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1     These Rules for Information to be Published in Evaluation Reports are formulated specifically to ensure that securities underwriters conduct the work of evaluating securities offering and issuance cases in a uniform manner, and to strengthen the functions of underwriters.
1-1     Underwriters shall comply with these Rules when advising an issuer on the offering and issuance of securities, with the exception of underwriting cases involving an offering of beneficial interest securities by a trustee institution or a public offering of asset-backed securities by a special purpose company, and also with the exception of cases involving an offering of beneficial interest securities of a real estate asset trust by a trustee institution.
2     Underwriter evaluation reports shall be prepared in accordance with the following principles:
  1. The content of the underwriter's evaluation report must be detailed, truthful, clear, and unambiguous, and the wording must be concise and easy to understand. Figures and tables may be attached if necessary by way of explanation. In addition, the report may not contain misrepresentations or nondisclosures, and it shall be up to date.
  2. In evaluating an issuer's filing, 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 the directors, managerial officers, and other relevant personnel; collection of relevant records, organization of such records, verification of their accuracy, and comparative analysis; 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:
    1. 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.
    2. The working papers shall clearly indicate the evaluation procedures implemented and the conclusions reached as a result.
    3. Evaluation personnel and relevant secondary review personnel shall sign the working papers to declare their responsibility therefor.
    4. The working papers shall be kept on record at least five years for reference.
  3. When the underwriter provides records for the issuer's financial and business operations in the preceding fiscal year, it shall incorporate into these records the financial data from most recent period of the fiscal year of the filing, and it shall state whether the data are CPA audited and certified (or reviewed), or whether they are the issuer's own unaudited figures. The term "financial report" as used in connection with these evaluation reports means a consolidated financial report prepared pursuant to the applicable regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry. However, if the issuer does not have a subsidiary, it means the individual financial report so prepared.
  4. The underwriter may, depending on the nature of the issuer's business, hire specialists with professional knowledge and long experience in technical, business, and financial matters to carry out a comparative analysis of the issuer's current operational status versus its development after the current securities offering and provide an independent and impartial review opinion to assist the evaluation.
    When an expert is to be hired to provide a review opinion, the expert's professional qualifications shall be evaluated to determine whether he or she has sufficiently reliable technical mastery and expertise. The expert's objectivity shall also be considered. When an expert's review opinion is to be used as a basis of evaluation, an evaluation shall be made to determine the appropriateness of the expert's information sources, assumptions, and methods, and whether they have been applied consistently.
    An expert's review opinion only serves as reference for the underwriter in preparing its evaluation report, and should not be mentioned in the evaluation report. The underwriter shall still carry out a comprehensive evaluation of the expert's review opinion along with other sufficient and pertinent supporting information collected, provide concrete conclusions, and bear final responsibility for the evaluation.
  5. During the period beginning from the date of the CPA audited and certified (or reviewed) balance sheet for the most recent fiscal period, and continuing until the day before printing of the prospectus, if any of the circumstances specified in the subparagraphs of Article 36, paragraph 3 of the Securities and Exchange Act arise with respect to the issuer, all such circumstances shall be disclosed and any effects on shareholders' equity or securities prices shall be estimated.
  6. All items that are legally required in underwriter evaluation reports shall be included, and a table of contents with page numbers shall be compiled. In case there are no items for which evaluation is required, or there are items which may be exempted from evaluation, the words "none" or "not applicable" shall be indicated after such items.
  7. The term "over-the-counter company" in these Rules means a company whose stock has been approved, in accordance with Article 3 or Article 3-1 of the Taipei Exchange (TPEx) Regulations Governing Review of Securities Traded on Over-the-Counter Markets, to be traded on over-the-counter markets.
3     With respect to cash capital increase through a new share issue (including preferred shares with warrants), or with respect to the issuance of convertible corporate bonds or corporate bonds with warrants, an evaluation report shall expressly set forth or evaluate the following matters:
  1. 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 issuer is filing to register for offering, the offering procedures, the advisory and evaluation procedures adopted by the underwriter, and the statutory and/or regulatory basis therefor. 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 Securities Issuers and other applicable acts and regulations, whether its plan shows feasibility and necessity, and whether the capital allocation plan, the projected timetable, and the expected benefits are reasonable. The responsible person of the underwriter, and the supervisor of the underwriting department that issued the evaluation opinion, shall jointly sign the concluding opinion (format as per the attached Table 1-1).
    If a situation arises with respect to the 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.
  2. A synopsis of the evaluation report, including at least an industry overview, the issuer's competitive position and operational risk, and the return on capital raised through the offering and issuance of securities for the most recent period and for the most recent 3 fiscal years.
