StockName：Wazhou B StockCode：200706 No.：2015-04 Wafangdian Bearing Co., Ltd. Rectification Report of
Compel Corrective Decision by Dalian Supervision Bureau
The WBC, all the members of the Board of Directors and top management hereby guarantee the truth, accuracy and completeness of the information disclosure, no any false records, misleading statements and major missing contents.
Subject to the Compel Corrective Decision on Wafangdian Bearing Co., Ltd. (“Decision” for short) of Administrative Regulations Decision[2014] No.7 issued by Dalian Supervision Bureau of CSRC (“Dalian Bureau” for short), board of the WBC carried out study and conference between the whole directors, supervisors, senior executives and related staffs, analyzes reasons of the problem, and formulate the Rectification Report of Compel Corrective Decision by Dalian Supervision Bureau. The Rectification Report has been deliberated and approved by 1st extraordinary meeting of the Board 2015 and 1st extraordinary supervisory committee 2015 held dated 6 January 2015, details of the rectification are: After inspection, issues are found as
I. The corporation serious lack of independence
(I) Operation management lack independence
1. Operation plans and index of the WBC for annually and quarterly are deploy and deliver by WBGC, and made a comprehensive regulation for the WBC in aspect of finance, budget, sales and procurement.
Rectification measures: WBC will issued documents of annual/quarterly operation as well as index plan alone; and made independent overall regulations in aspect of theWBC‟s finance, budget, sales and procurement.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: will be Completed in Q1 2015 and specification for a long time
2. WBGC leading theWBC‟s accident identified and treatment of production responsibility. There was a work safety accident occurred on 29 April 2014, WBGC carried out investigation and corresponding responsibilities, circulate a notice of criticism and penalty on many people in the WBC, including GM and deputy GM.
Rectification measures: as for the identification and treatment of production accidents, the production safety committees issued documents and impose punishment by WBC.
StockName：Wazhou B StockCode：200706 No.：2015-04 Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: Completed and specification for a long time
3. Related seals of WBC are keeping by WBGC. Official chop of WBGC and WBC seal of the GM and party committee chop are kept in same department (HQ office) and same person (workers in the WBGC). Official chop of WBC are available unless sign by senior executive of the WBGC
Rectification measures: administrative management of the WBC and WBGC shall apart appropriate, establish an independent approval and management procedures for administrative documents and official seal.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: will be completed in Q1 2015 and specification for a long time
4. WBGC„s planning development department in charge of equipment and fixed assets procurement for the WBC. Agreement for part of the assignment of debts is draft, sign and seal by planning development department.
Rectification measures: equipment and fixed assets procurement of WBC shall be applied and implement relevant approval procedures, delegate planning development department of the WBGC for implementation; as for the assignment of debts, financial department of WBC in charge of drafting, signing and sealing the agreement.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: will be completed in the half year of 2015 and specification for a long time.
5. WBGC regulated a standards and procedures forWBC‟s travelling expenses, marketing costs and staff recognition awards.
Rectification measures:
1. WBC will issue standards and procedures in aspect of travelling expenses and marketing charge in line with relevant regulation of WBGC.
StockName：Wazhou B StockCode：200706 No.：2015-04 Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: will be completed before Q1 2015 and specification for a long time.
(II) Staff lacks independence
1. Substantive personnel cross. Part of the senior executives of WBGC takes no position in the WBC though; however, they actually exercise executive responsibilities in way of taking mid-manager or managing relevant business division of WBC.
Rectification measures: In line with Article of Association of WBC and Work Rules of the General Manager, improve staffing and labor division of the managers.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: will be completed before the end of 2015 and specification for a long time.
2. Appoint and dismiss of the above middle-level managers are decided by party-policy joint committee of WBGC, WBC has no decision-making authority. According to the Manager Appointment Method of WBGC, party-policy joint committee of WBGC in charge of researching and decision appointment and dismissal forWBGC‟s operation manager, notifying in way of written and issued contract. Organization department and human resources department (organization HR department for short) is the competent authority department of operation managers, in charge of organization for manager appointment. Manager including assistant and above staffs of the WBC (functional department, subsidiary, branch and sub-plant); attendee of party-policy joint committee refers to the middle-level cadres above of WBGC. WBC can not decide on their own in aspect of mid-level aboveemployee‟s appoint and dismiss.
