|United Microelectronics Corporation
3F, No. 76 Tunhwa South Road
Taipei, Taiwan, R.O.C.
|Siliconware Precision Industries Corporation
No. 123, Sec. 3, Da Fong Rd.
Section 2 Tantzu, Taichung
December 3, 2001
Re: Securities Act Release No. 33-8016
Exchange Act Release No. 34-44868
International Series Release No. 1250
File No. S7-18-01
Securities and Exchange Commission
450 5th Street, N.W.
Mail Stop 6-9
Washington, D.C. 20549-0609
Attn: Jonathan G. Katz, Secretary
E-mail address: firstname.lastname@example.org
Ladies and Gentlemen:
This letter is submitted jointly by United Microelectronics Corporation ("UMC") and Siliconware Precision Industries Co., Ltd. ("SPIL" together, the "Commenting Issuers"), both incorporated under the laws of the Republic of China, also referred to as Taiwan or R.O.C., in response to the request for comments in release Nos. 33-8016 and 34-44868 and International Series Release No. 1250 dated September 27, 2001 (the "Proposed Rule"), regarding the mandated EDGAR filing for foreign issuers by the Securities and Exchange Commission (the "Commission").
In general, we agree with the Commission's view that electronic filing for foreign issuers will provide investors better access to important information. However, we would like to raise a few concerns with regards to the Proposed Rule. Our comments relate principally to the impact of the proposed amendments on foreign issuers who are reporting companies pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Specifically, we would like to address the following:
I. The Cost and Benefit Analysis of the Requirements for Full Translations of Foreign Language Documents and Accompanying Representations by Requirements for Officers of the Foreign Issuers Pursuant to Proposed 17 CFR Sections 230.403(c), 240.12b-12(d)(1)&(3), and 232.306(a)&(c) Would Weigh Against the Adoption of Such a Proposal.
Under the proposed amendments, the Commenting Issuers are required to fully translate foreign language documents submitted as exhibits to, among others, Forms F-1 through F-4 and F-6 under the Securities Act of 1933, as amended (the "Securities Act"), and Forms 20-F and 6-K under the Exchange Act, and to provide signed representations by officers that the translations are fair and accurate.
A. The Full English Translation Requirement Would Create Financial Burdens and Practical Difficulties Unanticipated By the Commission.
Currently, the Commission provides for the "summary option" for any foreign language documents submitted or filed as exhibits. See 17 C.F.R. §§230.403(c) (2001) and 240.12b-12(d) (2001). This special rule has enabled the Commenting Issuers to meet their reporting duties under the Exchange Act and provide adequate disclosures of underlying documents referenced in the filings without incurring extraneous translation expenses.
The proposed amendments would impose significant financial and practical burdens on companies in Taiwan; a jurisdiction where English is not widely spoken. Many of a Taiwanese company's documents and agreements are created in a foreign language, as opposed to companies located in other jurisdictions, such as the United States, Canada, most of Europe, and even Singapore and Hong Kong in Asia. Furthermore, because English is not prevalent, there is a lack of competent translation services readily available to these issuers. Currently, the Commenting Issuers are able to meet their reporting duties because they have the internal means of summarizing underlying exhibits to the annual and periodical reports they file on Form 20-Fs and Form 6-Ks. However, if full and complete translations become mandated, compliance of such a mandate would create significant difficulties and the manpower and expertise required may more than double the previous expenses incurred for these routine filings.
For example, a typical Form 6-K filing may include local regulatory documents. There are particular translation challenges for governmental documents such as licenses and other regulatory certificates that are heavily formatted with traditional Chinese terms that constitute forms but have no substance. Because these terms are not in the Chinese vernacular language, they are very difficult to translate and would present a practical challenge to the companies.
Even more common is the problem encountered when translating a contract. A contract represents a meeting of the minds of the contracting parties and, by its nature, builds in many legal presumptions and understandings of local trade practices. Even a contract made in English among English-speaking parties contains many ambiguities that could lead to expensive and lengthy litigations in order to determine the parties' original intent when a dispute arises. For a translator to fully understand the agreement and all its presumptions and nuances and translate any existing ambiguities would be a difficult task.
