Measures for the Administration of Material Asset Reorganizations by Listed Companies

Repealed on October 23 2014: http://www.chinalawandpractice.com/Article/3417108/Measures-for-the-Administration-of-Material-Asset.html

(Promulgated by the China Securities Regulatory Commission on April 16 2008 and effective as of May 18 2008.)

Order of the CSRC No.53

PART ONE: GENERAL PROVISIONS

Article 1: These Measures have been formulated pursuant to laws and administrative regulations such as the Company Law and Securities Law in order to regulate material asset reorganizations by listed companies, protect the lawful rights and interests of listed companies and investors, promote the continuous improvement in the quality of listed companies and safeguard the order in the securities market and the public interest.

Article 2: These Measures shall govern asset transactions by listed companies and by the companies in which they have a controlling interest or which they control that involve the purchase or sale of assets outside the normal course of business activities or asset transactions carried out by other means and that reach a prescribed percentage and, as a result, cause a material change in the core business, assets and/or revenue of the listed companies (Material Asset Reorganization).

The issuance of shares by a listed company to purchase assets shall comply with these Measures.

When a listed company uses the proceeds of a share offering to purchase assets or make an investment outside the company in line with the purpose of such proceeds as disclosed in the securities offering documents approved by the China Securities Regulatory Commission (the CSRC), these Measures shall not apply.

Article 3: No work unit or individual may exploit a Material Asset Reorganization to harm the lawful rights and interests of a listed company and its shareholders.

Article 4: When a listed company is to carry out a Material Asset Reorganization, all relevant parties must disclose or provide information in a timely and fair manner and warrant that the information disclosed or provided is true, accurate, complete and does not contain false records, misleading statements or material omissions.

Article 5: The directors, supervisors and senior management personnel of a listed company shall, in the course of Material Asset Reorganization activities, act in good faith and with due diligence, safeguard the security of the company's assets and protect the lawful rights and interests of the company and of all of its shareholders.

Article 6: Securities service firms and personnel who provide services for Material Asset Reorganizations shall abide by laws, administrative regulations and relevant CSRC provisions, comply with business standards and ethical standards generally recognized in the industry, strictly perform their duties, may not seek illegitimate gains and shall be liable for the truthfulness, accuracy and completeness of the documents that they prepare and issue.

Article 7: Work units and individuals that are privy to information on a Material Asset Reorganization shall bear an obligation of confidentiality in respect thereof until such information has been disclosed in accordance with the law.

Units and individuals are prohibited from using information on a Material Asset Reorganization to engage in insider trading, manipulate the stock market or engage in other such illegal activity.

Article 8: The CSRC shall oversee the Material Asset Reorganizations of listed companies in accordance with the law.

Article 9: The CSRC shall establish a Committee for the Review of the Merger, Acquisition and Reorganization of Listed Companies in its Public Offering Review Committee (the M&A and Reorganization Committee) that shall vote on the Material Asset Reorganization applications submitted to it for deliberation and give its opinions thereon.

PART TWO: PRINCIPLES AND CRITERIA GOVERNING MATERIAL ASSET REORGANIZATIONS

Article 10: A Material Asset Reorganization to be carried out by a listed company shall satisfy the following requirements:

(1) complying with state industrial policy, and laws and administrative regulations on environmental protection, land administration, anti-monopoly, etc.;

(2) not causing the listed company to be disqualified for the listing of its shares;

(3) the pricing of the assets involved being fair and there not being a circumstance that would harm the lawful rights and interests of the listed company or its shareholders;

(4) the title to the assets involved being clear, there not being any legal obstacle to the change in ownership or transfer of the assets, and the handling of the relevant claims and debts being lawful;

(5) being conducive to the strengthening of the listed company's capacity as a going concern and there not being a circumstance that could result in the listed company's principal assets post-reorganization being cash or its not having any actual business;

(6) being conducive to the maintenance of independence by the listed company from its de facto controller and other affiliated parties in terms of its business, assets, finances, personnel, organizations, etc. and complying with relevant CSRC provisions on the independence of listed companies; and

(7) being conducive to the creation or maintenance by the listed company of a sound and effective corporate governance structure.

