Sponsorship System for Offering and Listing of Securities Tentative Procedures

Repealed on October 17 2008: http://www.chinalawandpractice.com/Article/2070541/Measures-for-the-Administration-of-the-Sponsorship-of-the.html

(Promulgated by the China Securities Regulatory Commission on December 28 2003 and effective as of February 1 2004.)

PART ONE: GENERAL PROVISIONS

Article 1: These Procedures have been formulated pursuant to relevant laws and administrative regulations in order to regulate securities offering and listing activities, raise the quality of listed companies and the professional level of securities business institutions, protect the lawful rights and interests of investors and promote the healthy development of the securities markets.

Article 2: These Procedures apply to initial public offerings of shares by companies limited by shares and the issue of new shares and convertible bonds by listed companies.

Article 3: Where securities business institutions perform sponsorship duties, they shall register as a sponsor institution pursuant to these Procedures.

Article 4: Sponsor institutions shall adhere to laws, administrative regulations and the provisions and industry standards of the China Securities Regulatory Commission (hereafter, the CSRC), be honest and trustworthy, diligently fulfil their duties, discharge their duty to recommend issuers for securities offerings and listings, and continue to supervise and guide the performance of relevant obligations by the issuer.

Sponsor institutions that perform sponsorship duties shall designate sponsor representatives to be specifically responsible for sponsorship work.

Article 5: Sponsor institutions shall be responsible for the lead distribution in respect of securities offerings, check public offering prospectus documents according to law and issue sponsor opinions to the CSRC.

Sponsor institutions shall guarantee the truthfulness, accuracy and completeness of the documents they issue.

Article 6: Issuers and their directors, supervisors, managers and other senior management personnel (hereafter, Senior Management) as well as the intermediary institutions that provide professional services to the issuer such as law firms, accounting firms and asset valuation institutions (hereafter, Intermediaries) and their signatories shall, in accordance with laws, administrative regulations and CSRC provisions, undertake the corresponding responsibilities and cooperate with the sponsor institution in performing its duties of sponsorship.

When performing their sponsorship duties, sponsor institutions and their sponsor representatives may not lessen or exempt the responsibilities of an issuer and its Senior Management or Intermediaries and their signatories.

Article 7: The CSRC shall regulate relevant activities of sponsor institutions and their sponsor representatives, issuers and their Senior Management, and Intermediaries and their signatories in accordance with laws, administrative regulations and these Procedures.

The Securities Association of China shall practice self-regulation of sponsor institutions and sponsor representatives.

PART TWO: REGISTRATION OF SPONSOR INSTITUTIONS AND SPONSOR REPRESENTATIVES

Article 8: Securities business institutions and individuals registered with the CSRC and enrolled on the list of sponsor institutions and sponsor representatives (hereafter, the List) may engage in sponsorship work in accordance with these Procedures. No institution or individual may engage in sponsorship work without being registered with the CSRC as a sponsor institution or sponsor representative and enrolled on the List.

Article 9: A securities business institution applying to register as a sponsor institution shall be a comprehensive securities company and shall submit to the CSRC a statement and undertake to voluntarily perform sponsorship duties.

Article 10: Where one of the following circumstances arises, a securities business institution may not register as a sponsor institution:

(1) there are less than two sponsor representatives;

(2) there are serious defects in the corporate governance structure and the risk control system is not sound or effectively implemented;

(3) in the past 24 months it has been removed from the List by the CSRC due to a violation of laws or regulations; or

(4) other circumstances specified by the CSRC.

Article 11: An individual applying to register as a sponsor representative shall hold a securities employment qualification and a professional certificate, comply with the following requirements, submit an application to the CSRC through the sponsor institution where he/she is employed and submit relevant supporting documents and statements:

(1) has experience in investment banking business as stipulated by the CSRC;

(2) has participated and scored a pass in a sponsor representative competency examination recognized by the CSRC;

(3) has a recommendation letter issued, and signed by the chairman of the board or general manager of, the sponsor institution where he/she is employed;

(4) does not owe a relatively large debt that is overdue and has not been repaid;

(5) in the past 36 months has not been removed from the List by the CSRC due to a violation of laws or regulations or been subject to administrative penalties by the CSRC; and

(6) other requirements specified by the CSRC.

