Unofficial translation courtesy of Squire,Sanders Dempsey LLP PROVISIONS ON ACQUISITION OF DOMESTIC ENTERPRISES BY FOREIGN INVESTORS TABLE OF CONTENT CHAPTER I GENERAL PROVISIONS CHAPTER II】 BASIC SYSTEM CHAPTER III EXAMINATION,APPROVAL AND REGISTRATION CHAPTER IV ACQUISITION OF DOMESTIC COMPANY BY FOREIGN INVESTOR THROUGH PAYMENT OF EQUITY INTERESTS SECTION 1 CONDITIONS OF EQUITY ACQUISITION SECTION 2 APPLICATION DOCUMENTS AND PROCEDURES SECTION 3 SPECIAL PROVISIONS ON SPECIALLY-PURPOSED COMPANIES CHAPTER V ANTI-MONOPOLY INVESTIGATION CHAPTER VI SUPPLEMENTARY PROVISIONS Chapter I General Provisions Article 1 These Provisions are formulated pursuant to laws and administrative regulations for foreign-invested enterprises("FIEs"),Company Law and other related laws and administrative regulations in order to promote and regulate investments in China by foreign investors,introduce advanced foreign technology and management expertise,make more effective use of foreign investment,realize the rational allocation of resources,ensure employment and safeguard fair competition and the economic security of the State. Article 2 For the purposes of these Provisions,the term"acquisition of domestic enterprises by foreign investors"means a foreign investor's purchase by agreement of the equity interests of a shareholder in an enterprise other than a FIE (hereinafter referred to as the"Domestic Company")or subscription to a Domestic Company's capital increase,resulting in the conversion of the Domestic Company into a newly established FIE (hereinafter referred to as the "Equity Acquisition");or a foreign investor's establishment of a FIE and purchase by agreement,through such FIE,of the assets of a domestic enterprise and operation of such assets,or a foreign investor's purchase by agreement of the assets of a domestic enterprise and use of such assets to
TrunslutionSquire,Sanders Dempsey L.L.P. invest in and establish a FIE to operate such assets(hereinafter referred to as the “Asset Acquisition'". Article 3 When a foreign investor acquires a domestic enterprise,it shall abide by Chinese laws,administrative regulations and rules and regulations and adhere to the principles of fairness,reasonableness,compensation of equal value and good faith.It shall not cause over-concentration to eliminate or restrict competition,disturb the socio-economic order,damage the public interest or the loss of state-owned asset. Article 4 A foreign investor intending to acquire a domestic enterprise shall satisfy the requirements of Chinese laws,administrative regulations and rules and regulations concerning investor qualifications and industrial,land and environmental protection policies. An acquisition shall not result in a foreign investor owning all of the equity interests of an enterprise in an industry in which,pursuant to the Foreign Investment Industrial Guidance Catalogue,a foreign investor is not permitted to operate by way of a wholly foreign-owned enterprise.After the acquisition of an enterprise in an industry in which the Chinese party is required to have a controlling interest or a relative controlling interest,the Chinese party shall continue to have a controlling interests or relative controlling interests in the enterprise.A foreign investor may not acquire an enterprise engaged in an industry which operation by foreign investors is prohibited. The original business scope of the domestic enterprise being acquired shall comply with the requirements for the foreign investment industrial policy;if such requirements cannot be met,adjustment thereto shall be made. Article 5 If a domestic enterprise being acquired by a foreign investor involves the transfer of its state-owned assets and administration of state-owned equity of a listed company,such acquisition shall comply with relevant regulations governing state-owned assets. Article 6 When a foreign investor acquires a domestic enterprise and establishes a FIE,it shall obtain the approval of the examination and approval authority in accordance herewith and carry out the procedures for amendment of registration or establishment registration with the registration administration authority. If the enterprise being acquired is a domestic listed company,it shall also carry out relevant procedures with the securities regulatory authority of the State Council pursuant to the Measures Governing Strategic Investment Made by Foreign Investors in Listed Companies. Article 7 The parties involving in the enterprise being acquired by a foreign investor shall pay taxes in accordance with tax regulations of China and accept supervision of tax authorities. Article 8 The parties involving in the enterprise being acquired by a foreign investor shall handle procedures with the relevant authority in charge of administration of foreign exchange ("forex")for forex approval,registration,filing 2