Article 11: A Material Asset Reorganization shall be constituted when the purchase or sale of assets by a listed company and by the companies in which it has a controlling interest or that it controls reaches any of the following benchmarks:

(1) the total value of the assets to be purchased or sold accounts for at least 50% of the listed company's total asset value at period end on its audited consolidated financial accounting report for the most recent financial year;

(2) the operating revenue during the most recent financial year generated by the assets to be purchased or sold accounts for at least 50% of the listed company's operating revenue on its audited consolidated financial accounting report for the same period; or

(3) the net value of the assets to be purchased or sold accounts for at least 50% of the listed company's net asset value at period end on its audited consolidated financial accounting report for the most recent financial year and the amount thereof exceeds Rmb50 million.

If the assets to be purchased or sold do not reach any of the benchmarks specified in the preceding paragraph, but the CSRC discovers major issues that could harm the lawful rights and interests of the listed company or its shareholders, it may, based on the principle of prudential regulation, order the listed company to disclose additional relevant information in accordance herewith, suspend the transaction and submit application documents.

Article 12: When calculating the percentages specified in the preceding Article, the following principles shall be complied with:

(1) if the asset to be purchased is equity, the higher of (i) the product of the total asset value of the investee enterprise and the percentage of the equity accounted for by the investment or (ii) the transaction amount shall be the total asset value; the operating revenue shall be the product of the operating revenue of the investee enterprise and the percentage of the equity accounted for by the investment; the higher of (i) the product of the net asset value of the investee enterprise and the percentage of the equity accounted for by the investment or (ii) the transaction amount shall be the net asset value; if the asset to be sold is equity, the total asset value, operating revenue and net asset value shall be the product of the total asset value, operating revenue or net asset value of the investee enterprise respectively and the percentage of the equity accounted for by the investment;

if the equity purchase would result in the listed company acquiring a controlling interest in the investee enterprise, the higher of either the total asset value of the investee enterprise or the transaction amount shall be the total asset value; the operating revenue shall be the operating revenue of the investee enterprise; the higher of either the net asset value of the investee enterprise or the transaction amount shall be the net asset value; if the equity sale would result in the listed company losing its controlling interest in the investee enterprise, the total asset value, operating revenue and net asset value shall be the total asset value, operating revenue and net asset value of the investee enterprise respectively;

(2) if the assets to be purchased are non-equity assets, the higher of either the book value of the assets or the transaction amount shall be the total asset value; the higher of either (i) the difference between the book value of the relevant assets and liabilities or (ii) the transaction amount shall be the net asset value; if the assets to be sold are non-equity assets, the book value of the assets and the difference between the book value of the relevant assets and liabilities shall be the total value of the assets and the net value of the assets respectively; if no liabilities attach to the non-equity assets, the benchmark for the net asset value specified in Item (3) of the first paragraph of the preceding Article shall not apply;

(3) if a listed company is to simultaneously purchase and sell assets, the relevant percentages for the assets to be purchased and sold shall be calculated separately, and the higher of the two percentages shall apply; and/or

(4) if a listed company purchases or sells identical or related assets for a continuous period of 12 months, the pertinent figures shall be calculated separately using the aggregate figures. However, asset transactions that have been reported to and approved by the CSRC in accordance herewith need not be included in the aggregate calculation.

If the subject assets of a transaction are owned or controlled by the same transaction counterparty or fall within an identical or similar scope of business or if another circumstance recognized by the CSRC applies, they may be recognized as identical or related assets.

Article 13: For the purposes of Article 2 hereof, the phrase “asset transaction carried out by other means” includes:

(1) the establishment of a new enterprise with a third party, or the increase or reduction of the capital of an existing enterprise;

(2) entrusted operation or leasing of the assets of another enterprise, or entrustment of the operation or leasing of operating assets to a third party;

(3) acceptance of an asset bestowal to which obligations attach or donation of assets to a third party; or

(4) another circumstance as determined by the CSRC in accordance with the principle of prudential regulation.

If any of the aforementioned asset transactions substantively constitutes an asset purchase or sale, and any relevant percentage calculated in relation to the benchmarks specified herein reaches at least 50%, information disclosure and other such relevant obligations shall be performed and application documents submitted in accordance herewith.

PART THREE: PROCEDURE FOR A MATERIAL ASSET REORGANIZATION

Article 14: When a listed company and the transaction counterparty conduct initial negotiations on matters relating to a Material Asset Reorganization, they shall take necessary and sufficient confidentiality measures, formulate a stringent and effective confidentiality system and restrict the scope of persons that are privy to relevant sensitive information. If the listed company and transaction counterparty engage a securities service institution, they shall promptly execute a confidentiality agreement with such securities service institution.