Rectification measures: In line with Company Law, and Article of Association of WBC and Work Rules of the General Manager, appoint and dismiss of middle management is approve by meeting of the GM office, appointment and dismissal of above middle-level management (middle exclude) is approve by the Board.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
StockName：Wazhou B StockCode：200706 No.：2015-04 3. Relevant document shows that WBGC can transferWBC‟s employee participate in the works related to WBGC.
Rectification measures: Strictly divide the operating department of WBC and Wazhou Group, separate staff and obligations.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
4. WBGC leading evaluation and rewards of above middle-level managers of the WBC. In line with Manager Appointment Method of WBGC, Organization department and human resources department is the competent authority department of the managers, in charge of routine evaluation and management for managers. Manager including assistant and above staffs of the WBC (functional department, subsidiary, branch and sub-plant); Organization department of WBGC issued evaluation notice every year and deploy annual evaluation works; commend and reward forWBC‟s staffs are manage by WBGC.
Rectification measures: modify and perfect<Manager employment regulation of WBC>.From now on, Human resources department and operation management department of WBC is in charge of evaluation and reward for middle management, and submit for approval in meeting of GM office of WBC; full-time staff of the party affairs and labor union will approved by relevant party committee and labor union of WBGC.
Rectification completion expected date: will be completed in Q1 2015 and specification for a long time.
(III) Organization of the WBC lack independence:
WBGC, HR dept. of WBC, office and operation management dept. are work in one office without well-defined segregation of duties between WBC an WBGC, of which, 14 staffs work in HR dept. with salary offer by WBC; 18 staffs work in operation management dept. with 11 of them obtained salary from WBC.
Rectification measures: Business and staffs of the office shall strictly separate with WBGC,H&R department and operation management business and staff shall operate independently.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: will be completed before Q1 2015 and specification for a long time.
StockName：Wazhou B StockCode：200706 No.：2015-04 (IV) Finance of the WBC lack independence:
1. WBGC put forward the specific requirement on financial report preparation of the WBC, and make sure of the requirement as deliver financial statement before 6th of every month and financial analysis before 8th of every month; deliver financial status statement every quarter before 10th.
Rectification measures: Corrective strictly in line with the Governance Standards for Listed Company
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
2. WBGC put forward the specific requirement on financial management of WBC: Financial revenue and expenditure are centralized control and procurement by WBGC; strengthen budget management, established serious approval rules for extra-budgetary funds and expenses; centralized control for the fixed assets and account receivables.
Rectification measures: Manage the finance on their own by strictly according to relevant regulations of Company Law, Accounting Law and Governance Standards for Listed Company.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
3. Monthly expenditure of the WBC is decided in capital brief meeting, and recognized with co-signed with relevant seniors of WBGC and WBC, who participate in the brief meeting.
Rectification measures: Capital cost will manage by the Company
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
4. Routine spending application of the WBC should be co-signed with senior of WBGC as well as WBC.
Rectification measures: Re-decided the approval procedures and authority according to the division of managers of WBC.
StockName：Wazhou B StockCode：200706 No.：2015-04 Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
II. Issues in information disclosure
(I) Part of the related transaction are not released in line with the regulation
Compare with the budget approved in Annual General Meeting 2012, part of related transactions actually occurred in 2013 are out of the budget. Part of the related transactions exceed the expected amount and part of the new associated transactions occurred in the year are not disclose publicly.
Rectification measures: WBC will improve the related transaction budget management. Submit new related transaction for deliberation in the Board and general meeting of the Company to stop those mistakes happen again.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
(II) Guangyang Wazhou, is not released as a related party; and no disclosure of related transaction with Guangyang Wazhou
Guangyang Wazhou is the joint-stock company of WBGC,45% equity is held by WBGC, and consider as related party of WBGC.
Rectification measures: Listed Guangyang Wazhou in related party since 2015
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: Will be completed before the first half year of 2015 and specification for a long time.