Article 12: Securities business institutions and individuals shall guarantee the truthfulness, accuracy and completeness of registration application documents. Where major changes occur in the contents of documents during the application period, updated information shall be submitted to the CSRC within five working days of the change.

Article 13: Within 20 working days of accepting a registration application, the CSRC shall register, enrol on the List and make public those who comply with the requirements. Those who fail to comply with the requirements shall not be registered and shall be notified in writing the reasons therefor.

Article 14: Sponsor institutions shall submit an annual record filing form and relevant materials to the CSRC within one month of the date of the full 12 months from the registration or previous record filing of the sponsor institution and sponsor representatives to update the registration particulars.

Article 15: Where there is a major change in the registration particulars of a sponsor institution or sponsor representative, the sponsor institution shall report to the CSRC within five working days of the date of change.

Article 16: Where one of the circumstances specified in Article 10 hereof arises in respect of a sponsor institution, the CSRC shall remove the sponsor institution and its sponsor representatives from the List.

Article 17: Where one of the following circumstances arises, the CSRC shall remove the sponsor representative from the List:

(1) his/her professional certificate has been cancelled or revoked;

(2) he/she does not have investment banking business experience as stipulated by the CSRC;

(3) the sponsor institution has revoked his/her recommendation letter;

(4) he/she has been transferred from the sponsor institution or its investment banking business department;

(5) he/she owes a relatively large debt that is overdue and has not been repaid;

(6) he/she has been subject to administrative penalties by the CSRC due to a violation of laws or regulations or has been sentenced to a criminal penalty because of a crime; or

(7) other circumstances specified by the CSRC.

Article 18: Where a sponsor representative who has been removed from the List complies with registration requirements, he/she may reapply to register as a sponsor representative. After more than six months from the date of removal, he/she shall participate again in a sponsor representative competency examination.

PART THREE: DUTIES OF SPONSOR INSTITUTIONS

Article 19: Sponsor institutions shall diligently perform their duty to recommend issuers for a securities offering and listing.

After an issuer has listed securities, the sponsor institution shall continue to supervise and guide the issuer's performance of obligations such as the legal compliance of operations, good faith undertakings and information disclosure.

Article 20: Before a sponsor institution recommends an issuer for an initial public offering, it shall coach the issuer pursuant to CSRC rules.

Where a sponsor institution recommends another institution to coach the issuer for an initial public offering, it shall at least provide further coaching to the issuer for six months before recommending such issuer.

Article 21: Until an issuer complies with the following requirements following coaching, the sponsor institution may recommend the offering and listing of its shares:

(1) it complies with the conditions and relevant regulations for a public offering and listing of securities and has the capacity for continuous development;

(2) it is mutually independent from the promoter, major shareholders and actual controlling party in respect of business, assets, personnel, institutions and finances, etc. and there is no inter-trade competition or clearly unfair affiliated transactions or other activities that affect the independent operations of the issuer;

(3) there are no major defects in the corporate governance, financial and accounting systems, etc. that could hinder the continuous legal compliance of operations;

(4) Senior Management has attained the necessary knowledge on laws and administrative regulations and relevant knowledge for entering securities markets, has learned the statutory obligations and responsibilities of listed companies and their Senior Management, and has sufficient good faith standards and the capability and experience to manage a listed company; and

(5) other requirements specified by the CSRC.

Article 22: When a sponsor institution recommends an issuer for a securities offering and listing, it shall carry out due diligence of the issuer and its promoter, major shareholders and controlling parties in accordance with laws, administrative regulations and CSRC rules and organize, as commissioned by the issuer, the formulation of the application documents and issue a recommendation document.

