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Taiwan Stock Exchange Corporation Assessment and Auditing Procedures for Securities Underwriter Handling Initial Listing Applications(2017.08.11) |
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Industrial circumstances and operational risks:
- Operational risks of the sector in which the issuing company runs its business:
- collect reports and information on the relevant industry to ascertain the current circumstances of the industry sector the issuing company belongs to;
- interview the operating officers of the issuing company and use the information about the internal finance and business operation of the issuing company and information about the industry collected from external sources to ascertain the cyclical demand specific to the industry or substitution products and their impact, and analyze the major factors impacting the profitability of the industry sector the issuing company belongs to, and the niche for the issuing company in various influencing factors;
- collect and analyze information about the businesses at the upstream, middle stream and downstream of the industry sector the issuing company belongs to.
- Operational risks of the issuing company:
- Business activities:
- collect local and foreign reports and information about the relevant industry to ascertain the possible changes in supply and demand in the market, and use the information to analyze favorable and unfavorable factors that may affect the future development of the issuing company and the measures in response, to evaluate its ability to respond to changes in economic cycles;
- collect information about the market share of its major competitors to evaluate the competitive niche of the issuing company;
- Technological research and development and patents:
- the underwriter may obtain technological experts' assessment opinions as supporting evidence;
- obtain information about the history, organization, staff, education and work experiences, research accomplishments and future projects of the R&D department of the issuing company to ascertain major sources of technologies, how and how much compensations or royalties for technology are paid, and in which direction the R&D work will develop, and analyze information such as number of staff of the R&D department, the average seniority, employee turnover, and attrition rate for the current term and the most recent three fiscal years, to evaluate the operational risks of departure of the R&D staff to the issuing company;
- obtain major technological cooperation contracts and evaluate the operational risks of the contracts to the issuing company based on the terms and conditions thereof;
- for an applicant in technology-based enterprise, cultural and creative enterprise or information software enterprise, obtain information about the competitive advantage, life cycles, sustainability of the current major products and R&D projects for new products, and levels and resources of production and development technologies, to evaluate market positioning, demands and internal control and security measures for research and development;
- for an applicant in technology-based enterprise, cultural and creative enterprise or information software enterprise, obtain information about the background and experiences of the company's directors participating in operation and decision making, shareholders holding five percent or more of the total number of outstanding shares of the applicant company shares who have participated in business decision-making, shareholders contributing capital with patents or professional skills, and officers controlling manufacturing technologies and technical development, their shareholding ratios, share transfers by them within the most recent three fiscal years and the year of application, time actually spent on operation and how they are actually involved in operation, in order to evaluate the operational risks of the issuing company if these personnel discontinue their participation in the operation.
- Analysis of human resources:
Obtain information about the total number of employees, number of former, laid off or retired employees, direct and indirect labor number, average age and average years of service, to evaluate changes in the attrition rate and the operational risks to the issuing company.
- Cost analysis of major products:
- obtain information about the costs of raw material, labor and manufacturing for the current term and most recent three fiscal years, and analyze the operational risks of changes in the percentage of individual cost elements to the issuing company;
- for applicant satisfying the requirements under Article 16 of the Rules Governing Review of Securities Listings, obtain updates on current prices of the local (neighboring) area, information about peer companies, and the price ratio of land and building available from the government authority (such as ratio of assessed present value and declared present value, or ratio of building construction price and land price, etc.), to evaluate if the allocation ratio of the issuing company and landowner is reasonable in case of a sale of building under a joint construction project, distribution of building under a joint construction project, or distribution of profit under a joint construction project;
- Exchange rate changes:
Obtain information about the ratio of exchange gains or losses to operating profits and the ratio of domestic and export sales and domestic and overseas purchases for the current term and most recent three fiscal years, to analyze the operational risks of exchange rate changes to the issuing company and its risk aversion measures.
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The underwriter shall request lawyers to issue documents such as legal opinion on legal compliance in the most current three years by a domestic issuer and its incumbent directors, general manager, shareholders holding 10% or more shares and real responsible person and on the impact on the operation of the local issuer, and whether the action plans are comprehensive and adequate:
- Whether the issuing company violates applicable laws and regulations:
- the major laws and regulations of the central competent authority for the sector of industry the issuing company belongs to and those affecting the sector of industry;
- evaluate if the issuing company has acted pursuant to the laws and regulations governing disclosure of information of listed companies when disclosing the information; and
- other laws and regulations;
- Whether the directors, general manager, shareholders holding 10% or more of the total number of outstanding shares of the issuing company, real responsible person and other relevant personnel violate applicable laws and regulations and therefore breach good faith or compromise performance of duty;
- Whether any copyright, patents, trademark rights or any other intellectual property rights are infringed;
- major litigation, non-litigation or administrative disputes pending in court; and
- major labor disputes or environmental pollution events.
When assessing a primary listing application of a foreign issuer, the underwriter shall request lawyers to issue legal opinions on the following with regard to the foreign issuer, incumbent directors, general manager, shareholders holding 10% or more of the total number of outstanding shares of the foreign issuer and real responsible person in the most current three years, and shall further evaluate the impact on the operation of the foreign issuer and action plans based on the lawyers' opinions:
- Whether the foreign issuer violates applicable laws and regulations:
- seriously violates the applicable labor safety and health laws and regulations of the jurisdiction where the issuer was incorporated or of the country where the issuer has its major presence, to the extent that the issuer has been ordered to suspend part or all of its operation;
- seriously violates the pollution control and prevention regulations of the jurisdiction where the issuer was incorporated or of the country where the issuer has its major presence;
- major labor disputes; and
- other laws and regulations.
- Protection of shareholders' equity:
- whether the restrictions on where a shareholders' meeting is convened, on the voting system or exercise of other shareholders' rights imposed by the law of the jurisdiction where the issuer was incorporated may influence the exercise of the shareholders' equity of the foreign issuer. If yes, describe the measures for protection of the exercise of shareholders' rights within the Republic of China; and
- whether the articles of incorporation or the memorandum of association include specific provisions on protection of the exercise of shareholders' equity;
- Whether the issuer has entered into any contract that imposes major restrictions on its operation or that is apparently unreasonable; and
- Same as Subparagraphs (B) to (D) of the preceding paragraph.
When evaluating impacts on the operation of the issuing company described in Subparagraphs (A) to (E) of the first paragraph and Subparagraphs (A) to (D) of the second paragraph, the underwriter shall not adduce opinions provided by the regular legal adviser to the issuing company or the lawyer appointed by the issuing company to complete the "Legal Matter Checklist for Share Listing Applied for by Issuer". The lawyers to be contacted may not be the same as the regular legal adviser to the issuing company or the lawyer or CPA appointed by the issuing company to complete the "Legal Matter Checklist for Share Listing Applied for by Issuer" and may not work for the firm that maintains a substantial cooperation relationship with such adviser, lawyer or CPA, so as to ensure independence of the lawyers' opinions.
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When performing evaluations according to the provisions under Article 9, Paragraph 1 of the Rules Governing Review of Securities Listings, the underwriter shall conduct random checks on relevant evidence and documents, except for Subparagraphs 1, 3 and 8 which require opinion provided by lawyer, and Subparagraph 6 which requires opinion provided by CPA, to evaluate if the domestic issuer has failed to comply with the requirements.
When performing evaluations according to the provisions under the subparagraphs of Article 28-8 of the Rules Governing Review of Securities Listings, the underwriter shall conduct random checks on relevant evidence and documents, except for Subparagraphs 1 to 4 which require opinion provided by lawyer, to find out if the foreign issuer applying for initial listing or its subordinate companies have failed to comply with the requirements.
For evaluations of lawyers under the first two paragraphs, the lawyers to be contacted may not be the same as the regular legal adviser to the issuing company or the lawyer or CPA appointed by the issuing company to complete the "Legal Matter Checklist for Share Listing Applied for by Issuer" and may not work for the firm that maintains a substantial cooperation relationship with such adviser, lawyer or CPA, so as to ensure independence of the lawyers' opinions.
When evaluating if directors and supervisors may independently perform their duties under Article 9, Paragraph 1, Subparagraph 9 and Article 28-4, Paragraph 3 of the Rules Governing Review of Securities Listings, the underwriter shall conduct an advanced evaluation on the independence of the independent directors. It shall further obtain the lists of directors and supervisors and minutes of meetings of the board of directors for the year of application and the most recent three years, and perform on-site observation to see if the formation is healthy, if the meetings convened are working effectively, if the important decisions or changes are well considered before they are made, if the procedures for submitting a proposal are reasonable, and describe its evaluation and results in a "securities underwriter evaluation report on initial listing."
When evaluating the establishment of the compensation committee under Article 9, Paragraph 1, Subparagraph 9 and Article 28-4, Paragraph 4 of the Rules Governing Review of Securities Listings, the underwriter shall obtain the organizational regulations of the compensation committee created by the issuing company, ascertain the professional qualifications of its members and obtain the meeting minutes of the committee, to assess if its formation is regular and compliant with requirements, if the members of the committee are independent, if the meetings convened are working effectively, if the proposals submitted are reasonable, and the discussions of the above proposals at the meetings of the board of directors, and describe its evaluation and results in a " securities underwriter evaluation report on initial listing."
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