  3. Collect information on the following items pertaining to the issuer's operating and financial status, and explain procedures for the audit thereof and the conclusion reached:
    1. Operating status:
      1. An analysis of changes in the company's main customers and suppliers (the top 10 for a given fiscal year, or those accounting for 5 percent or more of net operating revenues or net purchasing for a given fiscal year) in the financial reports for the most recent period and for the most recent 3 fiscal years. It is required to list the name of each main customer for the most recent period and for the most recent 3 fiscal years, the dollar amount of each one's purchases, and the share of fiscal year operating revenues contributed by each. The report shall explain the reason for changes in main customers, analyze the reasonableness thereof and whether there is any risk of sales becoming concentrated, and briefly state the issuer's sales policy. It is also required to list the name of each main supplier for the most recent period and for the most recent 3 fiscal years, the percentage of net purchasing sourced from each one in a given fiscal year, and the dollar amount in each case. The report shall analyze the reason for changes in the main suppliers (format as per the attached Tables 2 and 3), provided that where it is contractually stipulated that the name of a customer may not be disclosed, or where a trading counterparty is an individual and a non-related party, a code may be substituted for the name.
      2. With respect to the issuer's financial reports and parent company only financial reports for the most recent period and for the most recent 2 fiscal years , the reports shall provide an evaluation of the reasonableness of changes in receivables, the adequacy of allowances for bad debts of the parent and the subsidiaries, and the likelihood of collection. It shall also provide a comparison against peers in the same industry.
      3. With respect to the issuer's financial reports and parent company only financial reports for the most recent period and for the most recent 2 fiscal years, the reports shall provide 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 for losses on obsolete and slow-moving inventory of the parent and the subsidiaries. It shall also provide a comparison against peers in the same industry.
      4. Indicate the issuer's business performance in the financial reports for the most recent period and for the most recent 3 fiscal years:
        1. List in table form figures for operating revenues, gross income, and operating income in the financial reports for the most recent period and for the most recent 3 fiscal years, and explain how they compare with figures for peers in the same industry (format as per the attached Table 4).
        2. List in table form figures for operating revenue, operating costs, and gross operating profit in the financial reports for the most recent period and for the most recent 3 fiscal years, breaking the figures down by department and principal products, and explain whether changes in the figures are reasonable (format as per the attached Table 5).
        3. Where there is a change of 20 percent or more in the operating revenue or gross operating profit in the financial reports for the most recent period and for the most recent 3 fiscal years, the report shall include a price/volume analysis of the reason for the change, and shall state whether the change is reasonable (format as per the attached Table 6).
      5. An evaluation of transactions by the issuer and each of its subsidiaries with related parties (including parent-subsidiary transactions) for the most recent 3 fiscal years and the current fiscal year up through the issue date of the underwriter's evaluation report:
        1. Examine the circumstances of inter-company business transactions with related parties to evaluate whether they have been involved in non arms-length transactions. Where it is a sale to a related party, evaluate the credit policy, transaction terms and conditions, collection of payment, the related party's post-purchase use of the product for production or resale, and the reasonableness thereof. If the transaction differs from the customary rules applying to ordinary transactions, explain the reason for and reasonableness of the difference.
        2. Examine 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 most recent 2 fiscal years) of the issuer and the affiliated enterprise are mutually competitive.
    2. Financial status:
      1. List the issuer's losses and/or profits and financial ratios as shown in the financial reports, either reviewed or audited and certified by a certified public accountant, for the most recent period and for the most recent 3 fiscal years, analyze changes, and compare against peers in the same industry (format as per the attached Tables 7 and 8).
      2. List any endorsements, guarantees, material commitments, loans of funds to others, derivatives transactions, and asset trades of material significance (including parent-subsidiary transactions) made by the issuer and each of its subsidiaries for the most recent period and for the most recent 3 fiscal years. Also, evaluate the impact thereof upon the company's financial status.
      3. List funds raised by the issuer during the most recent period and for the most recent 3 fiscal years, and changes in earnings per share over that same period.
      4. When the purpose of the current capital raising plan is to repay debt or to increase working capital, if, according to the statement of projected cash receipts and expenditures, in the future there will be major capital expenditures and long-term equity investments whose combined amount equals 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 in connection with cash capital increase, merger or acquisition, or acquisition of shares from another company, or to issue corporate bonds, to the present filing date, and the previous plan was for purposes of raising capital for debt repayment or increasing working capital, list the status of achievement of the anticipated benefits of the major capital expenditures and long-term equity investments in the above-mentioned statement of projected cash receipts and expenditures.
      5. List anything else unusual concerning the issuer's financial status.
  4. Collect information on each of the issuer's previous plans 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 procedures for the audit thereof and the conclusion reached:
    1. Indicate the status of implementation 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 implementation of a plan lags behind the intended schedule, [the underwriter] shall concretely evaluate the reasonableness of the reason(s) for the delay, state its impact on shareholders' equity, and indicate whether there is a concrete plan to make improvements.
    2. If a 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, the report shall describe 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.
    3. Among previous plans 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 have been completed, where not more than three years passed between the filing date and the actual completion date, the report shall indicate whether the originally expected benefits actually materialized. Where the results of implementation did not meet the intended target, the report shall concretely evaluate the reasonableness of the reason(s) for the delay and state its impact on shareholders' equity.
    4. If the issuer has previously issued corporate bonds or taken on long-term debt, the report shall indicate whether principal and interest has been returned on schedule, and shall note whether, in the contact entered into in connection therewith, there are any material restrictive covenants applying to the company's current financial status, operating status, or other matters. The report shall also note whether the company has experienced any cash flow difficulties during the most recent period and for the most recent 3 fiscal years.