Article 23: In respect of contents of an issuer's public offering prospectus documents that are not supported by professional opinions from Intermediaries and their signatories, the sponsor institution shall carry out a full, extensive and rational inspection and make an independent judgment on the information provided and particulars disclosed by the issuer, and shall have full reason to believe that there are no substantive differences between the judgment made and the contents of the issuer's public offering prospectus documents.

Article 24: Sponsor institutions shall conduct due diligence of the contents of the issuer's public offering prospectus documents that contain professional opinions issued by the Intermediaries and their signatories and shall make an independent judgment on the information provided and the particulars disclosed by the issuer.

Where there are major differences between the judgment made by the sponsor institution and the professional opinions of the Intermediaries, the sponsor institution shall conduct an investigation and review of the relevant matters and may engage other Intermediaries to provide professional services.

Article 25: Sponsor institutions shall make an undertaking in respect of the following matters in the recommendation document:

(1) that they have reason to believe that the issuer complies with the requirements specified in Article 21 hereof and the securities are suitable for listing and trading on a stock exchange;

(2) that they have reason to believe that no falsehoods, misleading statements or major omissions are contained in the application documents and public offering prospectus documents of the issuer;

(3) that they have reason to believe that the basis for the opinions expressed by the issuer and its directors in the public offering prospectus documents is complete and rational;

(4) that they have reason to believe that there are no substantive differences with the opinions published by other Intermediaries;

(5) that they guarantee that the designated sponsor representatives and the relevant personnel at the sponsor institution have diligently fulfilled their duties to conduct due diligence of the issuer's application documents;

(6) that they guarantee that no falsehoods, misleading statements or major omissions are contained in the recommendation documents and other documents related to the performance of sponsorship duties;

(7) that they guarantee that the professional services provided and the professional opinions issued to the issuer comply with laws, administrative regulations, CSRC rules and industry standards;

(8) that they are voluntarily subject to the regulatory measures taken by the CSRC pursuant to these Procedures; and

(9) other matters specified by the CSRC.

Article 26: After a sponsor institution submits a recommendation document, it shall take the initiative to coordinate the examination and verification with the CSRC, and undertake the following work:

(1) organize a reply from the issuer and its Intermediaries on the CSRC's opinion;

(2) conduct due diligence in respect of special matters related to the current securities offering and listing pursuant to the CSRC's requirements;

(3) designate sponsor representatives to conduct professional communications with the CSRC; and

(4) other work specified by the CSRC.

Article 27: Where a sponsor institution recommends an issuer to list securities, it shall submit to the stock exchange a recommendation letter and related documents required by the stock exchange listing rules, and file such documents with the CSRC for the record.

A recommendation letter shall clearly state the undertakings specified in Article 25 hereof and the arrangements for the continuous supervision and guidance work in respect of the issuer and other matters required by the stock exchange.

Article 28: A sponsor institution shall determine the contents and emphasis of continuous supervision and guidance in light of the specific circumstances of the issuer, and undertake the following work:

(1) supervise and guide the issuer to effectively implement and improve a system for preventing major shareholders and other affiliated parties from appropriating the issuer's resources in violation of regulations;

(2) supervise and guide the issuer to effectively implement and improve an internal system for preventing Senior Management from taking advantage of their position to harm the rights and interests of the issuer;

(3) supervise and guide the issuer to effectively implement and improve a system for guaranteeing the fairness and regulatory compliance of affiliated transactions;

(4) supervise and guide the issuer to perform information disclosure obligations, review the information disclosure documents and other documents to be submitted to the CSRC and stock exchange;

(5) continue to pay attention to undertakings such as the use of funds raised and the implementation of investment projects by the issuer;

(6) continue to pay attention to matters such as security provided by the issuer to third parties and to issue an opinion thereon; and

(7) other work stipulated in CSRC rules and the sponsorship agreement.

