactions, and where there no legitimate reason exists for the difference.
4. Where loans are extended to another person for purposes other than the financing necessary for business transactions between companies.
The provisions regarding the purchase or sale of real estate involving a related party under subparagraph 3 of the preceding paragraph shall also apply where either of the two previous owners had the status of related party, provided that there may be exemption from application of the competent authority's Standards for Determining the Existence of Non-arms-length Transactions in Real Estate Deals where the period from the date on which the trading counterpart was to acquire the property under the contract to the date of the date of execution of the present contract exceeds five years.
Where an applicant company profits from any of the circumstance set forth under paragraph 1, it shall meet the listing criteria for profitability after deduction of those profits.
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Article 11
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With respect to the phrase "has not made improvement" as used in Article 9, paragraph 1, subparagraph 4 of the Rules, improvement is determined to have been made if any one of the following circumstances exists:
1. Where a person other than the applicant company obtains benefit from the non-arms-length transaction, and the person obtaining benefit has returned the benefit to the person entitled to it.
2. Where a law enforcement or judicial agency has determined that the activity involving the non-arms-length transaction does not constitute a criminal offense.
3. The non-arms-length transaction has already been restored to its original condition.
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Article 12
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The phrase "has been effected " as used in Article 9, paragraph 1, subparagraph 5 of the Rules shall mean that the company has already obtained a letter from the Ministry of Economic Affairs approving the amendment of its company registration, as determined on the basis of the date of the letter of approval. The term "is being effected" [as used in the same subparagraph] shall mean that the company has already applied to the competent authority in charge of securities and the application has been accepted for processing but the company has not yet obtained a letter of approval for amendment [of its company registration], and shall also apply to any cash capital increase connected with a public sale effected prior to the [application for] a listing on a stock exchange. The term "capital increase through a new share issue" [as used in the same subparagraph] is a general reference to any issue of new stock for the purposes of a cash capital increase, a capital increase in connection with merger, capital
increase out of unappropriated earnings, and capital increase out of capital reserves.
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Article 13
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The term "has failed to prepare financial reports in accordance with relevant laws and regulations and generally accepted accounting principles" as used in Article 9, paragraph 1, subparagraph 6 of the Rules shall mean any of the following:
1. The financial report is not prepared in accordance with relevant laws and regulations and generally accepted accounting principals, and a certified public accountant issues an adverse opinion or a disclaimer of opinion, or a certified public accountant issues an audit report with a qualified opinion, thereby affecting fair presentation of the financial report.
2. Failure by a company to make correction in its financial report after being instructed to do so by the competent authority in a letter.
3. The audit working papers of the certified public accountant are reviewed by the TSEC and found to contain a significant deficiency such that it cannot be ascertained whether fair presentation is achieved in the financial report.
The term "has failed to effectively implement its written accounting system, internal control system, or internal audit system" in the same subparagraph shall mean the occurrence of any of the following circumstances:
1. During the year in which it applies for market listing, the applicant company fails to establish a sound written accounting system in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Firms and the Regulations Governing the Preparation of Financial Reports by Issuers.
2. Where the TSEC finds, through on-site audit, that the company fails to operate in reasonable accordance with its written accounting system.
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Article 14
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The term "serious deterioration" as used in Article 9, paragraph 1, subparagraph 7 of the Rules shall mean any of the following circumstances:
1. Operating revenues and operating profits for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
2. Net pre-tax profits for the most recent fiscal year or the fiscal year in which the application for listing is filed show a marked deterioration relative to other enterprises in the same industry.
3. There is continuing negative growth in operating revenues and operating profits for each of the three most recent fiscal years.
4. There is continuing negative growth in net pre-tax profits for each of the three most recent fiscal years.
5. Aggregate capital increases for the three most recent fiscal years equal NT$1 billion or more, or are equal to 200% of the company's capital stock at the closing date of the fourth fiscal year prior to that period, and growth in operating revenues, comparing the most recent fiscal year with the fourth prior fiscal year, falls below 100% or NT$500 million, and the profit per share has been declining in each of the previous three years, provided that capital increases in accordance with mandatory government laws and regulations shall not be subject to these limitations.
6. The company's products or technology are outdated, and it has no plan for improvement.
The provisions of the preceding paragraph do not apply where, as prescribed for companies applying for market listing under Article 4 of the Rules, the ratio of paid-in capital to operating revenues and net pre-tax profit in the most recent fiscal year are not lower than 12%.
When consolidated financial statements are prepared, the provisions of paragraph 1, subparagraphs 1 and 3 and of paragraph 2 with regard to operating revenues and operating profits need not apply to the individual financial statements of which it is comprised.
The provisions of subparagraphs 3 and 4 of paragraph 1 do not apply where, due to economic conditions prevailing in the industry, similar enterprises also exhibit deterioration.
