HowtoWriteaDueDiligenceReport如何寫盡職調(diào)查報告

HowtoWriteaDueDiligenceReportforInvestmentPurposesTheMostPopularDraftingModelforMemosandDDReportIntheUnitedStates’legaleducationorpractices,IRACstructureisthemostusedwritingprocessforeachandeverylegaldocument.Itisefficient,andveryeasilytobegrasped.IissueRrulesandcases,backgroundAanalysisCconclusionWecancomparethisstructurewithourChinese’sclassicalwritingmethods:qi(起),cheng（承）,zhuan（轉(zhuǎn)）,andhe（合）.TheInvestmentModelAninternationalinvestorwishestoputsomecapitalmoneyintoadomesticcompany,wecallitatargetcompany,andafterthetargetcompanyearnsenoughprofits,forinstance,thecompanycanmakeanIPOinChinasecuritiesmarket,thentheinvestormaywithdrawitinvestment,plusthepremiuminterestsorprofitsfromthecompany,bytransferringthesharesithasinthetargetcompany.Itshouldbenotedthatinthisprocess,theinvestorshalldealwiththeshareholdersofthetargetcompany.AtcurrentChinafinancialmarket,probablyalltheshareholderswishtogotothepublicmarkettoattractmoreinvestment,sodealingwiththeseshareholdersisnotamajorproblem.Themajorproblemishowtoavoidthelegalandthefinancialrisksintheinvestment.Whatiftheinvestmenthassomelegalobstaclesthatprohibititfromwithdrawal?ThisisthekeyissueandthemostimportantconcernintheDDReport.DefinitionAduediligencereport,alsocalledDDReport,isawidelyusedlegaldocumentintoday’slegalpractice.Especiallyininternationalinvestmentactivities,DDReportcanhelptheinvestortomaketherightdecisionforitsinvestmentstrategies.WhatisaDDReport?Wecandefinethelegaldocumentasthekeyandbasicinformationaboutatargetcompany’sfinanceandmanagement.Theinformationcanshowtherisksorthebenefitsfortheinvestments.Beforetakinganyactions,arationalinvestor,ofcourseincludingalltheexperiencedones,generallywillretainalawfirmoranaccountingfirmtodothereport.WecancompareaDDReportwithyourpersonaldiary.IwritealltheactivitiesIdidinonedayintomydiary,andformostoftimes,IonlygiveashortsummaryofthemostimportantthingsIhadinthisday.Forinstance,IdonotwritewhatIeatinacommondayinmydiary,butIwilldescribeonedishindetailifIattendmyfriend’smarriageceremony,ifthisdishimpressedmesowell.Imeanwhetheritisverydelicious,oritisverybadlytasted.Thereasonissimple,itgivesmesomeunusualexperience,pleasantorunpleasant.ADDReportshowsuswhatwereadandexaminedinthedocumentscomingfromthetargetcompany.Wewritewhatwesawinthesedocumentsandreportthemtoourclients,justaswewritewhatweexperienceinonedayforourdiary.Ofcourse,sincethedocumentsaresobigandwegenerallyhavetomakemostsummariesforourwritings.Occasionally,wejusttranslatesomeofthekeydocumentsfromChineseintoEnglishandputthemintoourreport.BecauseIamalegalpractitioner,IwillexplaintheDDReportfromalegalpointofview.Asaresult,theDDReportformyclientmustshowthemostimportantinvestmentrisks.StepstoDotheDDReportGenerally,ifwewishtohaveacompleteDDReport,thefollowingfourstepshavetobefollowed.AndamoderateDDReportusuallywilltakeustwotothreeweekstofinish.StepOne:CollectAlltheInformationfromtheTargetCompanyAtthisstep,weshallproduceaDocumentationRequestListandasktherelevantlegaldocumentsfromthecompany.Igiveyousuchanexampleasanattachmentone.Letusgothroughthelistveryquickly,Iamsurethatafteryouhavefinishedreadingofthislist,youcangetaroughimpressiononatargetcompany’sstructure,andmanagementsystem.StepTwo:ReviewtheDocumentsandProduceaQuestionListAtthisstage,weshallcarefullyreadwordbyword,numberbynumber,datebydate,figurebyfigure,everyofthedelivereddocumentsfromthecompany,andaskquestionsindetailaboutthelegalityandclearnessforthem.Forexample,ifweseesomewhereinonedocumentisunclearbecauseoftheprintingprocess,andthenweshallrequestanotherclearcopyofthisdocument.Theotherexample,ifwemissonepageofacontract,thenweshallaskforthemissingonefromthecompany.Anotherexample,ifonecertificateneedstobeannuallyregistered,anditisnotforthepastyear,thenweshouldaskwhenthecertificatewillberegisteredorexaminedthisyear.Kindlyremindthecompanytodeliverthemissingdocumentsinareasonabletime.Thisprocessisverytime-consuming.Weshallkeepalertoneverysuspiciouspointinthedocuments.StepThree:OnsiteInterviewwiththeOfficersoftheCompanyIfthedocumentsarecompleteandverysound,Imean,theycananswereveryquestionorsolvethelegalissuesfortheinvestment,thisstepcanbedeleted,orcanbeconductedthroughatelephonecall.Althoughthisdoingcansavemuchtimeforus,Ipersonallyandstronglyrecommenddoingsuchanonsiteinterview.Notonlymaywepromoteorjustestablishbetterconnectionswiththecompanyasafuturepotentialclientforotherdeals,butwecanpersonallyseethewholeprocessoftheproductionorthemanagementofthecompany.Andwecangetaroughimpressiononthefixedorotherassetslistedonthedelivereddocuments.Finally,wemayalsoexperiencesomelocalbusinessculture,orjusthaveanewtasteoflocalfoods.StepFour:DraftandProducetheDDReportUsuallythefirstthreestepswilltakeusaboutoneoroneandahalfweektofinish,foracomplexproject,itmaycostamonth,ormonths.AfterwehavefinishedthepreparationprocessIcallthefirstthreestepstogetherwecanbegintodraftandproducethereport.Althoughdifferentlawfirmshavedifferentformatsfordifferentprojects,thefollowingtableofcontentssummarizesthebasicstructureoftheDDReportforatypicalinternationalinvestment.TableofContentsTOC\o"1-3"\uI. INTRODUCTORYREMARKS 41 Background 42 ScopeofReview 43 SourceofInformation 4II. ExecutiveSummary 71 Overview 72 LegalForm 73 TheIPOPlan 74 LoansandGuarantees 85 EnvironmentalCompliance 86 Employment 97 IntellectualPropertyRights 9III. ReviewandAnalysis 101 CorporateStatus 101.1 LegalForm 101.2 CompanyHistory 131.3 RegisteredCapitalandShareholdingStructure 141.4 ArticlesofAssociationandPromotersAgreement 151.5 CorporateGovernance 152 ShareholdersandAffiliates 192.1 Shareholders 192.2 TheGroup 192.3 OtherShareholders 233 MaterialContracts 253.1 Overview 253.2 SupplierContracts 263.3 SalesContracts 293.4 ConnectedPartyTransactions 323.5 LoansContractsandGuarantees 333.6 OtherMaterialContracts 344 RealProperty 344.1 LandUseRight 344.2 Buildings 364.3 MortgageStatus 385 BusinessAssets 385.1 ProductionEquipment 385.2 Vehicles 395.3 OtherFixedAssets 396 IntellectualPropertyRights 396.1 Trademarks 396.2 Technology 407HumanResourcesandEmployment 407.1 Employees 407.2 LabourContract 417.3 SocialContribution 427.4 TradeUnion 438 EnvironmentalProtection 438.1 PollutantDischargePermit 448.2 WasteWaterTreatmentPlan 449 Litigation 46JustasIsaidinthebeginningofthislecture,wecandividetheDDReportintofourparts,seethetableofcontents,PartIistheissueandrulepart,PartIIgiveashortversionoftheDDReport,asummaryorconclusionofallthekeylegalissues,PartIIIistheanalysispart,givingthereportindetail.ProblemsneededtobeNoticedResearchonlineoronotherresourcesPleasebenotedthatduringthedraftingprocess,weshallconducttherelevantlegalresearchonthelegalityofonedocumentorpracticeofthetargetcompany.Takeoneexample,isitlegalthatthecompanydoesnotneedspecialwastewaterpermitforitsdischargeofthewastewater?Itistruethatforajointventurecompany,theforeigninvestorshallatleastownsa25%ofthesharesofthecompany?Opinionv.FactAvoidtogiveyourpersonalopinionunlessyouhavetodosointheDDReport,thiswouldhelpyounottogettroubleonprofessionalissues.Tryyourbesttowritethereportasafact-findingprocess.Don’tnotusesuchtermsas“Wethink,Iopine,orIamofopinionthat…”WeareadvisedthatIfsomethingmissedinthedocuments,anditisimportantforthereport,forinstance,theremaybesomeconfidentialinformationthatthecompanydoesnotwishtodisclosetoyou,thenyouuse“weareadvisedbyMr…..”orjustsaythatthisisaprivateorconfidentialinformation.ChartsandTablesChartsandtablescandescribethedocumentsverydirectlyandfiguratively,somakesurethatyouusethemaspossibleasyoucan.Especiallyforthesamekindofinformation,forexample,forallthesalescontracts,orforallfixedassets,theuseoftablescansaveyoualotoftime.KeyTerms’SummaryForimportantcontracts,especiallysalesorpurchasecontracts,andloanagreement,certainlyincludingtheAOAarticlesofincorporation,weneedtosummarizethekeytermsoftheminthereport.Onemaywonderwhichtermsarethekeyterms.Weneedtoreadthesedocumentsverycarefully,theoreticallytosay,allthetermsthatmaybringthelegalrisktotheinvestoraresuchkeyterms.Igiveyouoneexamplehere.SummaryofanAOAAbriefsummaryofthemajorclausesoftheAOAanditsamendmentsisasfollows:OperationalTerm–[]hasanindefiniteoperationalterm.EstablishmentMode–[]wasestablishedbywayofpromotion.Thepromoterssubscribetoallofthesharesthatshouldbeissuedbythecompany.Uponapprovaloftherelevantgovernmentalauthorities,thecompanymaybechangedtobeacompanyestablishedbywayofstockfloatation.SharesoftheCompany–Allsharestobeissuedby[]shallberegisteredcommonshares.Thesharesofthesameclassshallhavethesamerightsandbenefits.Shareholders’Meeting–Theshareholders’meetingisthehighestauthorityofthecompany.Theshareholders’meetingsincludeannualmeetingsandinterimmeetings.Theannualmeetingsshallbeconvenedonceayearandshallbeconvenedwithin6monthsafterthelastfiscalyear.Theshareholders’meetingshallexercisethefollowingfunctions:Determiningthecompany’soperationalguidelinesandinvestmentplans;Electingandchangingthedirectorsanddecidingthemattersrelatingtotheirremuneration;Electingandchangingthesupervisorsassumedbyrepresentativesoftheshareholdersanddecidingthemattersrelatingtotheirremuneration;Deliberatingandapprovingreportsoftheboardofdirectors;Deliberatingandapprovingreportsoftheboardofsupervisors;Deliberatingandapprovingannualfinancialbudgetplansandfinalaccountplansofthecompany;Deliberatingandapprovingthecompany’sprofitdistributionplansandlossrecoveryplans;Makingresolutionsabouttheincreaseorreductionofthecompany’sregisteredcapital;Makingresolutionsabouttheissuanceofcorporatebonds;Adoptingresolutionsaboutthemerger,split-up,dissolutionandliquidationofthecompany;Amendingthearticlesofassociationofthecompany;Othermattersthatshouldbedecidedbytheshareholders’meetingpursuanttolawsandregulations.BoardofDirectors–Thecompanyshallsetuptheboardofdirectors,whichshallberesponsiblefortheshareholders’meeting.Theboardofdirectorsshallbecomposedof9directors,includingachairmanandavice-chairman.Theinitialboardcompositionshallberecommendedbythepromoters.Thecandidatesforthelaterboardshallbenominatedbythepreviousboardandelectedanddismissedbytheshareholders’meeting.Thechairmanandvice-chairmanshallbeelectedanddismissedbyamajorityofalltheboardmembers.Thechairmanoftheboardshallbethelegalrepresentativeofthecompany.Thedirectorsshallserveatermof3yearsandmaybere-appointed.Theboardofdirectorsshallexercisethefollowingfunctions:Conveningtheshareholders’meetingsandreportingthereto;Implementingresolutionsoftheshareholders’meetings;Determiningtheoperationalplansandinvestmentplansofthecompany;Workingoutthecompany’sannualfinancialbudgetplansandfinalaccountplans;Workingoutthecompany’sprofitdistributionplansandlossrecoveryplans;Workingoutthecompany’splansontheincreaseorreductionofregisteredcapitalandtheissuanceofcorporatebondsandothersecurities,aswellaslistingplans;Workingoutthecompany’splansonsignificantpurchase,purchaseofthecompany’ssharesormerger,split-upordissolution;Decidingontheestablishmentofthecompany’sinternalmanagementdepartments;Employingordismissingthecompany’sgeneralmanager,and,accordingtothenominationofthegeneralmanger,employingordismissingthecompany’sdeputygeneralmanager(s),financialcontrollerandchiefaccountant,anddecidingontheirremunerationandpunishment;Employingordismissingthesecretaryoftheboardofdirectorsofthecompany;Workingoutthecompany’sbasicmanagementsystem;Workingoutamendmentstothearticlesofassociationofthecompany;Listeningtoworkreportofthegeneralmanagerofthecompanyandsupervisehiswork;Appointingdirectorsandotherseniormanagementpersonnelwhichshallbedispatchedbythecompanytoenterprisestowhichthecompanyisthecontrollingshareholderorashareholder,ortothebranchesofthecompany;Accordingtotheneedsofthecompany,theboardofdirectorsmayauthorizethechairmanoftheboardtoexercisepartofthepowersoftheboardofdirectorsduringitscloseperiod;Otherfunctionsasspecifiedinthearticlesofassociation,lawsandregulationsandasauthorizedbytheshareholders’meeting.GeneralManager–Thegeneralmanagershallberesponsibleforthedailyoperationofthecompanyandberesponsiblefortheboardofdirectors.Thegeneralmanagershallserveatermof3yearsandmaybere-appointed.Thegeneralmanagershallhavethefollowingscopeofauthorities:Takingchargeofthemanagementandoperationsofthecompany,organizingtheimplementationoftheresolutionsoftheboardofdirectors;Organizingtheexecutionofthecompany’sannualoperationalplansandinvestmentplans;Draftingplansontheestablishmentofthecompany’sinternalmanagementdepartments;Draftingthecompany’sbasicmanagementsystem;Formulatingthecompany’sconcretebylaws;Proposingtohireordismissthecompany’svicemanager(s)andpersoninchargeoffinance;Draftingtherulesofthecompanyonemploymentsalaries,benefits,rewardsandpunishments,anddecidingontheemploymentanddismissalofemployeesofthecompany;Recommendingtotheshareholders’meetingandtheboardofdirectorstheprofessionaladvisorstobeengagedbythecompany;Proposingtoconvenetheinterimmeetingsoftheboardofdirectors;Otherpowersauthorizedbytheboardofdirectors.BoardofSupervisors–Thecompanyshallsetupaboardofsupervisors,whichshallbecomposedof5supervisors.2supervisorsshallberepresentativesoftheemployeesofthecompany.Thesupervisorsshallserveatermof3yearsandmaybere-appointed.Theboardofsupervisorsshallexercisethefollowingfunctions:Tocheckthefinancialaffairsofthecompany;Tosupervisetheactsofthedirectors,managersandotherseniormanagementpersonnelthatareinviolationofthelaws,regulationsorthearticlesofassociationwhenexecutingtheirduty-relatedacts;Todemandanydirector,managerorotherseniormanagementpersonneltomakecorrectionsifhisacthasinjuredtheinterestsofthecompany,andifnecessary,toreportsuchacttotheshareholders