Article 29: In the case of an initial public offering, the continuous supervision and guidance period shall be the remaining period of the year of the securities listing and the subsequent two full financial years; in the case of issue of new shares or convertible corporate bonds by a listed company, the continuous supervision and guidance period shall be the remaining period of the year of the securities listing and one subsequent full financial year. The continuous supervision and guidance period shall be calculated from the date of the securities listing.

Article 30: When the continuous supervision and guidance period has expired, the sponsor institution shall continue to complete any recommendation work that remains uncompleted.

During the period of fulfilling recommendation duties and the continuous supervision and guidance period, if the sponsor institution has failed to fulfil its duties diligently, when the continuous supervision and guidance period expires, the sponsor institution shall continue to undertake the corresponding responsibilities.

PART FOUR: SPONSORSHIP WORK RULES

Article 31: Sponsor institutions shall establish a sound internal control system for sponsorship work.

Article 32: Sponsor institutions shall establish a sound due diligence system in respect of securities offerings and listings, an internal checking system for offering and listing application documents and a continuous supervision and guidance system for the issuer after the securities listing.

Article 33: Sponsor institutions shall establish a sound continuous training system for sponsor representatives and other personnel who engage in sponsorship work.

Article 34: Sponsor institutions shall establish a sound filing system and establish an independent sponsorship work file for each project.

Sponsorship work files shall be truthful, accurate and complete and be kept for a period of at least ten years.

Article 35: Under the following circumstances that could affect the fair performance of sponsorship duties, the sponsor institution shall not recommend the issuer for a securities offering and listing:

(1) the sponsor institution and its major shareholders, actual controlling parties and important affiliates hold in total more than 7% of the issuer's shares;

(2) the issuer holds or controls more than 7% of the shares of the sponsor institution;

(3) circumstances that may influence the fair performance of sponsorship duties such as when a sponsor representative, a director, supervisor, manager or other senior management personnel of a sponsor institution has an interest in the issuer or an appointment by the issuer; or

(4) the sponsor institution and its major shareholders, actual controlling parties or main affiliates provide security or financing for the issuer.

Article 36: Sponsor institutions shall sign a sponsor agreement with the issuer to clarify the rights and obligations of both parties.

Article 37: Sponsor institutions shall consult with the issuer to determine the expenses related to performing sponsorship duties pursuant to industry standards.

Article 38: Where the sponsor agreement is terminated before the public offering prospectus documents have been published, the sponsor institution and issuer shall separately report and explain the reasons to the CSRC within five working days of the termination date.

Article 39: After the public offering prospectus documents have been published, the sponsor institution and issuer shall not terminate the sponsor agreement except where an issuer engages another sponsor institution because of another application to issue new shares or convertible corporate bonds or where the sponsor institution has been removed from the List by the CSRC.

Where a sponsor agreement has been terminated, the sponsor institution and issuer shall report and explain the reasons to the CSRC within five working days of the termination date.

Article 40: Where a sponsor institution is removed from the List by the CSRC during the continuous supervision and guidance period, the issuer shall engage another sponsor institution within one month.

Article 41: The subsequently engaged sponsor institution shall complete the continuous supervision and guidance work not completed by the original sponsor institution, and the period of continuous supervision and guidance shall not be less than one full financial year.

The subsequently engaged sponsor institution shall carry out sponsorship work from the date on which the sponsor agreement is signed and undertake the corresponding responsibilities. The original sponsor institution shall undertake the responsibilities corresponding to its recommendation period and continuous supervision and guidance period.

Article 42: Sponsor institutions shall designate two sponsor representatives to specifically be responsible for the sponsorship work for one issuer, issue a specific power of attorney signed by the chairman of the board or general manager, and ensure that the relevant departments and personnel of the sponsor institution effectively divide the work and cooperate.