    5. 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?
  5. Collect information on the legality of the current plan to offer and issue securities, and explain procedures for the audit thereof and the conclusion reached:
    1. Indicate whether any of the circumstances set out in Article 13, paragraph 1, subparagraph 2 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers exists (format as per the attached Table 9). If any of them do exist, the report shall provide, as appropriate given the nature of the case, a detailed evaluation of the impact of each of the items set out in the attached Table 9-1 upon the issuer's financial status, and shall indicate whether each such item will affect the current offering and issuance of securities.
    2. Indicate whether any of the circumstances set out in Article 7 or 8 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers exists (format as per the attached Table 10 and Table 11).
    3. (Deleted)
    4. Indicate compliance or lack thereof with the provisions of the Taiwan Securities Association's Self-regulatory Rules Governing the Provision of Advisory Services by Underwriter Members to Issuing Companies Offering and Issuing Securities.
    5. Legal compliance and its impact on company operations
      1. Indicate compliance or lack thereof with Article 130; Article 156, paragraph 7; Article 167, paragraphs 3 and 4; Article 246; Article 247; and Article 278 of the Company Act, as well as Article 28-4 of the Securities and Exchange Act. Confirm also the non-existence of any of the circumstances set out in Articles 249, 250, 269, and 270 of the Company Act.
      2. Indicate whether the circumstances set out in any of the subparagraphs in Article 156, paragraph 1 of the Securities and Exchange Act exist with respect to the issuer.
      3. List any material litigation, non-litigious matters, or administrative disputes which were pending during the most recent 3 fiscal years up through the date of printing, and which involved the issuer or any of its current directors, supervisors, major shareholders with a stake of 10 percent or more, or responsible persons, or the issuer's general manager or de facto responsible person, or a controlled company.
      4. Indicate whether the issuer or any current director, supervisor, or responsible person, or the issuer's general manager or de facto responsible person, has been found guilty by a court of a crime carrying a fixed prison term or a sentence of greater severity during the most recent 3 fiscal years up through the date of printing.
      5. List any supply/sales contracts, technology cooperation contracts, engineering contracts, construction contracts, or other material contracts made by the issuer and each of its subsidiaries which could affect the rights and interests of investors and which are either currently in force or have expired in the most recent fiscal year.
      6. Indicate whether the issuer or any of its subsidiaries has been involved in any labor disputes or environmental pollution incidents of material significance.
      7. Where the issuer's capital allocation requires approval by the competent authority in charge of the relevant industry, indicate whether any terms or conditions attached to the approval have an effect on this offering and issuance of securities. If the underwriter hires a lawyer to provide a legal opinion needed to carry out any of the evaluations set out in the preceding paragraph, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
        1. Has a legal services retainer agreement with the issuer; is the same person as either the lawyer that the issuer hired to complete a Checklist of Legal Issues for the offering, or the certified public accountant hired to certify the issuer's financial report for the most recent period; or belongs to a firm with which the issuer has a substantive relationship of cooperation.
        2. Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
        3. One of the following relationships exists between the lawyer, on the one hand, and the issuing company, the certified public accountant who certified the issuer's financial report for the most recent period, or the lead underwriter:
          1. Are related parties as defined under the applicable regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry.
          2. Are otherwise related to one another under a law or regulation, or there are sufficient facts to prove that one such party otherwise directly or indirectly controls the handling of another such party's personnel, financial, or business affairs.
    6. Provide a statement affirming that neither of the descriptions set out in sub-items II and III of Point 3.5.E.g applies to any lawyer hired by the issuer to complete a Checklist of Legal Issues or furnish a legal opinion for the case.
  6. Collect information showing whether the current plan to offer and issue securities is feasible, necessary, and reasonable, and explain procedures for the audit thereof and the conclusion reached (however, the provision regarding "necessity" need not apply in cases of an emerging-stock company conducting a cash capital increase through a new share issue for the purpose of public sale prior to initial listing on a stock exchange or OTC market, or of an OTC-listed company applying to transfer its listing to a stock exchange (or of an exchange-listed company applying to transfer its listing to an OTC market) that conducts a cash capital increase through a new share issue for the purpose of dispersion of equity):
    1. With respect to the current plan to offer and issue securities, indicate whether the capital allocation plan, the projected timetable, and the expected benefits are reasonable.
    2. Analyze and compare the possible impact of different funds sources upon the issuer during the current fiscal year in terms of dilution of earnings per share, financial burden, and dilution of equity, and also in terms of effect upon shareholders' equity.
      If the issuer is carrying out the offering under the conditions set out in Article 6, paragraph 2, subparagraph 2 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, it may limit its evaluation to the question of how the issue of new shares will dilute earnings per share during the fiscal year in which the new shares are issued.
    3. If the current plan to offer and issue securities calls for the proceeds to be used for equity investments, debt servicing, replenishment of working capital, purchase of land for construction, or construction costs, or to purchase an unfinished project while assuming the seller's unperformed contract, indicate whether the plan is necessary and reasonable.