’meetingortherelevantgovernmentalauthorityincharge;Toproposetocallinterimshareholders’meetings;Topresentonthemeetingsoftheboardofdirectors;Otherdutiesassetoutinthearticlesofassociationorauthorizedbytheshareholders’meeting.ProfitDistribution–Afterpaymentofincometax,theprofitsofthecompanyshallbedistributedinthefollowingsequence:Tocoverlossescarriedoverfrompreviousyears;Toallocate10%asstatutorycommonreserve;Toallocate5-10%asstatutorywelfarereserve;Toallocatediscretionarywelfarereserveaccordingtotheresolutionsoftheshareholders’meeting;TodistributetotheshareholdersListofAllDeliveredDocumentsBesuretomakesuchalistasanimportantattachment,andlettheinvestorknowthatwhichkindofdocumentsyouhavereadandexaminedforthereport,andtheymayrequestsomeofthedocumentsfromyouifnecessary.IalsobringtoyouaformalDDReport,eachofyoucantakealookatit,andthengiveitbacktomeafterclass.ATTACHMENTONEAShortenedDDReportforReferenceStrictlyPrivate&Confidential[date]LegalDueDiligenceReporton[]Co.,Ltd.

GlossaryofTermsandAbbreviationsTerm DefinitionABC: AgriculturalBankofChinaAOA: ArticlesofassociationofSihaiBOC: BankofChinaREPORTONLEGALDUEDILIGENCEINTRODUCTORYREMARKSBackgroundThislegalduediligenceisconductedby[]inviewoftheproposedinvestmentfrom[]in[]Co.,Ltd.(hereinafter“[]”)byequityinvestmentandloan.[]isacompanyvalidlyincorporatedandexistingunderthelawsofthePRC.Wehavebeenrequestedtoconductalegalduediligenceon[]inlightoftheabovetransaction,andthisreportsummariestheresultsofthelegalduediligence.ScopeofReviewThescopeofourreviewinthelegalduediligenceissetoutinourproposaldated[].ThescopeofthisReportcoversthefollowingaspects:GeneralcorporatestatusandcompanyhistoryShareholdingstructureandgeneralinformationabouttheshareholdersMaterialcontracts(includingsalescontracts,supplycontracts,otherlong-termcontracts)StatusoflanduserightsandrealpropertyTitleandownershipofbusinessassetsandexistenceofencumbrancesIntellectualpropertyrightsEmploymentissuesincludingpensionandothersocialcontributionsLegalenvironmentalcompliance(i.e.whethertheCompanyhasrequiredlicenses)AnyoutstandinglitigationsorlegalproceedingsSourcesofInformationThisreportispreparedonbasisofthefollowingsourcesofinformation:DocumentsAcompletelistofthedocumentsprovidedtousisenumeratedinAppendix1.Copiesofthedocumentsmaybeprovideduponrequest.[]didprovideuswithcopiesofmostdocumentsrequested.Themajordocumentswerequestedbutnotprovidedby[]areasfollows:employmentcontractsbetween[]anditsmanagementpersonnel;guaranteecontractsbetween[]andABC;documentsandgovernmentalapprovalsrelatingtothewastewatertreatmentplantof[],exceptforthefilingcertificateandturn-keycontract.Toundertakeourreviewandexaminationofthedocuments,weassumewithoutfurtherinquirythat1)thecopiesofthedocumentssubmittedtousconformtotheoriginalversionsofthedocuments;2)nofurtheramendmentstosuchdocumentshavebeenundertaken,unlessotherwiseprovided;and3)thesignatures,chopsandsealsonalldocumentsbearingsignatures,chopsorsealsaregenuineandwerelegallymade.InterviewswiththeManagementWevisited[]on[]200[]andhadinterviewswiththefollowingmanagementpersonnelof[]duringourfieldworkandfollowedbyanumberoftelephoneconversationswith[],thecontrollingshareholderandChairmanoftheBoard,andMr.[],ExecutiveDeputyGeneralManager.Thegeneralimpressionwereceivedfromthemanagementinthecourseofconductingtheinterviewswasthattheywerekeentoassistandforthcominginrelationtotheinformationrequired.