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Article 15
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The term "conduct any activities in violation of the principle of good faith" as used in Article 9, paragraph 1, subparagraph 8 of the Rules shall mean any of the following circumstances:
1. With respect to the company:
(1) The bills clearing house announces that a checking account opened by the company applying for listing has been declined, or that checks or negotiable instruments issued by the company with a financial institution as its paying agent were dishonored due to insufficient funds and the records thereof have not yet been cancelled.
(2) The company has been delinquent in the repayment of any loan extended to it by a financial institution.
(3) A criminal sanction has been imposed on the company by a final judgment of violation of the Labor Standards Law, provided that where, within the most recent two years, an examination agency has found through re-inspection that the violation has been corrected.
(4) A final judgment has found the company in violation of the Tax Collection Law.
(5) The company breaches the warranties and representations made in its application for listing.
(6) The company has made materially false and misleading representations, violated the law, or lost creditworthiness resulting in injury to the company's interests or the rights and interests of the shareholders or the public.
2. With respect to the directors, supervisors, general manager, or de facto responsible person:
(1) Any of the circumstances set forth in subparagraphs 1-5 of the preceding paragraph, provided that those subparagraphs shall not apply in the case of delinquency in the repayment of a loan to a financial institution when the delinquency is not of a material nature or when there is a reasonable cause for the delinquency.
(2) Commission of breach of faith, for which a fixed sentence or more severe criminal penalty was delivered.
(3) Other acts in serious violation of laws and regulations or the principle of good faith.
(4) Other serious violations of laws or regulations or the principles of good faith.
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Article 16
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(This article is deleted)
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Article 17
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The phrase "the board of directors or any supervisor(s) are unable to independently exercise their functions" as used in Article 9, paragraph 1, subparagraph 9 of the Rules means none of the following circumstances may be present:
1. A person serving as an independent director of the applicant company fails to satisfy any prerequisite set forth in the Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies.
2. Where a person serving as independent director of the applicant company has failed to receive training of three [course] hours per year to acquire professional knowledge in the areas of law, finance, or accounting and obtain relevant certification documents issued from any of the continuing education systems under (i), (ii), and (iv) of 3.(4) of the Rules Governing Implementation of Continuing Education for Directors and Supervisors of Exchange-Listed and OTC-Listed Companies.
3. Where more than one-half of the directors of the applicant company are mutually related, or all supervisors are mutually related to one another or related to any member of the board of directors, in any of the following ways:
(1) Spouses;
(2) Lineal relatives within the second degree of kinship;
(3) Collateral relatives within the third degree of kinship; or
(4) Representatives of the same juristic person.
The provisions of subparagraph 3 of the preceding paragraph shall also apply where the government or a juristic person is the shareholder, and in its capacity as government or juristic person is elected as director or supervisor and designates a natural person as representative to exercise those functions on its behalf, and shall also apply to representatives who, in that capacity, are elected to serve as director or supervisor.
The provisions of subparagraph 3 of paragraph 1 shall not apply when the relationship set out in item 4 of that subparagraph exist between more than half of the directors or all of the supervisors and with the approval of the competent authority for the relevant industry.
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Article 17-1
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The term "to allocate a percentage" as used in Article 11, paragraph 1 of the Rules shall mean:
1. The first time a public company applies to list its stock on a stock exchange, it shall allocate to an underwriter for public sale at least 10% of the shares it is planning to list, provided that where this would require the allocation of 20 million shares or more for underwriting, the company may allocate a minimum of 20 million shares for public sale.
2. Where a public company has traded its stock on OTC markets as emerging stock for less than two years, the number of shares it provided for subscription by the recommending securities firm for such emerging stock may be deducted from the number of shares it provides for underwriting hereunder, provided that the deduction shall not exceed 30% of the shares provided for underwriting hereunder.
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Article 17-2
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The phrase "transfers of equity conducted… for purposes of reducing its shareholding ratio in the company applying for listing" as used in Article 9, paragraph 1, subparagraph 11 of the Rules means the transfer of equity interests by an exchange (or OTC) listed company for the purpose of reducing its shareholding ratio in the transferee company of a demerger, which includes the sale of equity interests and the waiver of pre-emptive rights to new shares in a cash capital increase in favor of subscription by other specific persons.
The phrase "have damaged shareholders' equity", as used in the same subparagraph, means a transfer of equity interests as referred to in the preceding paragraph that clearly involves an unreasonable circumstance with respect to the assignee or the trading price of the sale, the issue price of a cash capital increase through a new share issue, or the waiver of pre-emptive rights to new shares in a cash capital increase in favor of subscription by other specific persons, thereby profiting specific persons and creating the likelihood of damage to the rights and interests of the shareholders of the exchange (or OTC) listed company.
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Article 18
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The term "net worth before distribution of earnings during the fiscal year in which the application for listing is filed" as used in Article 16, subparagraph 3 of the Rules shall mean net worth calculated by reference to the most recent financial report or financial forecasts with respect to the fiscal year in which the application for listing is filed.