If relevant information is broadcast in the media or unusual fluctuations occur in the trading of the listed company's shares before the board resolution on the Material Asset Reorganization is announced, the listed company shall promptly announce the relevant plan, proposal or the current status of relevant matters as well as related developments and risk factors, etc. and carry out other relevant matters in accordance with relevant information disclosure rules.

Article 15: The listed company shall engage securities service institutions, such as an independent financial consultant, law firm, and accounting firm with relevant securities business qualifications, etc. to issue opinions on the Material Asset Reorganization.

The independent financial consultant and law firm shall carefully verify whether the Material Asset Reorganization constitutes an affiliated transaction and, based on the facts confirmed through the verification, issue a clear opinion. If the Material Asset Reorganization involves an affiliated transaction, the independent financial consultant shall issue a clear opinion on the effect that the contemplated reorganization would have on the non-affiliated shareholders of the listed company.

If the pricing of the asset transaction is to be based on the outcome of an asset appraisal, the listed company shall engage an asset appraisal firm with relevant securities business qualifications to issue an asset appraisal report.

If a securities service institution incorporates the professional opinions of other securities service institutions or personnel in the opinion that it issues, it shall nevertheless conduct a due diligence investigation, carefully verify the contents of the professional opinions used and bear liability for the conclusions derived from the professional opinions of the other securities service institutions and personnel that it used.

Article 16: After the listed company and the transaction counterparty have executed an engagement contract with a securities service institution, they may not replace such firm without a legitimate reason. If there is a legitimate reason making the replacement of the securities service institution necessary, the specific reason for the replacement and the comments of the securities service institution shall be disclosed in the application materials.

Article 17: If the listed company is to purchase assets, it shall provide a profit forecast report for the assets to be purchased. If the listed company is to carry out a Material Asset Reorganization as specified in Item (1) or (2) of the first paragraph of Article 27 hereof or if it is to issue shares to purchase assets, it shall additionally provide a profit forecast report of itself. A profit forecast report shall be reviewed by an accounting firm with relevant securities business qualifications.

If the listed company is unable to provide a profit forecast report as mentioned above and has sufficient reason therefor, it shall explain such reason, issue a special risk warning in its Material Asset Reorganization report (or, here and hereinafter, its report on the issuance of shares to purchase assets) and in the management discussion and analysis section provide a detailed analysis of the effects of the contemplated reorganization on the listed company's capacity as a going concern and its future growth prospects.

Article 18: If the results of an appraisal of the relevant assets involved in the Material Asset Reorganization are to serve as a pricing basis, the asset appraisal firm shall, in principle, carry out its appraisal using two or more appraisal methods.

The board of directors of the listed company shall issue a clear opinion on the independence of the appraisal firm, the reasonableness of its appraisal assumptions, the correlation of the appraisal methods and appraisal objectives and the fairness of the pricing. The independent directors of the listed company shall issue a clear opinion on the independence of the appraisal firm, the reasonableness of its appraisal assumptions and the fairness of the pricing.

Article 19: When a listed company is to carry out a Material Asset Reorganization, the board of directors shall adopt a resolution thereon in accordance with the law and submit the same to the shareholders' general meeting for approval.

The board of directors of the listed company shall issue a clear judgement as to whether the Material Asset Reorganization constitutes an affiliated transaction and disclose the same as a matter on which the board of directors has adopted a resolution.

The independent directors of the listed company shall issue their independent opinion on the Material Asset Reorganization on the basis of a solid understanding of relevant information. If the Material Asset Reorganization constitutes an affiliated transaction, the independent directors may separately engage an independent financial consultant to issue an opinion on the effect that the contemplated transaction would have on the non-affiliated shareholders of the listed company. The listed company shall actively cooperate with the independent directors in retrieving relevant materials and provide them the necessary support and conveniences to perform their duties, such as by arranging for an onsite investigation and arranging for the securities service institutions to give their reports to them.

Article 20: The listed company shall disclose at least the documents set forth below on the working day following the adoption of the resolution on the Material Asset Reorganization by the board of directors and send a copy thereof to the agency of the CSRC of the place where it is located (the Agency):

(1) the resolution of the board of directors and the opinions of the independent directors; and

(2) the listed company's preliminary plan for the Material Asset Reorganization.

The Material Asset Reorganization report for the contemplated reorganization, the independent financial consultant's report, the legal opinion, and the audit report, asset appraisal report and the reviewed profit forecast report relating to the reorganization shall be announced no later than simultaneously with the notice convening the shareholders' general meeting.