    4. If the current capital increase plan does not involve a cash contribution, indicate whether the amount of the contribution is reasonable and whether the acquisition of assets is necessary.
    5. If the current capital increase plan is to be carried out in conjunction with a capital decrease plan, evaluate the feasibility and reasonableness of the following:
      1. The reason for any losses, any plans for corrective action, and the impact of the capital decrease upon the issuer's financial and operating status as well as shareholders' equity. If there are plans to introduce a new management team or enter into a strategic alliance with another company, describe how this will improve the issuer's operations and profitability.
      2. The content of the plans for capital decrease and increase.
      3. The impact on the issuer's net worth per share and earnings per share both before and after capital decrease and increase.
      4. If the issuer has suffered a deficit not related to any downturn in the industry or in the overall economy, indicate whether it has acted in accordance with legal requirements by hiring a CPA or instituting internal control measures to carry out a special audit, and whether it has furnished a corrective action plan in response to any shortcomings noted. Indicate the status of any such plan's implementation.
    6. Where a cash issue of new shares is being carried out at below par value, evaluate the reason for and reasonableness of not using other cash raising methods, the method for setting the issue price, and any effect on shareholders' equity.
    7. Where the issuer has filed for registration of the securities offering and issuance with the Financial Supervisory Commission (FSC) and the issuance rules have been flexibly adopted in accordance with legal provisions, indicate whether the following matters have been evaluated:
      1. Where an exchange-listed (or OTC-listed) company carries out a cash capital increase through the issue of common shares and existing shareholders do not waive their preemptive rights, if allocation is carried out by means of public subscription, it shall be specified that the preliminary issue price and the actual issue price due to market fluctuation must be adjusted in accordance with Article 6, paragraph 1 of the Self-regulatory Rules Governing the Provision of Advisory Services by Underwriter Members to Issuing Companies Offering and Issuing Securities. The report shall also state how undersubscription will be handled and, in the event the amount of raised funds is increased, how the funds will be used as well as the expected benefits, legality, and reasonableness thereof.
      2. Where an exchange-listed (or OTC-listed) company is to carry out a cash capital increase and its board of directors has resolved to waive the preemptive rights of all shareholders, and all shares are to be underwritten by means of book building or competitive auction, it shall be specified that the preliminary issue price, the volume interval, and the actual issue price due to market fluctuation must be adjusted in accordance with 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 report shall also state how undersubscription will be handled or, in the event the amount of raised funds is increased, how the funds will be used as well as the expected benefits, legality, and reasonableness thereof, and whether the preliminary volume interval is compliant with Article 278 of the Company Act.
      3. Where the issuer is filing with the FSC for an initial listing on an exchange (or OTC market) by means of a cash capital increase through the issue of common shares, a preliminary price shall be set in a reasonable manner. The report shall also state how to handle any undersubscription due to fluctuation in the actual issue price or, in the event the amount of raised funds is increased, how the funds will be used as well as the expected benefits, legality, and reasonableness thereof.
      4. Where corporate bonds are undersubscribed, it is necessary to indicate the reasonableness of how the undersubscription is to be handled.
  7. Where the issuer files for registration of issuance of Renminbi-denominated bonds, it 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 and the method for raising funds in Renminbi.)
  8. With respect to the current issue of preferred shares with warrants, or of preferred shares and stock warrants detached from preferred shares with detachable warrants, and the exercise rules applying thereto, collect information on the reasonableness of each item listed below and the impact of each upon the rights and interests of existing holders of preferred shares with warrants, and explain audit procedures and the conclusion reached (if any of the below listed items is not contained in the issuance or exercise rules, indicate so with the words "not addressed"):
    1. The method for setting issue price, exercise price, and shares per warrant ratio.
    2. Ownership of dividends during the fiscal year of share subscription.
    3. Call provision.
    4. Restrictive covenants.
    5. Adjustment of the exercise price or the shares per warrant ratio.
    6. How warrant obligations will be satisfied.
    7. How shares will be paid for.
    8. Other important stipulations.
  9. With respect to the rules for the current issue (and conversion) of corporate bonds, collect information on the reasonableness of each item listed below and the impact of each upon the rights and interests of existing holders of convertible bonds, and explain procedures for the audit thereof and the conclusion reached (if any of the below-listed items is not contained in the issuance (or conversion) rules, indicate so with the words "not addressed"):