Sponsor institutions shall also designate a project manager and a sponsor representative may assume the post of project manager.

Article 43: After an issuer has offered securities, the sponsor institution shall not change sponsor representatives except where a sponsor representative has been removed from the List by the CSRC under circumstances such as a sponsor representative has been transferred from the sponsor institution.

Where a sponsor institution changes sponsor representatives, it shall notify the issuer and file a report explaining the reasons to the CSRC and stock exchange within five working days. The original sponsor representatives shall undertake responsibilities corresponding to the period for which they were specifically responsible for sponsorship work.

Article 44: The legal representative, person responsible for the investment banking business department, person responsible for internal checks, sponsor representatives and the project manager of the sponsor institution shall sign the recommendation document and list their names in the issuer's public offering prospectus documents.

Article 45: An opinion issued by a sponsor institution when performing its sponsorship duties shall be promptly reported to the issuer, recorded in the sponsorship work file and may be, in accordance with these Procedures, published as a public statement and reported to the CSRC or stock exchange.

Article 46: The sponsor institution shall submit a Sponsor Summary Report to the CSRC and stock exchange within 10 working days of completing the continuous supervision and guidance work.

Article 47: Where a sponsor representative is hampered in his/her sponsorship work by inappropriate factors, he/she shall reserve an independent professional opinion and make a record in the sponsorship work file.

Article 48: Sponsor representatives and other personnel who engage in sponsorship work are personnel who are privy to insider information who shall adhere to laws, administrative regulations and CSRC rules, and shall not use insider information to directly or indirectly seek improper rights and interests for the sponsor institution, himself or herself, or other parties.

PART FIVE: COORDINATION OF SPONSOR WORK

Article 49: When performing sponsorship duties, a sponsor institution may exercise the following rights in respect of the issuer:

(1) request the issuer to promptly circulate information by the means specified in these Procedures and the sponsor agreement;

(2) issue a public statement in respect of violations of laws or regulations by the issuer pursuant to the information disclosure rules of the CSRC and stock exchange; and

(3) other rights stipulated in CSRC rules or the sponsor agreement.

Article 50: Under the following circumstances, the issuer shall promptly notify or consult the sponsor institution and submit to the sponsor institution relevant documents as stipulated in the sponsor agreement:

(1) changes in undertakings such as the funds to be raised or investment projects;

(2) matters such as the occurrence of affiliated transactions and the provision of security to third parties;

(3) performance of information disclosure obligations or reports to the CSRC and stock exchange of relevant matters;

(4) occurrence of violations of laws or regulations or other major matters; or

(5) other matters stipulated in CSRC rules or the sponsor agreement.

Article 51: Before a securities offering, if an issuer does not cooperate with the sponsor institution in the performance of sponsorship duties, the sponsor institution shall issue a reserved opinion and give an explanation in the recommendation document; if the circumstances are serious, the sponsor institution shall not give a recommendation and if a recommendation has already been given, the recommendation shall be revoked.

Article 52: Following a securities offering, if a sponsor institution has full reason to believe that the issuer could have violated laws or regulations or committed another irregularity, it shall supervise the issuer to make an explanation and make a rectification within a time limit; if the circumstances are serious, it shall report to the CSRC or stock exchange.

Article 53: Sponsor institutions shall organize and coordinate with the Intermediaries and their signatories to participate in work related to a securities offering and listing.

Article 54: Where a sponsor institution has any doubts about the professional opinions issued by Intermediaries or their signatories, it shall take the initiative to consult with the Intermediaries and may require them to make an explanation or issue a basis therefor.

Article 55: Where a sponsor institution has full reason to believe that a professional opinion issued by the Intermediaries and their signatories could contain violations of laws or regulations such as falsehoods, misleading statements or major omissions, or other irregularities, it shall promptly issue an opinion; and if the circumstances are serious, it shall report to the CSRC or stock exchange.

Article 56: The Intermediaries and their signatories shall maintain professional independence and shall carefully review and make judgments on doubts or opinions raised by the sponsor institution, promptly issue an opinion to the sponsor institution and issuer and may, pursuant to law, report to the relevant authorities, the CSRC and stock exchange.

PART SIX: REGULATORY MEASURES AND LEGAL LIABILITY

Article 57: The CSRC shall establish a sponsor creditability regulatory system to carry out continuous dynamic registration management of sponsor institutions and sponsor representatives to publish records such as their professional performance, violations of laws or regulations, other improper activities and regulatory measures taken against them.

Article 58: The sponsor institution and its sponsor representatives shall undertake the corresponding liabilities from the date on which the sponsor institution submits the recommendation documents to the CSRC.

Article 59: Where falsehoods, misleading statements or major omissions are contained in sponsor institution registration application documents submitted by a securities business institution to the CSRC, the CSRC shall not grant registration; where registration has already been granted, the institution shall be removed from the List.

Where falsehoods, misleading statements or major omissions are contained in the registration application documents of a sponsor representative, the CSRC shall not register such individual; and where registration has been granted, it shall remove them from the List and shall not accept further applications to register a sponsor representative recommended by such sponsor institution within six months of the date of removal.

Article 60: Where falsehoods, misleading statements or major omissions are contained in documents related to sponsorship work submitted by a sponsor institution to the CSRC and a stock exchange, or where an issuer and its Intermediaries provide a document with falsehoods, misleading statements or major omissions and the sponsor has instigated, assisted or participated in doing so, the CSRC shall no longer handle a recommendation from the sponsor institution within six months from the date of confirmation; and shall no longer handle any recommendation for which a relevant sponsor representative is specifically responsible within 12 months from the date of confirmation. Where the CSRC has agreed to handle a recommendation, the CSRC shall order the sponsor institution to change sponsor representatives. Where the circumstances are serious, the CSRC shall remove the sponsor institution and relevant sponsor representatives from the List.

Article 61: Where a sponsor institution or sponsor representative has instigated, assisted or participated in the issuer's disruption of the examination and verification work of the CSRC and its share issuance examination committee in violation of laws or administrative regulations, the CSRC shall no longer handle any recommendation from such sponsor institution within three months from the date of confirmation; and shall no longer handle a recommendation for which a related sponsor representative is specifically responsible within six months from the date of confirmation. Where the CSRC has agreed to handle a recommendation, the CSRC shall order the sponsor institution to replace the sponsor representative. Where the circumstances are serious, the CSRC shall remove the sponsor institution and relevant sponsor representatives from the List.

Article 62: Where a sponsor institution, in violation of Article 34 hereof, has not established a sponsorship work file or the sponsorship work file contains falsehoods or major omissions, the CSRC shall no longer handle any recommendations from such sponsor institution within three months from the date of confirmation, and shall no longer handle any recommendation for which a related sponsor representative is specifically responsible within six months from the date of confirmation.

Article 63: Where a sponsor institution or sponsor representative has a case placed on file and is under investigation because its investment banking business is suspected of violating laws and regulations, for the time being the CSRC shall no longer handle any recommendations from the sponsor institution or a recommendation for which a relevant sponsor representative is specifically responsible.

Article 64: Where a sponsor representative is subject to a public denouncement by a stock exchange or the Securities Association of China due to his/her investment banking business or during the period of fulfilling its recommendation duties or the continuous supervision and guidance period in respect of the issuer for whose sponsorship work he/she is specifically responsible, the CSRC shall no longer handle a recommendation for which the relevant sponsor representative is specifically responsible within three months of the public denouncement date. Where the CSRC has agreed to handle a recommendation, the CSRC shall order the sponsor institution to replace the sponsor representative.