The contents and formats of the information disclosure documents specified in item (2) of the first paragraph and the second paragraph of this Article shall be specified separately.

The listed company shall announce the board's resolution, the opinion of the independent directors and an abstract of the Material Asset Reorganization report in at least one newspaper or periodical designated by the CSRC and disclose in full the Material Asset Reorganization report and the reports or opinions of the relevant securities service institutions on the stock exchange's website.

Article 21: The resolution on the Material Asset Reorganization adopted by the shareholders' general meeting shall at minimum contain the following details:

(1) the method of the contemplated Material Asset Reorganization, the subject matter of the transaction and the transaction counterparty;

(2) the transaction price or price range;

(3) the pricing method or pricing basis;

(4) in whom the gains and losses from the relevant assets during the period between the pricing reference date and the closing date shall vest;

(5) the contractual obligations for carrying out the transfer of title to the relevant assets and liability for breach of contract;

(6) the period of validity of the resolution;

(7) the specific authorization of the board of directors to carry out the matters relating to the contemplated Material Asset Reorganization; and

(8) other details that need to be specified.

Article 22: The resolution on the Material Asset Reorganization before the shareholders' general meeting of the listed company shall require at least two-thirds of the voting rights held by the shareholders in attendance for adoption.

If a shareholder of the company or an affiliated party thereof has an affiliation with the listed company's Material Asset Reorganization, such affiliated shareholder shall recuse itself from the vote by the shareholders' general meeting on matters of the Material Asset Reorganization.

If the transaction counterparty has reached an agreement or tacit understanding with the controlling shareholder of the listed company on acquisition of equity of the listed company or on the recommendation of directors of the listed company, and such agreement or tacit understanding could result in a change in the de facto control of the listed company, the controlling shareholder of the listed company and its affiliated parties shall recuse themselves from the vote.

When the listed company convenes a shareholders' general meeting on the Material Asset Reorganization, such meeting shall be held in person, and internet voting or other such lawful method shall be provided to make participation in the shareholders' general meeting by shareholders convenient.

Article 23: The listed company shall announce the resolution of the shareholders' general meeting on the Material Asset Reorganization on the working day following the adoption thereof, prepare the application documents in accordance with relevant CSRC provisions and entrust the independent financial consultant to submit the same to the CSRC, with a copy to the Agency, within three working days.

Article 24: All of the listed company's directors, supervisors and senior management personnel shall give an undertaking warranting that the Material Asset Reorganization application documents do not contain false records, misleading statements or material omissions.

Article 25: The CSRC shall render a decision on whether to approve the Material Asset Reorganization application or not based on the statutory conditions and the statutory procedure.

If the CSRC, during the review period, issues a feedback opinion requiring the listed company to give a written explanation, the listed company shall give its written reply within 30 days from the date on which it received the feedback opinion, and the independent financial consultant shall cooperate with the listed company in giving such written reply. If the listed company fails to give its reply by the deadline, it shall announce details of the progress on the contemplated Material Asset Reorganization, the specific reason why it could not provide its reply on time, etc. on the day following the expiration of the deadline.

Article 26: If the listed company wishes to make changes to the transaction counterparty, subject matter of the transaction, transaction price, etc. during the review by the CSRC, and such change would constitute a material revision of the reorganization plan, it shall submit the same anew to the shareholders' general meeting for consideration after adoption by the board of directors and, in accordance herewith, submit the Material Asset Reorganization application documents to the CSRC anew and publish an announcement.

If the board of directors of the listed company resolves to terminate or withdraw the application for the contemplated Material Asset Reorganization during the review by the CSRC, the reason therefor shall be explained, an announcement shall be published and the same shall be submitted to the shareholders' general meeting for consideration in accordance with the company's articles of association.

Article 27: The Material Asset Reorganization of a listed company shall be submitted to the M&A and Reorganization Committee for review if:

(1) the total amount of the assets to be sold and to be purchased by the listed company together account for at least 70% of the total value of its assets at period end on its audited consolidated financial accounting report for the most recent financial year;

(2) the listed company is to sell all of its operating assets and purchase other assets; or

(3) another circumstance exists under which the CSRC, during its review, deems it necessary to submit the Material Asset Reorganization to the M&A and Reorganization Committee for review.