    1. The method for setting the issuance price and conversion price.
    2. Yield.
    3. Ownership of bond interest and dividends during the fiscal year of conversion.
    4. Call provision.
    5. Put feature.
    6. Restrictive covenants.
    7. Adjustment of the conversion price.
    8. How conversion obligations will be satisfied (whether by issuing new shares or delivering previously issued shares).
    9. Method for evaluating the various factors influencing the conditions of issuance (including a concrete description).
    10. Other important stipulations.
  10. With respect to the current issue of corporate bonds with warrants, or of corporate bonds and stock warrants detached from corporate bonds with detachable warrants, and the exercise rules applying thereto, collect information on the reasonableness of each item listed below and the impact of each upon the rights and interests of existing holders of corporate bonds with warrants, and explain procedures for the audit thereof and the conclusion reached (if any of the below listed items is not contained in the issuance or exercise rules, indicate so with the words "not addressed"):
    1. The method for setting the issue price, exercise price, and the shares per warrant ratio.
    2. Yield.
    3. Ownership of bond interest and dividends during the fiscal year of warrant exercise.
    4. Call provision.
    5. Put feature.
    6. Restrictive covenants.
    7. Adjustment of the exercise price or the shares per warrant ratio.
    8. How warrant obligations will be satisfied.
    9. How shares will be paid for (whether in cash or in bonds of the issuer).
    10. Method for evaluating the various factors influencing the conditions of issuance (including a concrete description).
    11. Other important stipulations.
  11. (Deleted)
  12. Collect information (specify whether there is any security and the types and value of any such security) pertaining to the safety of the current issue of corporate bonds with warrants, and explain audit procedures and the actual circumstances. If any assets pledged as security have been rated by a credit rating institution, obtain a list of such assets and their credit ratings.
  13. With respect to the imputed theoretical value of the current convertible corporate bonds, collect information pertaining to the factors listed in each of the following subparagraphs and explain procedures for the audit thereof and the conclusion reached (if any of the below listed items is not contained in the issuance or conversion rules, indicate so with the words "not addressed"):
    1. Coupon rate.
    2. Original maturity.
    3. Conversion price.
    4. Conversion period.
    5. Conversion price reset.
    6. Put feature.
    7. Call feature.
    8. Items incorporated into the discount factor (e.g. liquidity discount, bond credit risk).
    9. Standard deviation for annual rate of return on share prices.
    10. The reference share price to calculate the warrant exercise price.
    11. Other factors determining the issue price.
  14. With respect to the imputed theoretical value of the current corporate bonds with warrants and corporate bonds with detachable warrants, collect information pertaining to the factors listed in each of the following subparagraphs and explain procedures for the audit thereof and the conclusion reached (if any of the belowlisted items is not contained in the bond issuance or warrant exercise rules, indicate so with the words "not addressed"):
    1. Coupon rate.
    2. Original maturity.
    3. Exercise price
    4. Exercise period.
    5. Exercise price reset.
    6. Put feature.
    7. Call feature.
    8. Items incorporated into the discount factor (e.g. liquidity discount, bond credit risk).
    9. Standard deviation for annual rate of return on share prices.
    10. The reference share price used to calculate the warrant exercise price.
    11. Other factors determining the issue price.
  15. (Deleted)
  16. Collect information on other matters pertaining to the issuer for which supplementary explanation is required, and explain procedures for the audit thereof and the conclusion reached.
4     In the event of a merger-related issue of new shares for capital increase, the following items shall be listed or evaluated:
  1. The provisions of Point 3.1 shall apply mutatis mutandis to a merger-related issue of new shares for capital increase.
  2. Collect information on the following items pertaining to the target company's operating and financial status, and on the post-merger impact upon the issuer's financial and operating status, and explain procedures for the audit thereof and the conclusion reached:
    1. The circumstances of inter-company business transactions with related parties (including parent-subsidiary transactions) made by the target company and each of its subsidiaries for the most recent 3 fiscal years and the current fiscal year up through the issue date of the underwriter's evaluation report.
    2. Anything else unusual concerning the target company's financial status.
  3. Legal compliance and its impact on company operations
    1. Indicate whether the current merger-related issue of new shares for capital increase is compliant with Article 278, Article 316, and Article 317-1 of the Company Act. Confirm also the non-existence of any of the circumstances set out in Article 270 of the Company Act.
    2. Indicate whether the current merger-related issue of new shares for capital increase is compliant with Articles 53-1 to 53-8 of the Operating Rules of the Taiwan Stock Exchange Corporation (TWSE), or with Chapter II-1, Section 1 of the Taipei Exchange Rules Governing Securities Trading on Over-the-Counter Markets.
    3. Indicate whether the current merger-related issue of new shares for capital increase is compliant with the provisions of the Fair Trade Act.
    4. With respect to the target company, the provisions of items c and e of Point 3.5.E shall apply mutatis mutandis to a merger-related issue of new shares for capital increase.
    5. The provisions of Point 3.5.B shall apply mutatis mutandis to a merger-related issue of new shares for capital increase.
      If the underwriter hires a lawyer to provide a legal opinion needed to carry out any of the evaluations set out in the preceding paragraph, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
      1. Has a legal services retainer agreement with the issuer; is the same person as either the lawyer that the issuer hired to complete a Checklist of Legal Issues for the merger, or the certified public accountant hired to certify the issuer's financial report for the most recent period; or belongs to a firm with which the issuer has a substantive relationship of cooperation.
      2. Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
      3. One of the following relationships exists between the lawyer, on the one hand, and the issuer, the target company, the certified public accountant who certified the 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:
        1. Are related parties as defined under the applicable regulations governing the preparation of financial reports adopted by the competent authority for the relevant industry.
        2. Are otherwise related to one another under a law or regulation, or there are sufficient facts to prove that one such party otherwise directly or indirectly controls the handling of another such party's personnel, financial, or business affairs.
