Due Diligence Guidelines –
Sponsor Appointment, Fees, Staffing and Controls
Appendix I – Sample Provisions Suggested to be Included in a Sponsor’s Engagement Letter
The Company acknowledges the regulatory obligation of [•] (the “Sponsor”) to notify The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) as soon as practicable upon its appointment as sponsor and agrees that the Sponsor may provide a copy of this Agreement to the Stock Exchange in order to discharge its obligation to so notify the Stock Exchange.
The Company acknowledges and agrees that if the Sponsor (i) ceases to act as the Company’s sponsor at any time after its appointment and before completion of the listing (regardless of whether a listing application has been submitted) or (ii) resigns or is terminated from acting as the Company’s sponsor during the processing of the initial listing application, then the Sponsor is required to inform the Stock Exchange in writing of its reasons for ceasing to act and notify the Stock Exchange in writing of its resignation or termination, in each case as soon as practicable.
The Company hereby waives any duty of confidentiality by the Sponsor in respect of, and authorises the Sponsor (including its employees, contractors, agents, and assignees) to effect as it deems appropriate, the disclosure of any information or records to the Stock Exchange and/or the Hong Kong Securities and Futures Commission (the “SFC”) (the “Waiver”).
The Company acknowledges and agrees that:
(i) this may include and is not limited to reports, evaluations and notes of any kind, contained in any record-keeping system maintained by or on behalf of the Sponsor; and
(ii) the Sponsor has no control over how the Stock Exchange will use or disseminate the information.
The Company and its directors acknowledge and agree that the Sponsor is required to meet its obligations and responsibilities under the Code of Conduct for Persons Licensed by or Registered with the SFC (the “Code of Conduct”) and the Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time, the “Listing Rules”) and further agree that the Company and its directors shall promptly on request provide the Sponsor with all materials and other assistance which the Sponsor requests from time to time with a view to meeting such obligations and responsibilities, including but not limited to:
(i) fully assisting the Sponsor to perform all due diligence work and investigations which the Sponsor deems appropriate;
(ii) procuring all relevant parties engaged by the Company in connection with the listing application (including, without limitation, financial advisers, experts and other third parties) to cooperate fully with the Sponsor to facilitate the Sponsor’s performance of its duties;
(iii) giving every assistance to the Sponsor to meet its obligations and responsibilities under the Code of Conduct and the Listing Rules to provide information to the Stock Exchange, the SFC and other regulators, including, without limitation, notifying the regulators of reasons when the Sponsor ceases to act;
(iv) enabling the Sponsor to gain access to all relevant records in connection with the Company’s listing application, and in particular ensuring that terms of engagement with experts retained to perform services related to the listing application, whether or not retained in respect of an expert section, contain clauses entitling the Sponsor to access (including, amongst other things, the right to take copies of the documents without charge) to:
(a) any such expert;
(b) the expert’s reports, draft reports (both written and oral) and terms of engagement;
(c) information provided to or relied on by the expert;
(d) information provided by the expert to the Stock Exchange or the SFC; and
(e) all correspondence exchanged (1) between the Company or its agents and the expert and (2) between the expert and the Stock Exchange or the SFC;
(v) keeping the Sponsor informed of any material change to any information previously given to the Sponsor under paragraph (iii) above and any information previously accessed by the Sponsor under paragraph (iv) above;
(vi) providing to or procuring for the Sponsor all necessary consents to the provision of the information referred to in paragraphs (i) to (v) above to the Sponsor; and
(vii) procuring the entering into of such supplements to the engagement letters with experts referred to in rule 3A.05(4) of the Listing Rules as is necessary for such engagements of experts to comply with that rule.
The Sponsor will be acting as [the sole/the primary/a] sponsor in connection with the Company’s application to list the [securities] on the Stock Exchange. The Company acknowledges that (i) as a sponsor, the Sponsor owes certain regulatory duties to the Stock Exchange and the SFC (which regulatory duties are owed to no other party), (ii) as a sponsor, the Sponsor has to perform certain duties and meet certain obligations under the Code of Conduct and the Listing Rules, and (iii) the Sponsor can fulfill these duties only with the Company’s full assistance and cooperation. The Company acknowledges and agrees that these duties and obligations represent a potential conflict of interest with the duties and obligations the Sponsor owes to its clients.
The Company agrees to release, indemnify and hold harmless the Sponsor (for itself and as agent for its employees, contractors, agents and assignees) from any and all claims of any kind arising out of or in connection with the release or use of any information or records in meeting its obligations and responsibilities under the Code of Conduct in connection with this transaction.
The Company agrees to pay the Sponsor a fee of [HK$[•]] to act as a sponsor to the Company in its proposed listing on the Stock Exchange. Such fee relates solely to services provided by the Sponsor as sponsor, and not any other services which it may provide, such as (without limitation) bookbuilding, pricing and underwriting.
The Company acknowledges and agrees that:
(i) its responsibility for the Sponsor’s fee and expenses hereunder is not contingent on the success or the final size of the Offering; and
(ii) any termination of this Agreement will not affect any accrued rights or obligations of the parties hereunder, [including pursuant to the provisions relating to the payment of the Sponsor’s fee and expenses].
The Company further acknowledges and agrees that the total amount of Sponsor’s fee paid and payable will be disclosed in the prospectus.
Option 1 – Milestone payments
The Sponsor’s fee will be payable by the Company in accordance with the following timetable:
(i) within [•] days of the submission of the listing application (Form A1) to the Stock Exchange: [HK$[•]] / [[•]% of the sponsor’s fee], plus [all accrued] out-of-pocket expenses;
(ii) within [•] days of the listing hearing: [HK$[•]] / [[•]% of the sponsor’s fee], plus [all accrued] out-of-pocket expenses; and
(iii) on the Listing Date: [HK$[•]] / [[•]% of the sponsor’s fee], plus [all accrued] out-of-pocket expenses.
Option 2 – Payable on successful listing or a long stop date, whichever is earlier
The Sponsor’s fee will be payable on the earlier of the Listing Date or [•] (the “Long Stop Date”); provided, however, that if this Agreement is terminated on or before the Long Stop Date, the Company shall pay the Sponsor the following amounts, plus [all accrued] out-of-pocket expenses, in accordance with the milestones achieved:
(i) submission of the listing application (Form A1) to the Stock Exchange: [HK$[•]] / [[•]% of the sponsor’s fee]; and
(ii) completion of the listing hearing: [HK$[•]] / [[•]% of the sponsor’s fee].
Sponsor’s Fee Deduction
On completion of the Listing, an amount equal to the Sponsor’s fee received shall be deducted from the underwriting commissions receivable by the Sponsor pursuant to underwriting agreements; provided, however, that in the event the Listing is not completed, the Sponsor’s fee shall be due and payable as otherwise set forth herein.
HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. See here for the full terms and conditions.