(2008-5-28)

The “Application Opinions on Article 12 of ‘No Major Change Having Occurred in Issuer's Major Business during the Most Recent Three Years’ in ‘Administration Measures for IPO & Listing of Stocks’ -- Application Opinions No.3 on Securities and Futures Laws” has been formulated to support issuers in business restructuring and integration before IPO and listing for realization of overall issuance and listing and to regulate the business restructuring concerned. Parties concerned are required to follow the provisions announced hereby.

May 19, 2008

Application Opinions on Article 12 of “No Major Change Having Occurred in Issuer's Major Business during the Most Recent Three Years” in “Administration Measures for IPO & Listing of Stocks”

-- Application Opinions No.3 on Securities and Futures Laws

According to requirements of Article 12 in the “Administration Measures for IPO & Listing of Stocks” (CSRC Decree No.32, hereinafter shortened as “IPO Measures”), major business of issuers shall have not gone through great change during the most recent three years. Recently, some companies who apply for initial public offering and listing (hereinafter shortened as “issuers”) have conducted restructuring of the same, similar or relevant business under a same company controller during the most recent three years (hereinafter shortened as “reporting period”). Many issuers consulted whether the circumstance concerned conforms to the above requirement of the “IPO Measures”. Upon research, the China Securities Regulatory Commission (CSRC) has reached conclusions as follows:

1. The issuer’s restructuring of the same, similar or relevant business under a same company controller is mainly enterprise groups’ market behavior to realize overall issuance and listing of major business, lower management cost, give full play to synergetic business advantage and improve enterprises’ scale economic effect. From the perspective of the capital market, before public offering and listing, restructuring and integration of the same, similar or relevant business under the same company controller with the issuer helps to avoid horizontal competition, decrease connected transactions, optimize corporation governance, ensure standard operation, and it is also positive to improve quality of listed companies, bring into functions of optimizing resources allocation in capital market, protect legal rights and interests of investors, especially individual investors with small or medium amount of capital, and promote a sound and steady development of the capital market.

2. If the issuer carries out same, similar or relevant business restructuring under a same company controller during the reporting period, its major business shall not regarded to be greatly changed if both of the following two conditions are met:

(1) the restructured party shall, from the very beginning of the reporting period, be controlled together with the issuer, by a same company controller. If the restructured party is established within the reporting period, it shall, together with the issuer, be controlled by a same company controller since its establishment; and

(2) the business restructured into the issuer shall be related to the issuer’s business before the restructuring (the same industry, similar industry or upstream or downstream of same industry chain).

Restructuring methods shall conform to marketization principles, including but not limited to the following methods:

(1) the issuer purchases equity of the restructured party;

(2) the issuer purchases operational asset of the restructured party;

(3) the company’s controller increases capital in the issuer with the restructured party’s equity or operational asset; or

(4) the issuer merges and acquires the restructured party.

3. If the issuer carries out restructuring of same, similar or relevant business during the reporting period under a same company controller, attention shall be paid to restructuring’s influence on the issuer’s total assets, business income or total profits. Taking the influence into consideration, the issuer shall execute the restructuring according to the following requirements:

(1) if the restructured party’s total assets at the end of the previous fiscal year of the restructuring or its business income or total profits of the previous fiscal year reaches or exceeds 100% of the issuer’s corresponding project before the restructuring, the issuer can apply for public offering in the following fiscal year of the restructuring, to facilitate investors to know the overall operation situation after the restructuring;

(2) if the restructured party’s total assets at the end of the previous fiscal year of the restructuring or its business income or total profits of the previous fiscal year reaches or exceeds 50% but does not exceed 100% of the issuer’s corresponding project before the restructuring, the sponsor and the issuer’s lawyer shall, according to requirements for IPO main body stipulated in related laws and rules, carry out due diligence on the restructured party and announce related opinions. For the issuance application documents, the accountant’s relevant documents concerning the restructured party and other documents related to financial and accounting materials shall, in line with requirements stipulated in Chapter Four and Chapter Eight of the Appendix of the “Rules No.9 on Contents and Format of Information Disclosure by Companies Publicly Issuing Securities—Application Documents for IPO & Listing of Stocks” (Zheng Jian Fa Xing Zi [2006] No.6), be submitted; and

(3) if the restructured party’s total assets at the end of the previous fiscal year of the restructuring or its business income or total profits of the previous fiscal year reaches or exceeds 20% of the issuer’s corresponding project before the restructuring, the latest balance sheet after the restructuring shall at least be included when reporting financial statements.

4. If connected transactions between the restructured party and the issuer occur in the previous fiscal year of the restructuring, the total assets, business income or total profits shall be calculated after excluding the above transactions.

5. If multiple restructurings occur in the previous fiscal year of the issuer’s submission of IPO application documents or within the same period, the restructuring’s influence on the issuer’s total assets, business income or total profits shall be calculated accumulatively.

6. If the restructuring is an enterprise merger under same controller stipulated in the “Accounting Standards No.20 for Business Enterprises -- Enterprise Merger”, the restructured party’s net profit and loss before the restructuring shall be counted into extraordinary profit and loss and be listed solely when reporting financial statements.

If the restructuring is a non-enterprise-merger under same controller, and the restructured party’s total assets at the end of its previous fiscal year of the restructuring or its business income or total profits of the previous fiscal year reaches or exceeds 20% of the issuer’s corresponding project before the restructuring, it shall be assumed that the company’s frame after the restructuring have existed at the very beginning of the submission of statements while compiling the issuer’s latest-three-year and latest reference profit statements. In addition, opinions of the reporting accountant shall also be provided.

Source: Dept. of Legal Affairs