StockName：Wazhou B StockCode：200706 No.：2014-42 Wafangdian Bearing Co., Ltd. Notice of Administrative
Regulations Decision Received from Dalian Supervision Bureau
The Company, 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.
The Administrative Regulations Decision[2014] No.7: Decision of Ordered to Take Corrective Action for Wafangdian Bearing Co., Ltd. issued by Dalian Supervision Bureau of CSRC (Dalian Supervision Bureau or the Bureau for short) was received by the Company on 8 December 2014, reads as follows:
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 Company for annually and quarterly are deploy and deliver by Wazhou Group, and made a comprehensive regulation for the Company in aspect of finance, budget, sales and procurement.
2. Wazhou Group leading theCompany’s accident identified and treatment of production responsibility. There was a work safety accident occurred on 29 April 2014, the Group carried out investigation and corresponding responsibilities, circulate a notice of criticism and penalty on many people in the Company, including GM and deputy GM.
3. Related seals of the Company are keeping by the Group. Official chop of the Group and Company, seal of the GM and party committee chop are kept in same department (HQ office) and same person (workers in the Group). Official chop of the Company are available unless sign by senior executive of the Wazhou Group.
4.Group’s planning development department in charge of equipment and fixed assets procurement for the Company. Agreement for part of the assignment of debts is draft, sign and seal by planning development department.
5. The Group regulated a standards and procedures forCompany’s travelling expenses, marketing costs and staff recognition awards.
(II) Staff lacks independence
StockName：Wazhou B StockCode：200706 No.：2014-42 1. Substantive personnel cross. Part of the senior executives of Group takes no position in the Company though; however, they actually exercise executive responsibilities in way of taking mid-manager or managing relevant business division of the Company.
2. Appoint and dismiss of the above middle-level managers are decided by party-policy joint committee of the Group, the Company has no decision-making authority. According to the Manager Appointment Method of Wazhou Group, party-policy joint committee of the Group in charge of researching and decision appointment and dismissal for theGroup’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 Company (functional department, subsidiary, branch and sub-plant); attendee of party-policy joint committee refers to the middle-level cadres above of the Group. The Company can not decide on their own in aspect of mid-level aboveemployee’s appoint and dismiss.
3. Relevant document shows that Wazhou Group can transferCompany’s employee participate in the works related to the Group.
4. Wazhou Group leading evaluation and rewards of above middle-level managers of the Company. In line with Manager Appointment Method of Wazhou Group, 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 Company (functional department, subsidiary, branch and sub-plant); Organization department of the Group issued evaluation notice every year and deploy annual evaluation works; commend and reward forCompany’s staffs are manage by Wazhou Group.
(III) Organization of the Company lack independence: Wazhou Group, HR dept. of the Company, office and operation management dept. are work in one office without well-defined segregation of duties between the Company an Wazhou Group, of which, 14 staffs work in HR dept. with salary offer by the Company; 18 staffs work in operation management dept. with 11 of them obtained salary from the Company.
StockName：Wazhou B StockCode：200706 No.：2014-42 (IV) Finance of the Company lack independence: 1. Wazhou Group put forward the specific requirement on financial report preparation of the Company, 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. 2. Wazhou Group put forward the specific requirement on financial management of the Company: Financial revenue and expenditure are centralized control and procurement by the Group; strengthen budget management, established serious approval rules for extra-budgetary funds and expenses; centralized control for the fixed assets and account receivables. 3. Monthly expenditure of the Company is decided in capital brief meeting, and recognized with co-signed with relevant seniors of the Group and Company, who participate in the brief meeting. 4. Routine spending application of the Company should be co-signed with senior of the Group as well as the Company. The above mentioned shows that the Company serious lack of independence and out of the rules of Article 22, 23, 25, 26 and 27 under Governance Standards for Listed Company.