Translation Sqnire,Sanders Dempsey L.L-P. and amendment in a timely manner in compliance with Chinese forex laws and administrative regulations. Chapter II Basic System Article 9 If the foreign investor's contribution to the registered capital of the FIE established after the acquisition is more than twenty five percent(25%)thereof,such enterprise shall enjoy treatment of a FIE. If the foreign investor's capital contribution to the registered capital of the FIE established after the acquisition is less than twenty five percent(25%),such enterprise thus set up shall not enjoy treatment of a FIE and any foreign loans it may borrow shall be handled in accordance with the relevant regulations governing foreign loans borrowed by non-FIEs,except otherwise provided by laws and administrative regulations.The examination and approval authority shall issue to such enterprise a FIE approval certificate (hereinafter referred to as the "Approval Certificate"or "COA"),which shall be remarked with such words as "foreign investment ratio less than twenty five percent (25%)",and the registration administration authority and forex administrative authority shall issue,respectively,to such enterprise a FIE's business license ("Business License")and forex registration certificate ("Forex Certificate")also remarked with such words as "foreign investment ratio less than twenty five percent(25%)". Acquisition by a Domestic Company,enterprise or natural person of an affiliate company of such Domestic Company in the name of an overseas company lawfully established or controlled outside China,such enterprise thus set up shall not enjoy treatment of a FIE,unless the overseas company subscribes to any increased capital of the Domestic Company or contributes additional capital to such enterprise newly formed after acquisition and the amount of the increased capital exceeds twenty five percent(25%)of such new enterprise's registered capital.Where the contribution made by any foreign investor other than the actual controlling party of the FIE established by way mentioned in this Clause to the registered capital of such enterprise is higher than twenty five percent(25%)thereof,such enterprise shall enjoy treatment of a FIE. Treatment enjoyable by the FIE newly established through acquisition of any domestic listed company by a foreign investor shall be subject to relevant provisions of the state. Article 10 The examination and approval authority referred herein shall be the Ministry of Commerce ("MOFCOM")or the provincial level commercial authority of the People's Republic of China(hereinafter referred to as the "Provincial Level Examination and Approval Authority").The registration administration authority shall be the State Administration of Industry and Commerce("SAIC")of the People's Republic of China or its authorized local administrative authority for industry and commerce.The forex control authority shall be the State Administration of Foreign Exchange("SAFE")or its branch offices
Trunstution Squire,Sanders Dempsey L.L.P. The Provincial Level Examination and Approval Authorities shall forward to MOFCOM for examination and approval the application documents for FIE to be established after acquisitions that,pursuant to laws,administrative regulations or departmental rules or regulations,are of a particular type or in a particular industry that requires the examination and approval of MOFCOM.The decision whether or not to grant approval shall be made by MOFCOM,in accordance with the law. Article 11 Application shall be made to MOFCOM for examination and approval of the acquisition of any company inside China affiliating to a Domestic Company, enterprise or natural person,which is made in the name of an overseas company lawfully established or controlled by such Domestic Company,enterprise or natural person. The parties concerned shall not circumvent any requirements set forth above by means of making domestic investment through a FIE or otherwise. Article 12 A party concerned in the acquisition by foreign investor of a domestic enterprise obtains the actual controlling rights of such enterprise shall apply to MOFCOM for examination and approval if such acquisition involves in any major industry,or has or may have an impact on the state economy security,or may result in transfer of the actual controlling right of the domestic enterprise owning any famous trademarks or traditional Chinese brands. If such party concerned fails to make application to MOFCOM and its acquisition causes or may cause significant impact to the state economy security,MOFCOM together with relevant authorities in charge can then demand that such party ceases the transaction transfers relevant equity interests,assets or take any other effective actions in order to