If the Material Asset Reorganization is not characterized by any of the foregoing circumstances, but any of the following circumstances exists, the listed company may apply to the CSRC to submit the contemplated reorganization plan to the M&A and Reorganization Committee for review:

(1) the asset to be purchased by the listed company is a complete business entity as specified in Article 48 hereof and simulated calculation of its business results needs to be made; or

(2) the listed company objects to the feedback opinion given by relevant functional departments of the CSRC.

Article 28: Once the listed company receives notice from the CSRC concerning the convening of a meeting of the M&A and Reorganization Committee to review its Material Asset Reorganization application, it shall promptly announce the same and apply for the suspension of the trading of its shares during the meeting of the M&A and Reorganization Committee until the outcome of its vote is disclosed.

On the working day following receipt of the outcome of the vote of the M&A and Reorganization Committee on its Material Asset Reorganization application, the listed company shall announce the outcome and apply for the resumption of trading of its shares. The announcement shall specify that another announcement will be made when the company receives the decision rendered by the CSRC on whether or not to grant its approval.

Article 29: On the working day following receipt of the decision rendered by the CSRC on whether or not to approve its Material Asset Reorganization application, the listed company shall announce the same.

If the CSRC grants its approval, the listed company shall disclose additional relevant documents in accordance with relevant information disclosure rules simultaneously with its announcement of the approval decision.

Article 30: If the CSRC approves its Material Asset Reorganization application, the listed company shall implement its reorganization plan in a timely manner, prepare a report on its implementation of the plan within three working days from the date of completion of implementation, submit the written report to the CSRC, its Agency and the stock exchange, and announce the same.

The independent financial consultant and law firm engaged by the listed company shall check the compliance of, and the risks involved in, the Material Asset Reorganization implementation process, change of ownership of the assets and related follow-up matters and issue clear conclusive opinions. The opinions issued by the independent financial consultant and law firm shall be submitted and announced simultaneously with the report on the implementation of the plan.

Article 31: If implementation of the contemplated Material Asset Reorganization is not completed within 60 days from the date of receipt of the approval document from the CSRC, the listed company shall, on the working day following the expiration of the period, report on the progress of the implementation to the CSRC and its Agency and announce the same. Thereafter, an announcement shall be made once every 30 days until implementation is completed. If implementation is not completed within 12 months, the approval document shall become null and void.

Article 32: If, in the course of the implementation of the Material Asset Reorganization, a material event that laws and regulations require be disclosed occurs, the listed company shall report the same to the CSRC and its Agency in a timely manner. If such event causes a substantive change in the contemplated reorganization, the application must be submitted anew to the CSRC for approval.

Article 33: If a profit forecast report is provided in accordance with Article 17 hereof, the listed company shall, in the relevant annual reports following the implementation of the Material Asset Reorganization, separately disclose the discrepancy between the actual profit figure and the forecast profit figure of the listed company and of the relevant assets, and the accounting firm shall issue a review opinion thereon.

If the asset appraisal firm used the present earning value method, hypothetical development method or other such valuation method based on a forecast of future earnings to appraise the assets to be purchased and the same was used as a pricing reference basis, the listed company shall, in the annual reports for the three years following completion of the implementation of the Material Asset Reorganization, separately disclose the discrepancy between the actual profit figure of the relevant assets and the forecast profit figure in the appraisal report, and the accounting firm shall issue a review opinion thereon. The transaction counterparty shall execute with the listed company a clear and practicable indemnification agreement in respect of the circumstance where the actual profit figure for the relevant assets is less than the forecast profit figure therefor.

Article 34: If either of the following circumstances arises in the course of the Material Asset Reorganization of a listed company, the independent financial consultant shall, in a timely manner, issue a verification opinion, submit the same to the CSRC and its Agency, and announce the same:

(1) prior to the CSRC rendering its decision on whether to grant its approval, the listed company makes a change to the transaction counterparty, subject matter of the transaction, transaction price, etc. and such change constitutes a material revision of the original reorganization plan; or

(2) after the CSRC renders its decision granting its approval, a material event occurs in the course of the implementation of the reorganization plan by the listed company, causing a substantive change in the original reorganization plan.

Article 35: An independent financial consultant shall, in accordance with relevant CSRC provisions, perform its ongoing guidance duties toward a listed company that has implemented a Material Asset Reorganization. The term of such ongoing guidance shall be not less than one financial year from the date on which the CSRC approved the Material Asset Reorganization.