  4. Provide a statement affirming that neither of the descriptions set out in items b or c of Point 4.3.E applies to any lawyer hired by the issuer to complete a Checklist of Legal Issues or furnish a legal opinion for the case.
  5. 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 upon the issuer's financial and operating status, and explain procedures for the audit thereof and the conclusion reached:
    1. The purpose and procedures of the current merger, and the reasonableness thereof.
    2. The feasibility and necessity of the current merger plan, and the reasonableness of the merger's projected timetable.
    3. Explain the method and basis for setting of the share exchange ratio, and evaluate the reasonableness thereof.
    4. The issuer's plan for post-merger integration of financial matters, operations, personnel, and information, as well as the feasibility and reasonableness thereof.
    5. With respect to research, development, technology, production capacity, and profitability, evaluate the impact upon, and expected benefits to, financial matters, operations, and shareholders' equity over the three years following the merger, and the reasonableness thereof.
4-1     Where new shares are to be issued for the purpose of acquiring the shares of another company, the following items shall be listed or evaluated:
  1. The provisions of Point 3.1 shall apply mutatis mutandis to the issue of new shares for the purpose of acquiring the shares of another company.
  2. Collect information on the following items pertaining to the financial and operating status of the company whose shares are to be acquired, and on the impact of the share acquisition upon the issuer's operations and financial matters, and explain procedures for the audit thereof and the conclusion reached:
    1. The circumstances of inter-company business transactions with related parties (including parent-subsidiary transactions) by the company whose shares are to be acquired and each of its subsidiaries for the most recent 3 fiscal years and the current fiscal year up through the issue date of the underwriter's evaluation report.
    2. Anything else unusual concerning the financial status of the company whose shares are to be acquired.
  3. Legal compliance and its impact on company operations
    1. Indicate compliance or lack thereof with Article 156, paragraph 8, and Article 278, paragraph 1, of the Company Act. Confirm also the non-existence of any of the circumstances set out in Article 270 of the Company Act.
    2. With respect to the company whose shares are acquired, the provisions of items c and e of Point 3.5.E shall apply mutatis mutandis to the issue of new shares for the purpose of an acquisition.
    3. The provisions of Point 3.5.B shall apply mutatis mutandis to an issue of new shares for the purpose of acquiring the shares of another company.
      If the underwriter hires a lawyer to provide a legal opinion needed to carry out any of the evaluations set out in the preceding paragraph, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
      1. Has a legal services retainer agreement with the issuer; is the same person as either the lawyer that the issuer hired to complete a Checklist of Legal Issues for the share acquisition, or the certified public accountant hired to certify the issuer's financial report for the most recent period; or belongs to a firm with which the issuer has a substantive relationship of cooperation.
      2. Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
      3. One of the following relationships exists between the lawyer, on the one hand, and the issuer, the company whose shares are to be acquired, the certified public accountant who certified the issuer's financial report for the most recent period, the independent expert who furnished an opinion regarding the fairness of the share exchange ratio, or the lead underwriter:
        1. Are related parties as defined under the applicable regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry.
        2. Are otherwise related to one another under a law or regulation, or there are sufficient facts to prove that one such party otherwise directly or indirectly controls the handling of another such party's personnel, financial, or business affairs.
  4. Provide a statement affirming that neither of the descriptions set out in items b or c of Point 4-1.3.C applies to any lawyer hired by the issuer to complete a Checklist of Legal Issues or furnish a legal opinion for the case.
  5. Collect information on the following items pertaining to the reasonableness of the current issue of new shares for the purpose of acquiring the shares of another company, and on the post-acquisition impact of the share acquisition upon the issuer, and explain procedures for the audit thereof and the conclusion reached:
    1. The purpose and procedures of the current issue of new shares for the purpose of acquiring the shares of another company, and the reasonableness thereof.
    2. The feasibility and necessity of the current issue of new shares for the purpose of acquiring the shares of another company, and the reasonableness of the projected timetable.
    3. Explain the method and basis for setting of the share exchange ratio, and evaluate the reasonableness thereof.
    4. With respect to research, development, technology, production capacity, and profitability, evaluate the impact and expected benefits over the three years following the issue of new shares for the purpose of acquiring the shares of another company upon financial matters, operations, and shareholders' equity, and the reasonableness thereof.
4-2     Where new shares are to be issued in connection with an acquisition or demerger conducted in accordance with law, the following items shall be listed or evaluated:
  1. The provisions of Point 3.1 shall apply mutatis mutandis to an issue of new shares in connection with an acquisition or demerger conducted in accordance with law.
  2. Collect information on the following items pertaining to the financial and operating status of the target company of the acquisition or the division to be demerged, and on the post-acquisition or post-demerger impact upon the issuer's financial and operating status, and explain procedures for the audit thereof and the conclusion reached:
    1. The circumstances of inter-company business transactions with related parties (including parent-subsidiary transactions) by the acquisition target or the division to be demerged and each of its subsidiaries for the most recent 3 fiscal years and the current fiscal year up through the issue date of the underwriter's evaluation report.