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. Including: associated procurement with Jinzhou Company exceed the expected amount RMB 32.18 million, and exceed expected amount of RMB 60.78 million with Zhuanpan Company in associated procurement; the new equipment leasing of the Group RMB 12.94 million is out of the scope in original approval budget. Pursuit to relevant regulations, if the actual routine related transactions exceed the total budget, the Company should disclose the information and approve the excess amount in Board Meeting or General Meeting. The first routine related transaction should be disclosed and entered into a written agreement; submit for approval in the Board Meeting or General Meeting according to the amount involved in transactions. If the agreement has no specific transaction amount carried, submit for approval in General Meeting. Part of the related transactions exceed the expected amount and part of the new associated transactions occurred in the year are not disclose publicly.
(II) Guangyang Wazhou, is not released as a related party; and no disclosure of related transaction with Guangyang Wazhou
StockName：Wazhou B StockCode：200706 No.：2014-42 Guangyang Wazhou is the joint-stock company of the Group,45% equity is held by the Group, and consider as related party of the Company. The two parties entered into a warehousing distribution services in 2010; the RMB 9.93 million finance flows in 2013 are not released.
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. Including: associated procurement with Jinzhou Company exceed the expected amount RMB 32.18 million, and exceed expected amount of RMB 60.78 million with Zhuanpan Company in associated procurement; the new equipment leasing of the Group RMB 12.94 million is out of the scope in original approval 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.
(II) Part of the related transaction has inversion approval procedures
As the expected amount RMB 12.94 million related transaction between the Company 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.
(III) Part of the borrowings has inversion approval procedures
TheCompany’s balance of borrowings at end of the period for year of 2013 amounting as RMB 658 million, borrowing items are been approved respectively in the Board Meeting and General Meeting dated 19th April 2013 and 19th June 2013. The RMB 50 million loans from Wafangdian Branch of ABC and RMB 90 million loans from Ex-im Bank are entered into the Borrowing Contract before 19th April, the date approved in Board Meeting; the RMB 60 million loans from Wafangdian Branch of ABC is entered into the Borrowing Contract before 19th June, the date approved in General Meeting. The above mentioned loans are signed without the authority for examination and approved, an inversion approval procedures presence.
(IV) Part of the items is not in conformity with Article of Association
StockName：Wazhou B StockCode：200706 No.：2014-42 1. According to Article 110 of the Article of Association under the name of the Company: the Company has ONE deputy chairman. Currently the Company has no deputy chairman, which is not in conformity with the Article of Association.
2. Article 96 of the Article of Association under the name of the Company is not in conformity with the Guidelines of Article of Association for Listed Company.
(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.
2. There is no GM meeting held since November 2013, meet no requirement of the rules of GM.
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 Company, due to historical reasons or objective factors.
(II) Part of the plant of the Company has no house property certificate
Totally 7 production houses of the Company have no house property certificates, original value RMB 84.0985 million involved, net value of RMB 73.1312 million, and integrity of listedcompany’s assets are affected.
In line with the article 21 of On-site Inspection Method for Listed Company, article 59 of Information Disclosure Method of Listed Company and relevant regulation of Rules of Corporate Governors for Listed Company, we ordered to correct regulatory measures on the Company. The Company should put a new premium on the above mentioned issued, corrected the above mentioned behavior in time to achieve regulation of corporate governance and meet requirement of a real, accurate, complete and timely information disclosure as well as the financial management regulation. Director, supervisors and seniors of the Company should seriously learn the rules of securities laws to achieve a standard operation.
The Company should disclose the information and notify controlling shareholder and actual control within 2 working days after the Decision received. Board of the
StockName：Wazhou B StockCode：200706 No.：2014-42 Company should propose practicable rectification measures and plans for the above mentioned issued, submit a written report to the Bureau within 30 days since the Decision received, and disclose the Board meeting resolution of rectification as well as the opinions of supervisory committee. The Bureau will undertake follow-up inspection on rectification of the Company.
The company pay high attention to the decision made by Dalian securities supervision and administration bureau, will makes details statement in time, put forward workable rectification measures and submit written rectification report to Dalian securities supervision and administration bureau
Board of director of Wafangdian bearing Co., Ltd December 9,2014