Definition of special purpose company: (No. 37 Document) the special purpose company (SPC) refers to overseas enterprise incorporated directly or indirectly controlled by domestic resident legal person or domestic resident natural person with the assets or equity of domestic enterprise for the purpose of overseas equity financing (including convertible bond financing).

The first stage is business negotiation stage. The enterprise shall prepare overseas financing business proposal according to necessities and feasibilities of overseas financing and listing so that the overseas strategic investors could know current status and development prospect of the Enterprise; carry out early stage business negotiation, and reach preliminary intention for financing.

The second stage is establishing financing platform. The shareholder of private enterprise shall apply to Foreign Exchange Administration to set up overseas SPC (SPCs).

The third stage is purchase stage. As the acquisition entity, the SPC shall apply to local foreign investment competent department to purchase all equities of the private enterprise. After the approval is acquired, the private enterprise shall handle business license and foreign exchange registration certificate of foreign-invested enterprise; meanwhile, the shareholder of the private enterprise shall handle overseas investment foreign exchange registration and capital increase change for the assets inputted to the SPC.

The fourth stage is the financing stage. The overseas strategic investor inputs amount no less than net assets appraised of domestic enterprise to SPC by means of “debt before share” as the loan to such company;after the company acquires financing,the shareholder of private enterprise shall handle change in foreign exchange registration for overseas investment; the SPC shall pay fund to the shareholder of domestic private enterprise, and perform the acquisition payment obligation regulated in Provisional Regulations on Domestic Enterprise Acquisition of Foreign Investors. After aforesaid procedures are finished, SPC shall issue shares to the overseas strategic investor as loan repayment.

The fifth stage is the listing stage. The SPC acquires domestic assets and equity, prepares prospectus according to listing rules of overseas securities exchanges and applies for overseas listing.

The sixth stage is the fund capital repatriation stage. After SPC finishes overseas financing, domestic residents may transfer back the fund which should be used for domestic arrangement according to business plan or fund use plan stated in the prospectus. Where SPC uses fund acquired from overseas financing in round-trip investment or provides shareholder’s loan and other debts to domestic enterprises, relevant domestic enterprises shall handle relevant foreign exchange management procedures according to current fund use and foreign debt management laws and regulations.

Aforesaid procedures are only the basic steps. There may be various changes and combinations for financing procedures of domestic private enterprises with different backgrounds and conditions in view of other aspects probably involved according to actual situations, such as background of shareholders, business types, assets scale and structure, industrial laws and regulations regarding business.

VIE architecture could, on the one hand, avoid supervision of relevant domestic government departments on foreign investment, and on the other hand, realize profit transfer and financial statement consolidation between domestic entities and overseas entities in terms of finance so as to realize the purpose of overseas financing and overseas listing of domestic entities. Aforesaid roles of VIE architecture are mainly realized through several agreements signed between WOFE (wholly owned foreign enterprise) incorporated in China and domestic entities and their shareholders.

Head Office Address: 16F, 1# Building, Apple Community North District, No.32 Baiziwan Road, Chaoyang District, Beijing

Postcode: 100022

Senior Consultant: Mr. Wang, the Manager

TEL: 010-58263861

Mobile: 13071117920