    2. Anything else unusual concerning the financial status of the acquisition target or division to be demerged.
  3. Legal compliance and its impact on company operations
    1. Indicate whether the current issue of new shares in connection with an acquisition or demerger conducted in accordance with law is compliant with Articles 8, 28, 29, and 32 or Articles 32 and 30 or Article 33 of the Business Mergers and Acquisitions Act, and whether any of the circumstances set out in Article 278, paragraph 1, of the Company Act exist.
    2. 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 53-19 to 53-29 of the TWSE Operating Rules or Chapter II-1, Sections 2, 3, or 4 of the Taipei Exchange Rules Governing Securities Trading on Over-the-Counter Markets, as appropriate.
    3. Indicate whether the current issue of new shares in connection with an acquisition or demerger conducted in accordance with law is compliant with the provisions of the Fair Trade Act.
    4. With respect to the acquisition target or division to be demerged, the provisions of items c and e of Point 3.5.E shall apply mutatis mutandis to an issue of new shares in connection with an acquisition or demerger conducted in accordance with law.
    5. The provisions of Point 3.5.B shall apply mutatis mutandis to an issue of new shares in connection with an acquisition or demerger conducted in accordance with law.
      If the underwriter hires a lawyer to provide a legal opinion needed to carry out any of the evaluations set out in the preceding paragraph, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
      1. Has a legal services retainer agreement with the issuer; is the same person as either the lawyer that the issuer hired to complete a Checklist of Legal Issuers for the acquisition or demerger, or the CPA hired to certify the issuer's financial report for the most recent period; or belongs to a firm with which the issuer has a substantive relationship of cooperation.
      2. Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
      3. One of the following relationships exists between the lawyer, on the one hand, and the issuer, the target company of the acquisition, the certified public accountant who certified the issuer's financial report for the most recent period, the independent expert who furnished an opinion regarding the reasonableness of the exchange price, or the lead underwriter:
        1. Are related parties as defined under the applicable regulations issued by the competent authority to govern the preparation of financial reports for the relevant industry.
        2. Are otherwise related to one another under a law or regulation, or there are sufficient facts to prove that one such party otherwise directly or indirectly controls the handling of another such party's personnel, financial, or business affairs.
  4. Provide a statement affirming that neither of the descriptions set out in items b or c of Point 2.3.E applies to any lawyer hired by the issuer to complete a Checklist of Legal Issues or furnish a legal opinion for the case.
  5. 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 issuer, and explain procedures for the audit thereof and the conclusion reached:
    1. The purpose and procedures of the current acquisition or demerger conducted in accordance with law, and the reasonableness thereof.
    2. The necessity of the current acquisition or demerger conducted in accordance with law, and the reasonableness of the projected timetable for the acquisition or demerger.
    3. Explain the method and results of the valuation of operations or assets used as payment, as well as the method and basis for calculation of the share exchange ratio, and evaluate the reasonableness thereof.
    4. The issuer's plan for integration of financial matters, operations, personnel, and information after the issue of new shares in connection with an acquisition or demerger conducted in accordance with law, as well as the feasibility and reasonableness thereof.
    5. With respect to research, development, technology, production capacity, and profitability, evaluate the impact upon, and expected benefits to, financial matters, operations, and shareholders' equity over the three years following the issue of new shares in connection with acquisition or demerger conducted in accordance with law, and the reasonableness thereof.
    6. Other important stipulations pertaining to the plan for issuance of new shares in connection with an acquisition or demerger conducted in accordance with law.
5     In the event of incorporation by a public offering, the following items shall be listed or evaluated:
  1. A concluding opinion from the underwriter, to be divided into at least two sections. The first section shall describe the procedures of the incorporation by offering and the advisory and evaluation procedures adopted by the underwriter, and the statutory and/or regulatory basis therefor. The second section shall explain the opinions expressed by the underwriter concerning whether the current incorporation by offering complies with the Regulations Governing the Offering and Issuance of Securities by Securities Issuers and other applicable acts and regulations, whether the business plan furnished this time by the issuer shows feasibility and necessity, and whether the capital allocation plan, the projected timetable, and the expected benefits are reasonable (format as per the attached Table 1-2).
    If a situation arises with respect to the issuer that could affect its incorporation by offering, between the two aforementioned sections there shall be added a middle section that explains simply and clearly the relevant material facts.
  2. Collect information on preparations for the company's establishment (including the reason for the incorporation by offering, an analysis of the makeup of the promoters, dispersion of equity, and the shareholdings of related parties), and explain procedures for the audit thereof and the conclusion reached.
  3. Determine which agency is the authority with jurisdiction over the line of business to be operated, list the main applicable laws and regulations, note the qualifications requirements for the promoters, then evaluate the impact of these matters on company operations and possible response measures, and describe the factors affecting the current offering and issuance of securities.
    If the underwriter hires a lawyer to provide a legal opinion needed to carry out any of the evaluations set out in the preceding paragraph, the underwriter shall provide a statement affirming that none of the following descriptions applies to the lawyer:
    1. The lawyer has a legal services retainer agreement with the issuer; is the same person as either the lawyer that the issuer hired to complete a Checklist of Legal Issues for the establishment by offering, or the certified public accountant hired to certify the issuer's financial report for the most recent period; or belongs to a firm with which the issuer has any substantive relationship of cooperation.
