TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Derrick Yang, Yu-Ting Su and Rose Huang, Lee and Li Attorneys-at-Law
break fees, match rights, force-the-vote provisions, non-solicitation, etc) will be subject to the parties’ negotiation. In the event that the principal shareholder is also a director of the target company, a fiduciary-out provision will often be included. 7.6 Acquiring Less Than 100% The Taiwan Company Act prescribes a set of matters requiring a majority (majority vote of those in attend - ance, with a quorum of one-half present) or super - majority (majority vote of those in attendance, with a quorum of two-thirds present) approval at a share - holders’ or board meeting. Moreover, except for the voting agreement among the shareholders during the deal process, the Company Act generally prohibits shareholder voting agreements on a public company’s governance matters. Hence, except for the sharehold - ers’ rights prescribed by the law, the minority private equity bidder generally has no governance rights over the target company by a shareholders’ agreement. A private equity-backed bidder may not be able to achieve a debt push-down following a success - ful offer, as a public company is bound by stringent financial and accounting rules as well as governance requirements. In practice, take-privates in Taiwan may be imple - mented through a two-stage process: (i) the bidder acquires over a certain level (such as two-thirds) of the shares via tender offer; and (ii) a back-end merger or share swap between the bidder (or its vehicle) and the target company. The minority shareholders will be squeezed out as a result of the second step merger or share swap. In such case, dissenting shareholders may exercise their statutory appraisal right against the target company for the court to adjudicate the fair market value of the shares being cashed out. 7.7 Irrevocable Commitments While the courts of Taiwan do not deem all voting agreements to be valid, the Business Mergers and Acquisitions Act allows shareholders to enter into a written agreement on the joint exercise of their voting rights and related matters when a company enters into a merger or acquisition. In practice, agreements under which the major shareholders commit to vote in favour of the deal at the shareholders’ meeting and
to tender shares are common. Negotiations on such agreements and transaction documents are usually undertaken concurrently. The undertakings usually include irrevocable commitments to tender or vote by principal shareholders of the target company, typi - cally contingent on obtaining approvals of the board meeting and/or competent authorities. However, the manager shareholders would require a fiduciary-out if a better offer is made. 8. Management Incentives 8.1 Equity Incentivisation and Ownership Offering equity incentives to management teams can be considered a common practice in Taiwan, with the Company Act and the Securities and Exchange Act providing the necessary framework for implementa - tion. Either the Taiwanese company or an offshore holding company may provide equity incentives to streamline the holding structure. Equity incentives are typically implemented after the transactions, tailored to and rolled out as per the spe - cific needs of the private equity. The options avail - able for equity incentives, as prescribed under the Company Act and the Securities and Exchange Act, include profits distributed as shares, employee treas - ury stocks, employee stock options and restricted stock units. Additionally, companies may negotiate phantom stock arrangements with their employees. For stocks issued by an offshore holding company, in general, the offering of securities issued by an off - shore company under a global omnibus employee stock option plan to specific employees in Taiwan will not be deemed an offering to non-specific persons, which is exempted from the regulations on public In management buyout (MBO) transactions, the cur - rent management team of a company buys out a majority of the shares from existing shareholders to gain control of the company. When the MBO involves the direct purchase of issued shares, management will less likely face conflict of interest. However, if the MBO involves a share swap, directors who are also offerings and issuance of securities. 8.2 Management Participation
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