ExecutiveSummaryOverview[]isajointstockcompanyincorporatedon[],butitshistorymaybetracedbackto[]establishedin1996.IthasaregisteredcapitalofRMB[]million.Itengagesinbusinessofproductionandsaleof[].[]isamajor-heldsubsidiaryof[]Group,withMr.[]beingtheultimatecontrollingshareholder.Despitebeingamemberofthe[]Group,Sihaidoesnothavemanyconnectedtransactions.Infact,[]hasarathersimplecorporatestructurewithnosubsidiariesorbranches.Onthebasisofthelegalduediligence,[]isafairlywell-organisedandfunctioningcompany.Ithasobtainedthenecessarylicensesandapprovalsrequiredtocarryoutitsbusiness.Itistoalargeextentcompliantwithlegalrequirementsinitsoperation.Thecompany’slong-termplantoachieveIPOhascontributedtothehighlevelofcompliance.Despitetheoveralllegalcomplianceof[],wehaveidentifiedanumberoflegalissuesandrisksintheduediligence.Asummaryofthemajorlegalissuesisasfollows:LegalForm[]isorganisedasajointstockcompany,whichhashigherthresholdsforincorporationthanthoseforalimitedliabilitycompanyaccordingtothePRCCompanyLaw.AnyforeigninvestedjointstockcompanyrequirestheapprovalfromtheMinistryofCommerce(“MOFCOM”).Accordingly,if[]participatein[],itwillbecomeaforeigninvestedjointstockcompany,sotheapprovalfromMOFCOMwillberequired.Generallyittakesatleast2-3monthstoobtaintheMOFCOMapproval.TheIPOPlan Sinceitsofficialformationin[],ithasbeentheintentionfor[]tolistitssharesinastockexchange.Suchintentionhasplayedanimportantroleinshapingthecompanythroughoutitshistory.Atpresent[]hassuccessfullypassedthe“guidanceperiod”requiredbyCSRCandhasengagedfinancialandlegaladvisorsworkingontheIPO.Ithasatimetableforthelistingwithin[].Suchtimescheduleisofdirectrelevancetothetransactionastheentryof[]mustbecompletedbefore[]submitsitsIPOapplication.Thiswillhavedirectimpactsuponthenegotiationprocessbetweentheparties.If[]isunabletoparticipateasplanned,apost-IPOentrywouldbemuchmoreuncertainandcomplexbecausethelegalrequirementsandproceduresforforeigninvestmentintoalistedChinesecompanyarefarmorecomplicated.NaturallytheIPOwouldalsoaffectthepricefor[]toinvestinthecompany.If[]conductstheIPO,thesharessubscribedby[]beforetheIPOwillbesubjecttoalock-upperiodofoneyear.LoansandGuaranteesBasedonourinvestigation,[]isaheavilyindebtedcompany.Ithasoutstandingloansfromanumberofbanks(mainbanksareABCandBOC)withatotalamountofRMB[].Allloanswillmaturein[]sothat[]hastorefinancesuchloans.Thebankloansof[]aresecuredbymortgagesoverassetsandpropertiesaswellasguaranteesfromitsshareholder[]GroupandMr.[].Infactallthelanduserights,buildingsandalargepartoftheproductionequipmentof[]aremortgagedtobanks.ThemanagementwerehesitanttodisclosedetailsastoguaranteesprovidedbyMr.[]personally.Thebankloanconditionsappeartobeonastandardcommercialbasis.Almostalltheloancontractscontainaclausethatanyrestructuringorjointventurerequirespriorbankapproval.Accordingly[]shallobtainconsentfromitslendingbanksfortheforeseentransaction.Somecontractsof[]withthekeycustomersalsocontainsimilarclause.EnvironmentalComplianceAswearenotenvironmentalspecialistswedonotconductenvironmentinspectionsbutonlyrequested[]toprovideusenvironmentalrelateddocumentsandrecords.