For example, a semiconductor company such as UMC would often file, as exhibits to its annual report on Form 20-F, various foreign language agreements such as local leases, wafer purchase agreements, supply contracts, waste disposal agreements etc. which can be sufficiently disclosed by English summaries because of the predictable and repetitive nature of these documents. However, because of the challenges of translating contractual terms as discussed and the sheer volume of such documents, the costs would be significant assuming competent translation services becomes available when and if the Proposed Rule goes into effect as is. Please see the discussion on increased cost analysis in Section II.A. below
B. The Requirement for Accompanying Representation Letters To Be Executed By An Officer of the Foreign Issuers Creates Unintended Liabilities and May Be Inappropriate or Unduly Burdensome Under Certain Circumstances.
The Commission proposes that the translations be fair and accurate representations of the original foreign language documents, a standard to which an officer of the company must certify. The Commenting Issuers submit that satisfying this standard would be extraordinarily difficult if not impossible.
As previously discussed, legal documents such as contracts are problematic because of their underlying presumptions and ambiguities. Local governmental documents also pose specific translation challenges. Even if foreign reporting companies use their best efforts to retain the highest-quality translation services and even with the closest scrutinies by the officers of such reporting companies, these translations would not do justice to the context, subtleties and connotations provided in the original language documents. This is particularly so for a Chinese document where the language has less linguistic and cultural similarities than a Germanic or Romantic language. Additionally, as foreign reporting companies often lack the internal competency to adequately review a translator's work, the Proposed Rule would require many Taiwanese companies to engage third party professionals, such as attorneys, to review each proposed translation.
Furthermore, some documents can only be translated by professionals in their respective expertise, such as legal opinions, underwriter or research reports, or accountant letters in a domestic offering. It may be inappropriate to impose liability on a company or its officers for the fairness and accuracy of a document translated by such a professional whose expertise the company lacks.
As a result, full translations of foreign language documents by the Commenting Issuers pose a significant challenge and requiring certifications by officers that the English translations are fair and accurate would augment our liability concern by creating additional duties to the Commission and potential claims to third parties. The Commenting Issuers submit that the antifraud provisions of the U.S. securities laws afford U.S. investors sufficient protections from any material misrepresentation or omissions with regards to any disclosures made pursuant to SEC filings, English or otherwise. It is therefore submitted that the imposition of a certification requirement would add little value to the investor protection equation at the expense of imposing unnecessary costs and liabilities to complying foreign issuers.
We believe that it is not the Commission's intent to impose additional civil or criminal liabilities on an officer of a reporting company or the company itself for the fairness and accuracy of such translations where compliance efforts were made in good faith.
C. The Proposed Amendment to 17 CFR Section 232.303(b) Incorporation By Reference for Annual or Quarterly Reports Is Unnecessary.
In the context of incorporation by reference, in general, the Commission has wisely exempted from EDGAR filing requirements pursuant to Rule 102(a), exhibits previously submitted by paper filing. We believe that this exemption should also apply to annual and quarterly reports previously filed by foreign issuers. As previously discussed in Subsection A, the full English translation requirement would be particularly burdensome for the Commenting Issuers as well as other foreign issuers from jurisdictions that do not have English as a predominant language. As an example, to have a quarterly financial report translated by a CPA alone would cost NT$200,000 or US$5,800. As a result, as discussed in Section IV below, the impact of the Proposed Rule is significantly more burdensome than the impact of the current rule on domestic issuers. Instead of adopting the amendment to Rule 303(b) as proposed, the Commission should adopt an exception under this rule for foreign issuers similar to the one currently provided for investment companies.
D. Elimination of the Summary Option For Paper Filings Under Securities Act Rule 401(c) or Exchange Act Rule 12b-12(d) Submitted Under a Hardship Exemption Would Remove A Potential Recourse To Foreign Issuers Facing Extraordinary Hardships.