Article 36: While taking into consideration the reports of the listed company for the year in which the Material Asset Reorganization was carried out and the first financial year after completion of the implementation thereof, the independent financial consultant shall, within 15 days from the date of disclosure of the annual report, issue an ongoing guidance opinion on the following matters relating to the Material Asset Reorganization, submit the same to the Agency and announce the same:

(1) details of the delivery or change in ownership of the transaction assets;

(2) performance by the parties to the transaction of their undertakings;

(3) the fulfilment of the profit forecast;

(4) the development of the businesses as mentioned in the management discussion and analysis section;

(5) the company's governance structure and the operation thereof; and

(6) other matters with respect to which there is a discrepancy as compared to the published reorganization plan.

PART FOUR: MANAGEMENT OF INFORMATION RELATING TO A MATERIAL ASSET REORGANIZATION

Article 37: When a listed company is planning and implementing a Material Asset Reorganization, relevant persons with an obligation to disclose information shall fairly disclose to all investors relevant information that could have a relatively large effect on the trading price of the listed company's shares (Price Sensitive Information), and may not selectively disclose the same early to specific parties.

Article 38: The listed company's shareholders, de facto controller, and other relevant organizations and persons involved in the planning, discussion, decision and other such stages of the Material Asset Reorganization shall, in a timely manner, accurately report relevant information to the listed company and cooperate with the listed company in accurately and completely disclosing the same. If the listed company learns of Price Sensitive Information, it shall, in a timely manner, apply to the stock exchange to suspend the trading of its shares and disclose such information.

Article 39: The listed company, its directors, supervisors and senior management personnel, the transaction counterparty involved in the Material Asset Reorganization and its affiliated parties, the directors, supervisors, senior management personnel or persons in charge of the transaction counterparty and its affiliated parties, the securities service institutions engaged by the parties to the transaction and their working personnel, relevant organizations and persons involved in the planning, discussion, decision, approval and other such stages of the Material Asset Reorganization and other relevant organizations and persons who are privy or could be privy to Price Sensitive Information due to an immediate family relationship, provision of services, business relationship, etc. shall bear an obligation of confidentiality until such Price Sensitive Information on the Material Asset Reorganization has been disclosed in accordance with the law. They are prohibited from using such information for insider trading purposes.

Article 40: When the listed company is planning the Material Asset Reorganization, it shall record in detail the progress of each specific stage in the planning process, including the specific times and places of the discussions on the relevant plan, the formation of the relevant intent and the execution of the relevant agreements or letters of intent, the organizations and persons involved, the substance of the discussions and resolutions, etc., prepare a written transaction progress memorandum and duly preserve the same. All persons involved at each stage shall promptly sign the memorandum in confirmation.

If the listed company estimates that it will be difficult to keep the planned Material Asset Reorganization secret or if the same has already been divulged, it shall apply to the stock exchange to suspend the trading of its shares in a timely manner until such time as it truthfully, accurately and completely discloses relevant information. During the suspension of the trading of its shares, the listed company shall issue an announcement on the progress of the event at least once each week.

If the trading price of the listed company's shares experiences unusual fluctuations due to market rumours of a Material Asset Reorganization, the listed company shall, in a timely manner, apply to the stock exchange to suspend the trading in its shares, verify whether there is a reorganization that would affect the trading price of its shares and clarify the same. The listed company may not fail to perform its information disclosure obligation on the grounds of uncertainty in the relevant matters.

PART FIVE: SPECIAL PROVISIONS ON THE ISSUANCE OF SHARES TO PURCHASE ASSETS

Article 41: An issuance of shares by a listed company to purchase assets shall comply with the following provisions:

(1) it is conducive to enhancing the quality of the listed company's assets, improving the company's financial position and strengthening its capacity as a going concern; it is conducive to reducing the listed company's affiliated transactions, avoiding intra-industry competition and strengthening its independence;

(2) the certified public accountant has issued unqualified audit reports on the listed company's financial accounting reports for the most recent year and most recent period; if an audit report with a qualified opinion, adverse opinion or disclaimer of opinion was issued, a special audit by a certified public accountant confirming that the material effect of the matters giving rise to the qualified opinion, adverse opinion or disclaimer of opinion has been eliminated or that it will be eliminated by virtue of the contemplated transaction;

(3) the assets to be purchased by the listed company following the issuance of shares shall be operating assets the title to which is clear, and the procedures for completing transfer of the title thereto can be completed within the specified period of time; and

(4) other conditions as specified by the CSRC.

If the specified party subscribes for the privately placed shares of the listed company in cash or with assets and if the listed company uses the proceeds from the private placement to purchase assets from the specified party, the same shall be deemed an issuance of shares by the listed company to purchase assets.

