Issue of Convertible Bonds By Listed Companies Implementing Procedures (from government website)

Issue of Convertible Bonds By Listed Companies Implementing Procedures

Order of the China Securities Regulatory Commission [2001] No.2

April 26, 2001

Omitted

President , Zhou Xiaochuan

Issue of Convertible Bonds By Listed Companies Implementing Procedures

Part One General Provisions

Article 1 These Procedures have been formulated pursuant to the Company Law, the Securities Law, the Administration of Convertible Company Bonds Tentative Procedures and other relevant laws and regulations, in order to regulate the issue of convertible bonds by listed companies and protect the lawful interests of investors.

Article 2 These Procedures shall apply to applications by companies listed in China (Issuers) for the issue in China of convertible bonds to be subscribed to in Renminbi and the listing and trading of such bonds on the stock market.

Article 3 The China Securities Regulatory Commission (CSRC) exercises supervision and administration over the issue and listing, etc. of convertible bonds by listed companies in accordance with the law.

Part Two Conditions Of Issue

Article 4 To issue convertible bonds an Issuer shall meet the conditions of the Administration of Convertible Company Bonds Tentative Procedures.

Article 5 The securities company acting as lead distributor shall focus its examination of the Issuer on the matters set forth below and give an explanation of the same in its sponsorship letter and its opinion upon examination:
1. whether during the most recent three years and
Particularly the most recent year the Issuer distributed cash dividends; what percentage of the company's distributable profits were accounted for by the cash dividends; and the explanation on the distribution of cash dividends of the company's board of directors;
2. whether the Issuer's average distributable profits for the most recent three years would be sufficient to cover one year's interest on the convertible bonds;
3. whether the Issuer has made sufficient arrangements to discharge its due debts with cash;
4. whether the Issuer's core business is outstanding; whether the Issuer is competitive in its industry; whether its demonstrates relatively strong growth; and whether it has clear business development objectives for the foreseeable future;
5. whether the purpose for the proceeds is forecast to offer a relatively favourable return on investment; whether use of the proceeds from the previous issue was consistent with the original issue plan and, if the purpose of the proceeds from the previous issue was modified, whether the modification was in compliance with the relevant laws and regulations; and (unless the Issuer is a listed finance company) whether proceeds from the previous issue were invested in a financial institution such as a commercial bank or a securities company;
6. whether the Issuer's corporate governance is sound; whether operations during the last three years were in accordance with standards; whether the company's
Articles of association and amendments thereto comply with the Company Law and the relevant regulations of the CSRC; whether there were any serious irregularities in the shareholders' general meeting, board of directors, supervisory board or major decisions during the last three years; and whether the Issuer's senior management has been stable during the most recent three years;
7. whether the Issuer operates independently; whether it is independent in terms of its business, assets, personnel, financial affairs and organization, etc.; whether it has the ability to operate autonomously in a market-oriented fashion; and, if it produces or deals in goods, whether it has independent production, supply and sales systems;
8. whether the Issuer's assets are in the possession of the individual or legal person with actual control or in the possession of another affiliated
Party; and whether there are any other major relate-partyd transactions that prejudice the interests of the company;
9. whether the Issuer has undergone a major asset restructuring or carried out a major capital increase or reduction during the previous year and if so, whether the same was in compliance with the relevant regulations of the CSRC;
10. whether the Issuer's information disclosures during the previous three years were in compliance with relevant regulations; and whether there have been instances of penalties imposed for falsehoods, misleading statements or major omissions; and
11. other matters specified by the CSRC.

Article 6 The CSRC will not approve an Issuer's issue application if:
1. the Issuer has committed a major violation of laws or regulations during the most recent three years;
2. the purpose of the proceeds from the previous issue was changed without authorization and was not rectified in accordance with regulations;
3. the Issuer's information disclosures contain falsehoods, misleading statements or major omissions;
4. irregularities in the company's operations have resulted in serious consequences;
5. the Issuer's growth has been poor and there are material latent risks; or
6. another circumstance determined by the CSRC to seriously prejudice the interests of investors has arisen.

Part Three Submission, Examination And Approval Procedures

Article 7 Before an Issuer applies to issue convertible bonds, the shareholders' general meeting shall adopt a resolution to that effect.
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