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Article 19
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(This article is deleted)
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Article 20
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The term "uncompleted construction project" as used in Article 16, subparagraph 7 shall mean a construction project for which the invested construction cost has reached 40 percent or more of the total cost of the project.
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Article 21
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The term "construction company" as used in Article 17 of the Rules shall mean a construction firm engaged in construction and civil engineering in accordance with the Ministry of the Interior's Rules Governing the Construction Industry.
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Article 22
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The term "principal business or products" as used in Article 18, paragraph 1, subparagraph 1 and Article 28-5, paragraph 1, subparagraph 1, of the Rules shall mean those items which account for 30% or more of total operating revenues in the two most recent fiscal years.
Judgments regarding the term "mutual competition" as used in the same subparagraph shall be made on the basis of an overall assessment of factors such as the type of enterprise, the interchangeability of products, and target customers.
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Article 23
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The stock exchanges or securities markets referred to in Article 26, paragraph 1, subparagraph 2, Article 27, paragraph 1, subparagraph 2, and Article 27-1, paragraph 1, subparagraph 3 refers to the following:
1. The NYSE Euronext, Inc. (US)
2. The American Stock Exchange (US)
3. The NASDAQ (US)
4. The London Stock Exchange (UK)
5. Deutsche Borse Group (Germany)
6. The Italian Stock Exchange (Italy)
7. The Toronto Stock Exchange Group (Canada)
8. The Australian Stock Exchange (Australia)
9. The Tokyo Stock Exchange (Japan)
10. The Osaka Stock Exchange (Japan)
11. The Stock Exchange of Singapore (Singapore)
12. Bursa Malaysia (Malaysia)
13. The Stock Exchange of Thailand (Thailand)
14. The Johannesburg Securities Exchange (South Africa)
15. Hong Kong Exchange (Hong Kong)
16. Korea Exchange (South Korea)
17. Other stock exchanges as approved by the competent authority.
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Article 24
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As used in Article 28-8, paragraph 1, subparagraph 1, "circumstances that seriously impact the financial or operational status of the company or are sufficient to cause its dissolution or to alter its organization or capital" means that any of the following circumstances applies to a foreign issuer or a company controlled by it that is applying for a primary listing:
1. Involvement in litigation or non-litigious matters sufficient to cause dissolution or to alter its organization, capital, business plan, or financial condition, or to cause suspension of production.
2. Involvement in a major disaster, the signing of a major agreement, the occurrence of a special circumstances, the alteration of important aspects of its business plan, or the dishonoring of a check, where sufficient to cause a material change in the financial condition of the company.
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Article 25
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As used in Article 28-8, paragraph 1, subparagraph 2, "the finances or operations of the company are not distinguishable independently from those of others" means that any of the following circumstances applies to a foreign issuer or a company controlled by it that is applying for a primary listing:
1. The applicant company's sources of funding are overconcentrated in non-financial institutions.
2. The applicant company has entered into contracts with others that impose severe limits on its operations or that are obviously unreasonable, creating the likelihood that the company will be adversely influenced.
3. The applicant company shares a joint a line of credit with another in which the credit of the two is not clearly distinguished. This provision does not apply when the line of credit is shared by a parent company and its subsidiary.
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Article 26
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As used in Article 28-8, paragraph 1, subparagraph 3, "significant trading irregularity" means that any of the following circumstances applies to a foreign issuer or a company controlled by it that is applying for a primary listing:
1. The purpose, price, terms and conditions, or the handling procedures for a purchase or sale of goods are at variance with those of an ordinary transaction or are obviously unreasonable.
2. When, for various trades with related parties, there is no verification of reasonable necessity for the trade, or of the legality of the decision-making process for the trade, or the reasonableness of the price or the payment or receipt of funds (including comparison with non-related parties or same industry parties).
In the same subparagraph, "has not been rectified" means the aforementioned circumstances still exists on the date on which the TSEC receives the application of listing of its securities.
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Article 27
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As used in Article 28-8, paragraph 1, subparagraph 4, "actions violating the principle of good faith" means that any of the following circumstances applies to a foreign issuer or a company controlled by it that is applying for a primary listing, or by an incumbent director, supervisor, general manager, or de facto responsible person of the issuer or controlled company:
1. Being in arrears in the repayment of any loan extended to it by a financial institution.
2. Having had a judgment issued against it for violation of the applicable laws of the place or country of its registration.
3. Having violated the matters declared in the declaration it submitted at the time of application.
4. Having been involved in misrepresentation or suffered a loss of credit, causing damage to the interests of the company, the rights and interests of its shareholders, or the public interest.
5. The circumstances under subparagraphs 1 through 3 above do not fall within the scope of this provision when they are not material or occurred due to reasonable cause.
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