Article 42: The price for the shares issued by the listed company may not be lower than the average trading price for the company's shares during the 20 trading days prior to the date of the announcement of the board resolution on the contemplated issuance of shares to purchase assets.

The formula for the calculation of the average trading price as mentioned in the preceding paragraph is as follows: average trading price of the company's shares during the 20 trading days prior to the date of the announcement of the board resolution = total trading value of the company's shares during the 20 trading days prior to the announcement of the resolution ÷ total trading volume of the company's shares during the 20 trading days prior to the announcement of the resolution.

Article 43: Shares of the listed company subscribed for and obtained by the specified party with assets may not be transferred for a period of 12 months from the date on which the share issuance was completed. They may not be transferred for a period of 36 months if:

(1) the specified party is the listed company's controlling shareholder, de facto controller or an affiliated party controlled by it;

(2) the specified party obtained de facto control of the listed company through its subscription for the shares issued; or

(3) at the time the specified party obtained the shares issued, it had owned the rights and interests in the assets it used to subscribe for the shares for less than 12 months in succession.

Article 44: When a listed company applies to issue shares to purchase assets, its application shall be submitted to the M&A and Reorganization Committee for review.

Article 45: If the issuance of shares by a listed company to purchase assets results in the shares held or controlled by the specified party reaching a statutory percentage, the relevant obligations shall be performed in accordance with the Measures for the Administration of the Takeover of Listed Companies (Revised in 2014) (Order of the CSRC No.35).

If the subscription by the specified party for the shares issued by the listed company would cause the percentage of shares its holds or controls to exceed 30% or to continue to increase above 30% and the shareholders' general meeting of the listed company agrees to exempt it from making a general offer, it may submit an application for exemption from the obligation to make an offer at the same time that the listed company submits its share issuance application to the CSRC.

Article 46: Once the CSRC approves its application to issue shares to purchase assets, the listed company shall proceed with the same in a timely manner. Once ownership of the relevant assets purchased from the specified party has been changed to the listed company, the independent financial consultant and law firm engaged by the listed company shall check the compliance and risks of the change in ownership of the assets and relevant follow-up matters and issue clear opinions thereon. The listed company shall issue an announcement on the change of ownership of the relevant assets within three working days after completion of the change of ownership procedures and submit a written report thereon to the CSRC and its Agency. The announcement and the report shall contain the conclusive opinions of the independent financial consultant and the law firm.

Once the listed company has completed the announcement and reporting tasks specified in the preceding paragraph, it may carry out the securities registration procedures with the stock exchange and the securities depository and clearing company for the specified party that subscribed for the shares.

PART SIX: APPLICATION FOR THE OFFERING OF NEW SHARES OR CORPORATE BONDS AFTER A MATERIAL ASSET REORGANIZATION

Article 47: Once an approved Material Asset Reorganization that was reviewed by the M&A and Reorganization Committee has been completed and the listed company applies to make a public offering of shares or of corporate bonds and the following conditions are satisfied, a simulated calculation of the business results prior to the Material Asset Reorganization may be made at the time of the review:

(1) the asset that was incorporated into the listed company was a complete business entity;

(2) since the completion of the Material Asset Reorganization, the undertakings given by the parties to the reorganization have been performed on schedule, and the listed company's business has been stable and its operations good; and

(3) since the completion of the Material Asset Reorganization, the profits of the listed company and from the assets have reached the level forecast.

If the listed company did not satisfy the conditions for a public offering of shares specified by the CSRC before the Material Asset Reorganization or if the reorganization resulted in a change in the de facto controller of the listed company, at least one complete financial year shall have elapsed from the time of completion of the reorganization transaction before the listed company can apply for a public offering of new shares or corporate bonds.

Article 48: A “complete business entity” as mentioned herein shall satisfy the following conditions:

(1) the business it engages in and its operating assets are independent and complete, and no major change therein has occurred in the two most recent years;

(2) before incorporation into the listed company, it had been operated continuously for at least two years by the same de facto controller;

(3) before incorporation into the listed company, it practised independent accounting, or, if it did not practise independent accounting, the revenues and expenses relating to its business can be clearly separated out accounting-wise; and

(4) the listed company has executed engagement contracts with the principal members of the senior management personnel of the business entity or by other means has arrived at a suitable arrangement on the continued operation and management of the business entity after completion of the transaction.

