Laws of the Shanghai Province

1. To work out regularly the city' s detailed list of projects encouraging foreign investment, collect intentions of foreign investors of merger and acquisition and release them through information network of the Assets and Equity Exchange and the relevant channels such as Shanghai Foreign Investment Promotion Center;

2. To accept foreign investors' applications for merger and acquisition, organize activities of project introduction, matchmaking and talks and promote transactions in light of authorization;

3. To verify qualification, business reputation, state of operation, state of finance and others of foreign investors who put forward intentions of merger and acquisition;

4. To organize intermediary organs to provide related services such as market investigation and research, information consultation, asset valuation and agency transaction to both parties to a merger and acquisition project;

5. To assist both parties to a merger and acquisition project in going through related formalities for submitting application for examination and approval and making alteration in the industrial and commercial registration.

Article 7
Foreign investors, when merging and acquiring this city' s State-owned enterprises, should conduct asset valuation, assets and equity transaction and assets and equity alteration registration according to relevant regulations. The following procedures should be followed:

1. Application
Foreign investors putting forward intentions of merger and acquisition should get the Application Form for Foreign Investors' Merger and Acquisition at the comprehensive service window, which shall, after acceptance, report to Shanghai Foreign Investment Commission for the record.

2. Asset Valuation
Both parties to a merger and acquisition project should entrust through consultation asset valuation organs with related qualifications with the duties of conducting valuation of assets of the merged and acquired State-owned enterprises in accordance with the State and this city' s relevant laws and regulations. The valuation results shall be submitted to the municipal assets examination and approval center for confirmation.

3. Agency Signature of Contract
Both parties to a merger and acquisition project should entrust qualified assets and equity brokerage organizations with the duties of conducting assets and equity transactions and sign the Commission Contract for Shanghai Assets and Equity Transactions with them. The assets and equity brokerage organizations shall work out the Contract for Shanghai Assets and Equity Transactions and sign the contract on behalf of both parties to the transaction according to their entrustment and this city' s relevant regulations.

4. Assets and Equity Transfer and Alteration in Assets and Equity Registration
The transfer of the assets and equity of State-owned enterprises should be conducted in the Assets and Equity Exchange. The Assets and Equity Exchange should verify the Contract for Shanghai Assets and Equity Transactions and related documents and write a certificate of assets and equity transaction in accordance with the State and this city' s relevant regulations.
After signing the contract, the merged and acquired State-owned enterprises should go through the formalities of canceling or altering State-owned assets and equity registration according to the regulations.

Article 8
Modes of market operation shall be adopted in foreign investors merging and acquiring this city' s State-owned enterprises. Tender, invitation to tender, auction and transfer by agreement shall be adopted. The merger and acquisition can also be conducted in accordance with this city' s relevant regulations of assets and equity transfer.
The transaction price of this city' s State-owned enterprises merged and acquired by foreign investors shall be based on the approved asset valuation results as reference.

Article 9
Where the control power of the enterprise is transferred to or all or main operating assets of the enterprise are sold to foreign investors after State-owned assets and equity transfer, both parties to a merger and acquisition project should work out a plan of enterprise restructuring and a plan of appropriate rearrangement of employees and submit them to the employee congress for examination and approval.

In the process of foreign investors merging and acquiring this city' s State-owned enterprises, necessary economic compensations for employees in the merged and acquired enterprise because of termination of the employment contract to stop labor relation, reduction of employees and cancellation of contract without fault shall be implemented according to relevant stipulations in the Regulations of Shanghai Municipality on Labor Contract.

Article 10
The merging and acquiring enterprise shall, after receiving the certificate of assets and equity transaction, submit relevant documents of both parties to a merger and acquisition project to Shanghai Foreign Investment Commission for examination with the help of the comprehensive service window. The following documents shall be submitted:
Application report for the merger and acquisition project;
Document of approval for the merged and acquired State-owned enterprise selling assets and transferring equity;
Contract, articles of association and their appendixes of the foreign-invested enterprise set up by foreign investors after the merger and acquisition;
Agreement on foreign investors purchasing equity of the State-owned enterprise or subscribing its increased capital;
Certificate of assets and equity transaction;
Financial audit report for the latest financial year of the merged and acquired State-owned enterprise;
Asset valuation report and confirmation of the merged and acquired State-owned enterprise;
Business Licenses of the merged and acquired State-owned enterprise and the enterprise in which it invests;
Identification certificate or business starting certificate and credit certificate of foreign investors;
Explanation of the situation of the enterprises in which the merged and acquired State-owned enterprise invests;
Employee rearrangement plan of the merged and acquired State-owned enterprise;
Other necessary documents.