Article 65: Where one of the following circumstances arises in respect of an issuer, the CSRC shall no longer handle any recommendation from the sponsor institution within three months of the date of confirmation and shall remove the relevant sponsor representatives from the List:

(1) application documents such as the public offering prospectus documents contain falsehoods, misleading statements or major omissions;

(2) a loss is immediately incurred in the year of securities listing; or

(3) information disclosure documents during the continuous supervision and guidance period contain falsehoods, misleading statements or major omissions.

Article 66: Where one of the following circumstances arises during the continuous supervision and guidance period in respect of the issuer, the CSRC shall no longer handle any recommendation for which a relevant sponsor representative is specifically responsible within three months of the date of confirmation:

(1) the use of an accumulation of 50% or more of funds raised in the year of securities listing is incompatible with undertakings;

(2) the profits from the main businesses in the year of securities listing has slid 50% or more compared to the previous year;

(3) the major shareholders or actual controlling parties have changed within 12 months of the date of the securities listing;

(4) an accumulation of 50% or more of assets or the main businesses have undergone reorganization within 12 months of the date of an initial public offering of shares;

(5) an accumulation of 50% or more of assets or the main businesses have undergone reorganization within 12 months of the date on which a listed company issued new shares or convertible corporate bonds, and no disclosure was made in the public offering prospectus documents; or

(6) other circumstances specified by the CSRC.

Where the abovementioned circumstances occur twice or more in a calendar year and are ranked in the top ten, the CSRC shall no longer handle any recommendation for which a related sponsor representative is specifically responsible within 12 months of the date of confirmation. Where the CSRC has agreed to handle a recommendation, the CSRC shall order the sponsor institution to replace the sponsor representative.

Article 67: Where one of the following circumstances arises during the continuous supervision and guidance period with respect to an issuer, the CSRC shall no longer handle any recommendation for which the relevant sponsor representative is specifically responsible within three months of the date of confirmation:

(1) the actual profits are lower than 20% or more of the profit forecast;

(2) affiliated transactions are clearly unfair or there have been procedural violations of regulations and the amount involved exceeds 5% of unaudited net assets in the previous year, or the profits and losses affected exceed 10% of audited net profits in the previous year;

(3) major shareholders or actual controlling parties or other affiliated parties have appropriated the issuer's resources against regulations and the amount involved exceeds 5% of the unaudited net assets in the previous year, or the profits and losses affected exceed 10% of audited net profits in the previous year;

(4) they have provided security to a third party against regulations and the amount involved exceeds 10% of the unaudited net assets in the previous year, or the profits and losses affected exceed 10% of audited net profits in the previous year;

(5) in violation of regulations, they purchase or sell assets, borrow loans, entrust asset management, etc. and the amount involved exceeds 10% of the unaudited net assets in the previous year, or the profits and losses affected exceed 10% of the audited net profits in the previous year;

(6) the Senior Management who have appropriated the interests of the issuer are subject to administrative penalties or are being pursued for criminal liability; or

(7) other circumstances specified by the CSRC.

Where the abovementioned circumstances occur twice or more in a calendar year and are ranked in the top ten, the CSRC shall no longer handle any recommendation for which a related sponsor representative is specifically responsible within 12 months of the date of confirmation. Where the CSRC has agreed to handle a recommendation, the CSRC shall order the sponsor institution to replace the sponsor representative.

Article 68: Where one of the following circumstances arises during the continuous supervision and guidance period in respect of an issuer, the CSRC shall no longer handle any recommendation for which a relevant sponsor representative is specifically responsible within three months of the date of confirmation:

(1) regular reports have been disclosed within the statutory period;

(2) major changes in the results or losses have not been disclosed pursuant to regulations;

(3) asset purchases or sales have not been disclosed pursuant to regulations;

(4) affiliated transactions have not been disclosed pursuant to regulations;

(5) matters such as security losses, unforeseen disasters, provisions for diminution in asset value and replenishment thereof, government subsidies and lawsuit compensation that affect the profits and losses exceeding 10% of audited net profits in the previous year have not been disclosed pursuant to regulations;

(6) matters such as changes in relevant equity pledges and the actual controlling parties have not been disclosed pursuant to regulations;

(7) matters such as changes in lawsuits, security, major contracts and raising of funds have not been disclosed pursuant to regulations; or

(8) other circumstances specified by the CSRC.