PART SEVEN: OVERSIGHT AND LEGAL LIABILITY

Article 49: If a listed company carries out a Material Asset Reorganization without approval, it shall be ordered to rectify the matter, and regulatory measures such as giving a regulatory discussion and issuance of a written warning may be taken against it. If the circumstances are serious, it shall be given a warning and fined, and the relevant persons responsible may be barred from the market.

Article 50: If a listed company or other party with an information disclosure obligation fails to submit a Material Asset Reorganization report in accordance herewith, or if the report submitted contains false records, misleading statements or material omissions, it shall be ordered to rectify the matter and penalized in accordance with Article 193 of the Securities Law. If the circumstances are serious, it shall be ordered to halt the reorganization activities, and the relevant persons responsible may be barred from the market.

Article 51: If a listed company or other party with an information disclosure obligation fails to disclose information on a Material Asset Reorganization in accordance with provisions, or if the information it discloses contains false records, misleading statements or material omissions, it shall be ordered to rectify the matter and penalized in accordance with Article 193 of the Securities Law. If the circumstances are serious, it shall be ordered to halt the reorganization activities, and the relevant persons responsible may be barred from the market; if a criminal offence is suspected, the case shall, in accordance with the law, be transferred to the judicial authorities for prosecution.

Article 52: If the directors, supervisors or senior management personnel of a listed company fail to perform their obligation of acting in good faith and with due diligence and care during a Material Asset Reorganization, resulting in the reorganization plan harming the interests of the listed company, they shall be ordered to rectify the matter, and such regulatory measures as giving a regulatory lecture, issuance of a written warning, etc. shall be taken against them; if the circumstances are serious, they shall be given a warning, fined and may be barred from the market; if a criminal offence is suspected, the case shall, in accordance with the law, be transferred to the judicial authorities for prosecution.

Article 53: If a securities service institution that issues financial consultant reports, audit reports, legal opinions, asset appraisal reports or other professional documents for a Material Asset Reorganization and its professional personnel fail to perform their obligation of acting in good faith and with due diligence, violate industry codes or business rules, or fail to perform their reporting and announcement obligations or obligation of ongoing guidance in accordance with the law, they shall be ordered to rectify the matter, and regulatory measures such as giving a regulatory discussion and issuance of a written warning shall be taken against them. If the circumstances are serious, they shall be penalized in accordance with Article 226 of the Securities Law.

If the documents prepared or issued by a securities service institution and its professional personnel as mentioned in the preceding paragraph contain false records, misleading statements or material omissions, they shall be ordered to rectify the matter and penalized in accordance with Article 223 of the Securities Law. If the circumstances are serious, they may be barred from the market. If a criminal offence is suspected, the case shall, in accordance with the law, be transferred to the judicial authorities for prosecution.

Article 54: If, after the completion of a Material Asset Reorganization, for a reason other than one that could not have been known in advance by the management of the listed company and was beyond their control after the fact, the profit realized by the listed company or from the purchased assets fails to reach 80% of the forecast amount stated in the profit forecast report or the asset appraisal report, or there exists a relatively large discrepancy between the actual operating results and those stated in the management discussion and analysis section of the Material Asset Reorganization report, the listed company's chairman of the board, general manager and the accounting firm, financial consultant and asset appraisal firm that bear corresponding liability therefor and their professional personnel shall give an explanation and publicly apologize to investors in the same newspapers/periodicals at the same time that the listed company discloses its annual report. If the profit realized fails to reach 50% of the forecast amount, regulatory measures such as giving a regulatory discussion, issuance of a written warning and ordering the submission of regular reports may be taken against the listed company, relevant firms and their responsible persons.

Article 55: If someone privy to information on a Material Asset Reorganization divulges such information before it is disclosed in accordance with the law, purchases or sells, or recommends to others to purchase or sell, securities of the relevant listed company, takes advantage of the Material Asset Reorganization to disseminate false information, manipulates the securities market or engages in fraudulent activities, he/she shall be penalized in accordance with Article 202, 203 or 207 of the Securities Law. If a criminal offence is suspected, the case shall, in accordance with the law, be transferred to the judicial authorities for prosecution.

PART EIGHT: SUPPLEMENTARY PROVISIONS

Article 56: These Measures shall be effective as of May 18 2008. The Circular on Several Issues Concerning Material Asset Purchases, Sales and Exchanges by Listed Companies (Zheng Jian Gong Si Zi [2001] No.105) issued by the CSRC shall be repealed simultaneously.