The hardship exemptions were available to facilitate the transition domestic issuers had to make from paper filings to electronic filings when Regulation S-T was first promulgated. Unlike domestic issuers, foreign issuers not only have to cross the technical barrier, but linguistic and practical ones as well. Whatever scope of the translation requirement the final rule adopts, a hardship exemption for these barriers would be necessary to facilitate this significant transition for foreign issuers. We propose that, if there is to be any translation requirement, temporary and continuing exemptions be created to recognize the concerns we are raising in this letter.
II. The Proposed New General Instructions on Form 6-K Inadvertently Broaden The Scope of Form 6-K Disclosures And Unjustifiably Reach Outside the U.S. Jurisdiction.
The Proposed Rule inadvertently broadens the scope of documents to be submitted on Form 6-K, amplifying both cost and liability concerns.
A. The Translation and Submission of Documents In Connection With Strictly Foreign Transactions Should Not Be Required.
The current instructions to Form 6-K exclude from submission documents not translated into English such as any Regulation S or debt offering circulars which may otherwise meet the criteria set forth in General Instruction B. This carve-out makes good sense. A strictly off-shore transaction is of little interest to U.S. investors and the tremendous costs of translating and submitting these underlying documents could not be justified by such small benefits. Proposed General Instruction D excludes the current carve-outs, requiring instead that all documents that constitute the subject of the Form 6-K report be translated and submitted electronically. This proposal should not be adopted.
For companies that operate predominantly outside the United States, such as the Commenting Issuers, local transactions such as domestic corporate bond offerings to local investors, pursuant to offering documents prepared in the local language, are common. The benefit of having these documents translated for the U.S. investors are limited, while the costs would be tremendous. As previously discussed, many of the underlying documents, such as accounting letters, underwriter reports, and legal opinions, that are filed with the local regulatory regimes require expert knowledge and cannot be translated by laymen. These special translations, if available, would be much more expensive. Depending on the nature of these local transactions, the translation expenses incurred for compliance with the proposed new Form 6-K alone could more than double the total costs for the transaction itself as conducted under current rules.
For example, based on our conversation with the Hong Kong office of one of the largest international printing services that also provides translation services which it plans to expand in anticipation of the adoption of the Proposed Rule, the cost of translating a standard local offering circular of 300 pages alone will cost the Commenting Issuers upwards of US$300 per page. In other words, had the Proposed Rule been in effect last April when UMC closed its NT$4 billion (US$116 million) local bond offering, UMC would have had to spend an additional US$100,000 to translate the bond offering circular, which would have equaled the underwriting fees in that transaction and tripled the residual transactional and administrative costs which was around US$32,700 (prospectus printing fees: US$870 + certificate printing fees: US$2,610 + trust fees: US$11,300 + paying agent fees: US$11,560 + certification fees: US$ 6,370). Given this tremendous increase in transactional costs, UMC would have reconsidered conducting this transaction had this rule been in place.
We also respectfully note that the translation and submission of any offshore circulars are not currently required for domestic filers conducting a Regulation S offering. To place such a heavy burden on foreign issuers where none exists for domestic issuers would be disparate treatment.
We do not believe that it is the intent of the Commission to influence offshore transactions through its rule-making on reporting obligations. To do so would be over-reaching. We also do not believe that it is the intent of the Commission to impair the competitiveness of a foreign issuer to the advantage of domestic ones by influencing offshore offerings through a more heavy-handed regulation of foreign investors than the domestic ones. We therefore recommend that the Commission maintain the status quo on the scope of disclosure under current Form 6-K.
B. Unintentional Risk of Liability Revisited In a Broadened Form 6-K Context.
The broader scope of Form 6-K disclosures not only magnifies the cost issue, it would create unintended liabilities for the issuers as most of these documents, particularly the offshore offerings, were drafted not with the intention of disclosure in the U.S. market (most are even strictly prohibited from being disclosed in the U.S. market). For the Commenting Issuers to assume SEC reporting and any additional criminal and civil liabilities for documents not originally drafted with such intent may create unforeseeable problems for the companies.
