沙隆达B：2010年年度报告(英文版) 2011-03-18

沙隆达B：2010年年度报告(英文版) 2011-03-18

HUBEI SANONDA CO., LTD ANNUAL REPORT 2010

March 2011

沙隆达B：2010年年度报告(英文版) 2011-03-18

Important Notes

1. The Board of Directors and the Supervisory Board as well as Directors, Supervisors and Senior Executives of Hubei Sanonda Co., Ltd. (hereinafter referred to as the Company) hereby confirm that no omission, misstatement, or misleading information exists in this report, and accept, individually and collectively, the responsibilities for the authenticity, accuracy and completeness of the contents of this report.

2. All directors attended and voted at the 24th Session of the 5th Board of Directors of the Company.

3. RSM China Certified Public Accounts Co., Ltd. has audited the 2010 Financial Reports of the Company and issued an unqualified Auditors’ Report for the Company. 4. Mr. Li Zuorong, Chairman of the Board of the Company, Mr. He Xuesong, Chief Financial Officer and concurrently Person who is in Charge of Accounting Organ, hereby confirm that the Financial Report enclosed in this Annual Report is true and complete.

沙隆达B：2010年年度报告(英文版) 2011-03-18

Content

Section I Company Profile 1 Section II Summary of Accounting Highlight and Business Highlight 2 Section III Changes in Capital Shares and Particulars about Shareholders 3 Section IV Particulars about Directors, Supervisors, Senior Management and Employees 8 Section V Corporate Governance Structure 13 Section VI Brief Introduction to the Shareholders’ General Meeting 19 Section VII Report of the Board of Directors 20 Section VIII Report of the Supervisory Committee 33 Section IX Significant Events 35 Section X Financial Report 39 Section XI Documents Available for Inspection 129

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Section I. Company Profile

1. Legal name of the Company:

In Chinese: 湖北沙隆达股份有限公司 Abbr. in Chinese: 沙隆达

In English: HUBEI SANONDA CO., LTD. Abbr. in English: SANONDA 2. Legal Representative: Li Zuorong

3. Secretary of the Board of Directors: Li Zhongxi Securities Affairs Representative: Liang Jiqin Tel: (86) 0716-8208632, 8208632 Fax: (86) 0716-8321099

E-mail: freefly2006@

Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei 4. Registered Address: No. 93, Beijing East Road, Jingzhou, Hubei Office Address: No. 93, Beijing East Road, Jingzhou, Hubei Post Code: 434001

Internet Website of the Company: E-mail of the Company:

5. Newspaper for Disclosing the Information Chosen by the Company: China Securities Journal, Securities Times and Ta Kung Pao

Internet Website Designated by CSRC for Publishing the Annual Report of the Company:

The Place Where the Annual Report is Prepared and Placed: Office of the Company 6. Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: Sanonda A, Sanonda B Stock Code: 000553, 200553

7. Other Relevant Information of the Company Date of initial registration: Nov. 30, 1993

Initial registration organization: Hebei Province Administration Bureau for Industry and Commerce

Date of latest change of registration: Dec. 27, 2009

Registration code of corporate business license: 420000400004491 Organization Code: 70696228-7

Registration code of taxation: 421001706962287

Name and office address of Certified Public Accountants engaged by the Company: Domestic: RSM China Certified Public Accounts Co., Ltd.

Office Address: 8-9/F, Block A, Corporate Square, 35 Financial Street, Xicheng District, Beijing, PRC

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Section II. Summary of Accounting Highlight and Business Highlight

I. Accounting highlight in fiscal year of 2010

Unit: RMB Yuan

Operating profit Total profit

Net profit attributable to shareholders of listed company

Net profit attributable to shareholders of listed company after deducting non-recurring gains and losses

Net cash flow from the operation activities

29,767,081.14 31,880,662.34 23,807,551.48 25,817,333.08 70,222,290.82

Note: Impact on net profit due from non-recurring gains and losses was RMB -2,009,781.60, the composing are as follows:

Unit: RMB Yuan

Items

Gains and losses from disposal of non-current assets

according to state policies and regulations Other non-operating income/expense

Amount

Company

Total

Note (if applicable)

gains and losses

Income tax effects Minority interests effects

II. Key accounting data and financial indexes in the recent 3 years 1. Major accounting data

Unit: RMB Yuan

Increase/decrease

2008

year-on-year (%)

1,570,114,175.601,650,444,264.94Gross revenues (Yuan) Total profit (Yuan) Net profit attributable

to the Company’s shareholders (Yuan) Net profit attributable to the Company’s shareholders after

deducting non-recurring gains and losses (Yuan) Net cash flows from operating activities