    2. Has been disciplined by the Ministry of Justice Lawyer Discipline Committee during the past year.
    3. One of the following relationships exists between the lawyer, on the one hand, and the issuer, the certified public accountant who certified the issuer's financial report for the most recent period, or the lead underwriter:
      1. Are related parties as defined under the applicable regulations governing the preparation of financial reports adopted by the competent authority for the relevant industry.
      2. Are otherwise related to one another under a law or regulation, or there are sufficient facts to prove that one such party otherwise directly or indirectly controls the handling of another such party's personnel, financial, or business affairs.
  4. Provide a statement affirming that neither of the descriptions set out in item B or C of 5.3 applies to any lawyer hired by the issuer to complete a Checklist of Legal Issues or furnish a legal opinion for the case.
  5. Collect information on current conditions and development trends in the issuer's industry and explain procedures for the audit thereof and the conclusion reached.
  6. Collect information on the issuer's business plan and explain procedures for the audit thereof and the conclusion reached:
    1. Indicate the method by which the business operations plan was formulated, the procedures, source of information, and references.
    2. Indicate the reasonableness and feasibility of the content of the business plan:
      1. Scope of business: Indicate the main products or lines of business, and whether the business to be operated complies with statutory and regulatory requirements.
      2. Principles of business management: Indicate business management principles and policies, and the riskiness, growth potential, and feasibility thereof.
      3. Business development plan: Indicate long- and short-term business development plans, the main target market(s), competition strategy, and the likelihood of success therewith.
      4. Concrete plan for implementation:
        1. Facilities at the place of business: Indicate the factors taken into consideration in choosing the place of business and factory address, the method for deciding the transaction price, and the reasonableness thereof.
        2. Indicate the educational background of the principal managerial officers, and whether they meet legal requirements.
        3. Organizational structure: Indicate the functions and duties as well as the segregation of authority and duties of each of the main departments, the reasonableness and feasibility thereof, and whether they will enhance economic returns.
        4. Human resources plan: Indicate human resource needs, the method for recruiting employees, and employee development, training, promotion, transfer, evaluation, salary systems, and fringe benefits, and the reasonableness thereof.
        5. Indicate the items in the financial plan and the capital allocation plan, and the reasonableness thereof.
      5. Indicate the business plan, production/sales plan, and financial forecasts for the forthcoming fiscal year, the reasonableness thereof, and the likelihood of success therewith.
      6. Indicate whether there have been any major asset transactions, loans, endorsements, guarantees, or other transactions with related parties (including parent-subsidiary transactions) by the issuer and each of its subsidiaries for the most recent year (format as per the attached Table 13).
      7. Indicate any other matters for which supplementary explanation is required.
6     In the event a holder of securities makes a secondary public offering to unspecified persons, the following items shall be listed or evaluated:
  1. A concluding opinion from the underwriter, to be divided into at least two sections. The first section shall describe the procedures of the establishment by offering and the evaluation procedures adopted by the holder of the securities, and the statutory and/or regulatory basis therefor. The second section shall explain the opinions expressed by the underwriter concerning whether the current secondary public offering complies with the Regulations Governing the Offering and Issuance of Securities by Securities Issuers and other applicable acts and regulations, whether the setting of the price has been fully explained, and whether the motivation and purpose are reasonable (format as per the attached Table 1-3).
    If a situation arises with respect to the securities holder or the issuer that could affect the secondary public offering, between the two aforementioned sections there shall be added a middle section that concisely and clearly explains the relevant material facts.
  2. Collect information on current conditions and development trends in the issuer's industry and explain procedures for the audit thereof and the conclusion reached.
  3. Collect information on the following items pertaining to the issuer's operating and financial status:
    The provisions of Point 3.5.B shall apply mutatis mutandis to the secondary public offering.
  4. (Deleted)
  5. Collect information on the reasonableness and feasibility of the following matters relating to the current secondary public offering, and explain procedures for the audit thereof and the conclusion reached:
    1. The method for setting the price of the current secondary public offering.
    2. The motivation and purpose of the current secondary public offering.
    3. Indicate whether any of the circumstances set out in Article 65 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers exist (format as per the attached Table 14).
    4. (Deleted)
    5. Any trading by the securities holder of the securities in question for the most recent 3 fiscal years and the current fiscal year up through the issue date of the underwriter's evaluation report.
    6. The impact of the current secondary public offering upon securities markets and the issuer's share price.
  6. Collect information on any other matters for which supplementary explanation is required, and explain procedures for the audit thereof and the conclusion reached.
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.
8     These Rules shall be implemented after being approved by the Board of Trustees and filed with the FSC for approval and/or recordation. The same applies to any amendments. Where a new table is added to the tables attached to these Rules for Information to be Published in Evaluation Reports, or where a table is deleted or amended, the change will be implemented after it has been approved by the Board of Trustees of the Taiwan Securities Association.