Shanghai Foreign Investment Commission shall issue document of approval and certificate of approval to those merging and acquiring enterprises conforming to the requirements within 10 working days as of the date of receiving the submitted documents.

Article 11
Both parties to a merger and acquisition project should go through the formalities of registration and alteration of registration at the administrative departments of industry and commerce within the specified time limit, after the approval of Shanghai Foreign Investment Commission.

1. The merged and acquired party should go through the formalities of transferring domestic-invested enterprises to foreign-invested ones at the original registration department. The following documents shall be submitted:
Application for Alteration of Corporate Registration;
Application report;
Written reply of Shanghai Foreign Investment Commission;
The original and copy of Business License and Identification Card;
Other necessary documents.

2. The merged and acquired party should also go through the formalities of alteration of registration at the competent department for foreign-invested enterprise registration. The following materials shall be submitted:
Application for Alteration (Filing) of Registration of Foreign-invested Enterprise
Certificate of Approval for Change of Enterprise Name (except those with their enterprise names unchanged);
Written reply and certificate of approval of Shanghai Foreign Investment Commission;
Certificate of assets and equity transaction and Contract of Assets and Equity Transaction;
Appraisal report and confirmation about the merged and acquired State-owned enterprise;
Certificate of business starting registration of the merging and acquiring party;
Bank credit certificate of foreign investors;
Contract and Articles of Association of the enterprise;
Documents for holding office of members of the board of directors;
Copies of identification certificates of board directors;
Certificates of usage of residence and production and operation site (Certificate of Real Estate Ownership, Certificate of Land Usage or Agreement for Lease with the lease period of at least 1 year);
Other necessary documents.

3. Administrative departments of industry and commerce issue the business license within 10 working days according to relevant regulations after receiving the materials of both parties to a merger and acquisition project for registration or alteration of registration.

Article 12
Both parties to a merger and acquisition project should go through related formalities of alteration of certificate of ownership at relevant departments such as taxation, customs, bank, real estate, foreign exchange control and public utilities within 30 days as of the date of issuing the business license.

Article 13
Where the proportion of the actually paid funds of foreign investors in the merged and acquired State-owned enterprises, exceeds 25% (including 25%) of their registered capital, they enjoy the treatment of Sino-foreign joint equity ventures.
Where the proportion of the actually paid funds of foreign investors in the merged and acquired State-owned enterprises, is less than 25% of their registered capital, the examination and approval bodies and competent organizations for registration should add the words of "the proportion of foreign funds less than 25%" on the certificate of approval and the business license of foreign-invested enterprises.

Article 14
If foreign investors set up foreign-invested enterprises after merging and acquiring this city' s State-owned enterprises, they should pay the total transaction price to the shareholders who have transferred their equity or this city' s enterprises which have sold their assets within 3 months as of the day of issuing the business license of the foreign-invested enterprises. In special cases where the time limit must be extended, the foreign investors, through the approval of the examination and approval bodies, should pay more than 60% (including 60%) of the transaction price within 6 months as of the day of issuing the business license of the foreign-invested enterprises and pay the total transaction price within 1 year. Profits shall be distributed according to the proportion of their actually paid funds.

If foreign investors set up foreign-invested enterprises after merging and acquiring this city' s State-owned enterprises and the proportion of their funds, which they provide in cash, is less than 25%, they should provide the funds within 3 months as of the day of issuing the business license of the foreign-invested enterprises.

Means of payment of the transaction price should conform to the State relevant laws, regulations and rules. Subject to the approval of the department in charge of foreign exchange, foreign investors may take the shares at their disposition or their legally owned RMB assets as the means of payment.

Article 15
In the process of foreign investors merging and acquiring State-owned enterprises, the policies relating to tax and fee collection shall be implemented according to the State and this city' s relevant laws, regulations and rules.

Article 16
Where persons correlated to the merged and acquired State-owned enterprises and workers in government bodies responsible for examination and approval overstep their authority, neglect their duties or secretly collude with foreign investors, embezzle money and take bribes, impair the rights and interests of the State, creditors and employees, they shall be punished with disciplinary sanction and administrative penalty by relevant departments according to law. If their acts constitute crimes, they shall be prosecuted according to law for the criminal liability.

Article 17
The Rules shall be applied to enterprises and other economic organizations or individuals in Hong Kong, Macao and Taiwan to merge and acquire this city' s State-owned enterprises.

Article 18
Shanghai State-owned Assets Supervision and Administration Commission, Shanghai Foreign Investment Commission and Shanghai Administration of Industry and Commerce shall be responsible for the interpretation of the present Rules.

Article 19
The present Rules shall become effective as of the date of promulgation.