eliminate the impact of such acquisition on the security of the national economy. Article 13 If a foreign investor carries out an Equity Acquisition,the FIE established after the acquisition shall succeed to the claims and debts of the acquired Domestic Company. If a foreign investor carries out an Asset Acquisition,the domestic enterprise that sold the assets shall bear its existing claims and debts. The foreign investor,the domestic enterprise to be acquired,creditors and/or other parties may otherwise agree on the disposal of the claims and debts of the domestic enterprise to be acquired,provided that such agreement does not prejudice the interests of a third party or the public.An agreement on the disposal of claims and debts shall be submitted to the examination and approval authority. A domestic enterprise that sells its assets shall dispatch a notice to its creditors and publish an announcement in a provincial or higher level newspaper distributed nationally fifteen (15)days before the investor submits relevant application documents to the examination and approval authority in charge. Article 14 The parties concemned in the acquisition shall use the evaluation results provided by the relevant asset appraisal organ regarding the value of the equity
Translation Squire.Sanders Dempsey L.L.P. interest to be transferred or the assets to be sold as the basis for its determination of the transaction price.The parties to such acquisition may reach agreement on their use of the asset appraisal organ legally established within China.Asset appraisal thus required shall adopt common international methods of appraisal.It is forbidden to assign equity interests or sell assets at a price that is manifestly lower than the appraisal result in order to transfer capital abroad in a covert manner. Acquisition of a domestic enterprise by a foreign investor that causes any change to the equity interests resulting from an investment of State assets or a transfer of title to State-owned assets shall be conducted in accordance with provisions on the administration of State-owned assets. Article 15 The parties to the acquisition shall state to make it clear whether or not there is any relation of affiliation between them;if both of them is actually under the common control of a same controlling party,they shall make disclosure thereof to the examination and approval authority in charge and provide further explanation with regard to whether or not the acquisition purpose and appraisal results conform to the fair market value.Neither of such parties concerned shall be allowed to circumvent the requirements set forth above by means of trusteeship,holding through agency or otherwise. Article 16 When a foreign investor acquires a domestic enterprise and establishes a FIE,it shall pay the entire amount of the consideration to the shareholder that transferred the equity interests or the domestic enterprise that sold the assets within three (3)months after the date of issuance of the FIE's Business License.In special circumstances requiring an extension,and subject to the approval of the examination and approval authority,the foreign investor shall pay at least sixty percent(60%)of the consideration within six (6)months after the date of issuance of the FIE's Business License and pay the balance in full within one(1)year,and its share of the gains shall be proportional to the capital contribution it has actually paid in. Where a foreign investor subscribes to any increased capital of a Domestic Company, the shareholder(s)of the limited liability company or the domestic shareholding company established by means of sponsorship shall contribute no less than twenty percent(20%)of the increased registered capital at the time such Domestic Company applies for its FIE Business License.The schedule for contributions to the rest of such enterprise's increased registered capital shall be in conformity to the Company Law,relevant laws and regulations on foreign investment and the provisions of the Regulations on Administration of Company Registration.Relevant stipulations of other laws and administrative regulations shall also be followed where necessary. When a shareholding company issues new stocks for purpose of increasing its registered capital,its shareholders shall comply with the provisions on payment of stocks for establishment of shareholding companies. When a foreign investor carries out an Asset Acquisition,the investors shall specify the time limits for making the capital contributions in the contract for and the articles of association of the FIE that is to be established.If a FIE is to be established and the assets of a domestic enterprise are to be purchased by agreement and operated by such FIE,then that part of the capital contribution that is equivalent to the consideration