Where the abovementioned circumstances occur twice or more in a calendar year and are ranked in the top ten, the CSRC shall no longer handle any recommendation for which a related sponsor representative is specifically responsible within 12 months of the date of confirmation. Where the CSRC has agreed to handle a recommendation, the CSRC shall order the sponsor institution to replace the sponsor representative.

Article 69: Where, during one calendar year, a sponsor representative designated by a sponsor institution is subject to regulatory measures of not handling or no longer handling more than three times or for an accumulated period of more than 12 months, and the ratio between the accumulated period and the period-end number of issuers sponsored by the sponsor institation that year is ranked in the top three, the CSRC shall no longer handle its recommendations within three months of the date of confirmation. Where the CSRC has agreed to handle a recommendation, the CSRC shall order its recommendation to be revoked.

Article 70: With respect to regulatory measures taken by the CSRC and the defences submitted by a sponsor institution and sponsor representative, if there is adequate evidence to prove the following facts and the grounds are found to be tenable, the CSRC shall grant acceptance where:

(1) an issuer or its Senior Management intentionally conceals major facts and the sponsor institution and sponsor representatives have diligently performed their obligations;

(2) an issuer has already made a special warning in the public offering prospectus documents, and the sponsor institution and the sponsor representatives have diligently performed their obligations;

(3) unusual circumstances arise in the results or raising of funds, etc. of the issuer, or the issuer fails to fulfil its undertakings due to force majeure;

(4) an issuer and its Senior Management intentionally violate laws or regulations during the continuous supervision and guidance period, and the sponsor institution and sponsor representatives take the initiative to reveal such violations when they have already diligently performed their obligations; or

(5) other circumstances in relation to the diligent performance of obligations by a sponsor institution or sponsor representative.

Article 71: Where an issuer or its Senior Management has failed to adhere to these Procedures, by failing to engage another sponsor institution after changing the sponsor institution, violating laws and regulations during the continuous supervision and guidance period and refusing to rectify the same, or where circumstances arise that are seriously uncooperative with the sponsorship work, the CSRC shall make a record and announcement and may adopt the following regulatory measures:

(1) require an issuer to report to the CSRC every month details of the supervision by the sponsor institution;

(2) require an issuer to disclose monthly financial reports and related materials;

(3) designate Intermediaries to conduct an examination;

(4) require the stock exchange to implement special warnings on trading in the issuer's securities; and

(5) not handle its applications to issue new shares or convertible corporate bonds within two or five years.

Article 72: Where falsehoods, misleading statements or major omissions are contained in professional opinions issued by the Intermediaries and their signatories, or serious consequences result from not coordinating sponsorship work, the CSRC shall no longer handle their documents within 3 to 36 months from the date of confirmation and shall publicize the results of handling such matters.

Article 73: Where a sponsor institution and its sponsor representatives, an issuer and its Senior Management, Intermediaries and their signatories violate these Procedures, the CSRC may take regulatory measures such as spoken warnings, focused attention, ordering rectification or recognizing them as unsuitable for assuming relevant posts.

Article 74: Where a sponsor institution and its sponsor representatives, an issuer and its Senior Management, Intermediaries and their signatories violate laws and administrative regulations, and administrative penalties shall be imposed according to law, penalties shall be carried out pursuant to relevant regulations; where the circumstances are serious and a crime is suspected, the matter shall be transferred to a judicial authority and criminal liability pursued.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 75: The Securities Association of China or other body may, with the approval of the CSRC, organize a sponsor representative competency examination.

Article 76: These Procedures shall be implemented as of February 2 2004.