[]generateswastewaterandwastegasduringitsproductionprocess,butitdoesnotappeartofullycomplywiththeenvironmentalrequirements.ItdoesnotholdaPollutantDischargePermit,nordoesitpaydischargefeestotheenvironmentalauthority.[]hasconstructedawastewatertreatmentplant,whichisstillunderinspectionandfinalacceptance.Employment[]hasatotalof[]employeesasof[].Ithasindividualemploymentcontractswiththeemployees,termsandconditionsofwhichbasicallycomplywithPRClaw.[]doesnothaveanyconfidentialityornon-competeagreementwithanyoftheemployees,nordoestheemploymentcontractscontainsuchclauses.Itisnoteworthythat[]onlypayspensionfundsforitsemployees,butfailstopaytheotherlegallyrequiredsocialcontributions,includingmedicalinsurance,unemploymentinsuranceandworker’sinjuryinsurance.FailuretopaysocialcontributionsforitsemployeesisnotincompliancewiththerequirementsoftheChineselabourlawandmaybesubjecttopenaltiesbylabourandsocialcontributionauthorities.Nordoes[]payhousingfundforitsemployees–itsargumentbeingthatithasbuiltandsoldapartmentstomajorityemployeesandtherestreceivesamonthlyhousingallowance.Accordingtolaw,however,thehousingarrangementdoesnotjustifythefailureof[]topayhousingfundforitsemployees.IntellectualPropertyRights[]hasnotregisteredanypatents.Ithastworegisteredtrademarks,bothofwhichweretransferredtoitfromitsparent[]Group.Thetrademarkregistrationsarevaliduntil[]and[]respectively.Oneofthetrademarksisnolongerusedby[]initsoperation.UnderChinesetrademarklaw,ifaregisteredtrademarkhasnotbeeninuseforthreeconsecutiveyears,itmayberevokedorcancelledbytheTrademarkOffice.Theothertrademarkisverysimilartotheoneusedbythe[]Group.Butthereisnotrademarklicensebetweenthetwocompanies.

ReviewandAnalysisCorporateStatusLegalFormBusinessLicenseWereceivedacopyoftheBusinessLicenseof[],whichcontainsthefollowinginformation:RegistrationNo.RegisteredAddressLegalRepresentativeRegisteredCapitalPaid-inCapitalOperationTermDateofEstablishmentCompanyTypeBusinessScopeIssuingDateIssuingauthorityTheBusinessLicenseappearstobeinthenormalorderandevidencesthat[]isvalidlyestablishedanddulyexistingunderPRClaw.Operation-relatedLicensesSanitaryLicenseHigh-techEnterpriseCertificateandHigh-techProductCertificateISO9001:2000OtherCorporateRegistrationsInadditionwereceivedacopyofthefollowingregistrationcertificatesof[]:OrganisationcodecertificateStatetaxregistrationcertificateLocaltaxregistrationcertificateCustomsself-declarationregistrationcertificateTheaboveregistrationsarerequiredforaPRCcompanytoconductitsbusiness.Wehavereviewedthesecorporateregistrationsandconfirmthattheyappeartobevalidandinnormalorder.EnglishtranslationsofthesecertificatesareattachedheretoasSchedule1.1.3.CompanyHistoryShareholderShareratio[]Group[]Mr.[]RegisteredCapitalandShareholdingStructureRegisteredCapitalShareholdingStructure Theshareholdingstructureof[]issetoutinthefollowingchart:ShareholderSharesB