III. Recommending That the Commission Provide PDF as an Alternative to Document Formatting For Electronic Filings on EDGAR.
We understand that the Commission currently accepts a filing in the PDF format when it is accompanied by the same document filed in the HTML or the ASCII format. PDF is widely used in the U.S. and the world business communities to transmit documents because of its lower incremental cost in conversions from word-processed documents, presentational options, user-friendliness, and ability to maintain formatting when compared to HTML or ASCII, the only formats of EDGAR filings currently accepted by the Commission. Many foreign regulatory agencies, such as the Canadian Securities Administrators and the Securities and Futures Commission in Taiwan, have already adopted this more advanced form of formatting for electronic filings by issuers for local compliance. Given that PDF is becoming more widely used, may we suggest that the Commission adopt PDF as an alternative document format for official electronic filings on EDGAR. This would reduce potential technical difficulties and help smooth the transition from paper filing to electronic filing for foreign issuers who may need to make adjustments in many other respects.
IV. The Additional Burdens The Proposed Rule Imposes Upon Foreign Issuers May Create Unintended Anti-Competitive Effects.
In proposing these amendments, the Commission's intentions are to promote efficiency, competition and capital formation. By mandating electronic filings on EDGAR in general, the Proposed Rule does accomplish these goals. Unfortunately, the sections of the Proposed Rule we have highlighted as problematic for the Commenting Issuers would inevitably result in anti-competitive effects should those amendments be adopted as proposed.
The tremendous financial burdens of the broadened scope of disclosures to be made on Form 6-K as well as the full English translation requirements of all exhibits to relevant filings would affect decisions and structures of potential transactions, even those conducted locally. The increased exposure to potential liabilities by the issuers and their officers through the accuracy and fairness representations requirement could have potential deterrent effects. Additional expenses will likely be incurred in order to reduce these heightened exposures such as indemnification, contribution or insurance arrangements. All these additional expenses, which in some circumstances could double or triple the total costs of the transaction as conducted under current rules, would translate into increases in the prices of our products and services. We would be significantly disadvantaged as compared to our American, Canadian, European, Hong Kong and Singapore competitors whose transitional as well as ongoing expenses for compliance with the Proposed Rule would be significantly lower or non-existent due to a lack of translation issues or the availability of competent and more affordable translation services.
Furthermore, domestically we would also be competitively disadvantaged as compared to non-SEC registered Taiwanese companies who could make a local offering at half of the expenses we could. Should the Proposed Rule be adopted as is, UMC and SPIL would be effectively penalized for having registered its securities in the United States. These additional costs will make accessing the US capital markets less economically desirable, when compared to alternative financing sources, such as, an unregistered GDR offering.
The Commission, on many occasions in the past, has left certain investor benefit concerns to market forces. This approach has worked well due to investors' active responses to issuers' activities through market prices. Over-regulation often inhibits capital formation and efficiencies of transactions, especially where sufficient investor protections are already in place. The burdens of required translations of all underlying documents to be submitted to the Commission is tremendous, encompassing over 40 to 70% of the documents, depending on the issuers and the particular filings. This level of burden cannot be compared with that which is currently imposed on domestic filers whose foreign documents are often less than 1 to 5% of the required filings. We respectfully recommend that, before the Commission adopts such a drastic rule, that the Commission takes more time to consider the necessity and impact of such amendments and any alternatives such as a more limited scope of documents required for translations, or simply relying on market demands to compel foreign issuers in that direction to remain competitive.
We believe that the mandated electronic filing on EDGAR for foreign issuers, in general, is a good rule to adopt. However, because of the resulting undue financial and practical burdens and risk exposures of the current proposal, we recommend that the Commission, for now, scale back on the scope of the Proposed Rule as follows:
Should you have any questions concerning these comments, please call Chris Lin or Katherine Ma of Simpson Thacher & Bartlett at (852) 2514-7600.
Director and Chief Finance Office
United Microelectronics Corporation
Siliconware Precision Industries Co., Ltd.