REGULATIONS DRAFTED TO ENCOURAGE MERGERS OF SECURITIES HOUSES

09/01/1999

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The Securities and Futures Commission (SFC) recently drafted the Principles for the Review and Approval of Securities Firm Mergers (the Review Principles). The Review Principles will soon be announced and implemented, and are intended to encourage securities firms to merge. The Review Principles emphasize confidentiality in the course of mergers in order to prevent firms from taking advantage of merger news to influence share prices, and to prevent insider trading.

Under the Review Principles, securities firms must complete a 15-stage plan prior to entering into mergers. These stages are:

planning a merger strategy;

seeking the target company;

assessing the risk;

deciding a price;

obtaining approval of the board of directors;

reporting and notifying competent authorities;

signing the merger agreement;

obtaining approval of a special resolution at a meeting of shareholders;

notifying and making public announcement to creditors;

convening a meeting of shareholders or founders;

effecting the merger registration;

publishing financial forecasts;

filing consolidated income tax return;

applying for approval for merger; and

reorganizing the company after the merger is completed.

Among these 15 stages, the SFC feels that three items are of utmost importance for securities firms involved in mergers: i.e.

company's directors may not disregard their fiduciary duties toward the company;

shareholders who oppose a merger may exercise their right to demand purchase of their shares by the company; and

only those companies with sales revenue exceeding NT$5 billion for the prior accounting year need to apply for merger approval.