III. Issues of corporate governance
(I) Part of the related transaction failure to act the decision approval
Compare with the budget approved in Annual General Meeting 2012, part of related transactions actually occurred in 2013 are out of the budget. Part of the related transactions exceed the expected amount and part of the new associated transactions occurred in the year are not acting the decision approval procedures.
StockName：Wazhou B StockCode：200706 No.：2015-04 Rectification measures: To estimate related transaction amount reasonably from now on, performing approval and disclosure procedures timely due to the new related transaction and the parts out of the transaction.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completedand specification for a long time.
(II) Part of the related transaction has inversion approval procedures
As the expected amount RMB 12.94 million related transaction between the WBC and related party in aspect of equipment leasing for year of 2014, the amount has been approved in Board Meeting dated 26th April and approved in General Meeting on 29th June, while relevant leasing agreement signed in February 2014, an inversion approval procedures presence.
Rectification measures: Performing approval and disclosure procedures timely from now on. Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
(III) Part of the borrowings has inversion approval procedures
Rectification measures: Performing approval and disclosure procedures timely from now on. Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
(IV) Part of the items is not in conformity with Article of Association
1. According to Article 110 of the Article of Association under the name of the WBC: the WBC has ONE deputy chairman. Currently the WBC has no deputy chairman, which is not in conformity with the Article of Association.
Rectification measures: The Company will elect the deputy chairman in line with regulation of Article of Association.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: Will be completed before the first half year of 2015 and specification for a long time.
StockName：Wazhou B StockCode：200706 No.：2015-04 2. Article 96 of the Article of Association under the name of the WBC is not in conformity with the Guidelines of Article of Association for Listed WBC.
Rectification measures: Amend the Article of Association of the Company.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: Will be completed before the first half year of 2015 and specification for a long time.
(V) Convening GM meeting is not in conformity with Rules of GM
1. Meeting minutes lack of standardization, no summary of the meeting carried out and only shows the record; no signature of the participants; meet no requirement of the rules of GM.
Rectification measures: According to requirement of Work Rules of the General Manager, after well-defined the management staff, standardized the minutes of meeting and record for the GM office meeting.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and perfect in Q1 2015.
2. There is no GM meeting held since November 2013, meet no requirement of the rules of GM.
Rectification measures: According to requirement of Work Rules of the General Manager, holding the meeting of GM office.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and perfect in Q1 2015.
IV. Issues of financial accounting
(I) Quality of financial accounting needs to be improved
From inspection, normative of the financial management needs a further strengthens; accuracy of financial accounting needs further improvement; accuracy of individual financial accounting fails to reach the requirement of accounting policy and accounting mechanism that formulated by the WBC, due to historical reasons or objective factors.
StockName：Wazhou B StockCode：200706 No.：2015-04 Rectification measures: The Company further to improve regulation of finance management from now on strengthens accuracy of the financial accounting and strictly follow method of financial accounting.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: completed and specification for a long time.
(II) Part of the plant of the WBC has no house property certificate
Totally 7 production houses of the WBC have no house property certificates, original value RMB 84.0985 million involved, net value of RMB 73.1312 million, and integrity of listedWBC‟s assets are affected.
Rectification measures: WBC rapid up the above said house property certificates.
Person in charge of rectification: Chairman Mr. Cong Hong, GM Mr. Shao Yang, CFO (Secretary of the Board) Ms. Sun Najuan;
Rectification completion expected date: The Company will take measures to make sure it can be completed as soon as possible.
The Company considers that the compel corrective decision has an important implications in improving the regulation knowledge in decision-making level and management level of the Company, and promoting understanding and practicing of relevant laws and regulations, guarantee a long-term and stable development of the Company. The Company takes warning and learns a lesson, actually corrected in accordance with requirements and plans; accept the supervision from the public and continues to improve the action of Wazhou Company.
The Company will take this opportunity, reinforce learning, improving knowledge, standard regulations, emphasis information disclosure, carried out active and effective measures to solve problems and issued thoroughly left over by history, effectively protect and guarantee interest of the shareholders and investors.
Board of director of Wafangdian bearing Co., Ltd January 7,2015