(Yuan)

Total assets (Yuan) Owners’ equity attributable to the Company’s

31,880,662.3423,807,551.48

30,791,072.3519,310,850.13

25,817,333.08832,707.1770,222,290.8231 Dec. 2010 2,014,857,636.001,105,608,076.51

188,263,787.6231 Dec. 2009 2,039,070,607.411,087,987,662.96

Increase/decrease

31 Dec. 2008

year-on-year (%)

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shareholders (Yuan) Share capital (share)

593,923,220.00

593,923,220.00

2. Major financial indexes

Unit: RMB Yuan

Increase/decrease

2008

year-on-year (%)

0.04010.0325(Yuan/share)

(Yuan/share)

and losses (Yuan/share) net assets (%)

(%)

(Yuan/share)

shareholders (Yuan/share)

31 Dec. 2010

1.860.04010.04352.17%

0.03250.00141.77%

2.35%0.08%0.12

31 Dec. 2009

0.32Increase/decrease year-on-year (%)

2008年末

1.83

3. Difference under PRC GAAP and IAS

Unit: RMB Yuan

Under IAS

Net profit attributable to shareholders of the listed

company

Amount in 2010 Amount in 2009

23,807,551.4819,310,850.13

23,807,551.48

0.00

19,310,850.13

0.00

Owners’ equity attributable to shareholders of the

listed company

Closing amount Opening amount Under PRC GAAP Adjusted under IAS:

PRC GAAP and IAS

No difference GAAP and IAS

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Section III. Changes in Capital Shares and Particulars about

Shareholders

I. Changes in share capital

1. Statement of changes in share capital

Unit: Share

Prior to the change

Number

trading moratorium 1. Shares held by the

state

state-owned corporations

investors

non-state-owned corporations

persons

overseas investors corporations

persons

senior executives

Increase/decrease (+,-)

Capitalizat

ion of

Other

reserved fund

Subsequent to the

change

Proportion

Issuance

Bonus

Proportion of new

shares

shares

II. Shares not subject

593,880,50

moratorium

363,880,50

shares

230,000,00

listed foreign shares

foreign shares 4. Others

III. Total number of 593,923,22shares

593,880,50

99.99%

363,880,50

61.27%

230,000,00

38.73%

593,923,22

100.00%

2. There were no changes in shares subject to trading moratorium in the reporting period.

3. Particulars about issuance and listing of shares

(1) Over the previous three years as at the end of the reporting period, neither issuance

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of securities nor listing occurred in the Company.

(2) In the reporting period, the total shares and equity structure remained unchanged. (3) There were no employ shares in the Company at present.

II. Particulars about the shareholders

1. Particulars about the shares held by the top ten shareholders and statement on shares not subject to trading moratorium held by the top ten shareholders

Unit: Share

Total number of shareholders

Name of shareholder Sanonda Group Corporation

Nature State-owned corporation

Shareholding Shares subject to

Total shares held

ratio (%) 20.02%0.70%0.52%0.51%0.45%0.42%0.41%0.41%0.38%

118,887,2024,169,2663,105,2233,002,3492,678,9502,500,0002,435,6662,412,4942,254,327

75295

Shares pledged or

frozen

state

Qichun County Li Dongliang Yuan Haixiang Huang Yangsheng

person person person

Domestic

non-state-owned

Rural Credit Cooperation

corporation Luo Qian Hong Qina Zhou Baoping Yang Shihui

person person person

0.37%2,184,089person

Shares held by the top ten shareholders holding shares not subject to trading moratorium

Number of shares not subject to trading

Name of shareholder Type of shares

moratorium held by the shareholder

118,887,202RMB ordinary shares Sanonda Group Corporation

Qichun County Li Dongliang Yuan Haixiang Huang Yangsheng

Cooperation Luo Qian Hong Qina Zhou Baoping Yang Shihui

4,169,266RMB ordinary shares 3,105,223RMB ordinary shares 3,002,349RMB ordinary shares 2,678,950RMB ordinary shares 2,500,000RMB ordinary shares 2,435,666RMB ordinary shares 2,412,494RMB ordinary shares 2,254,327RMB ordinary shares 2,184,089RMB ordinary shares

Explanation on associated

relationship among the

above-mentioned shareholders

or acting-in-concert

among shareholders holding shares not subject to trading moratorium.

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Note: In the reporting period, shareholders of the Company totaling 75295, including 50204 shareholders of A-shares and 25091 shareholders of B-shares.

2. Specific information about the controlling shareholder and actual controller (1) Controlling shareholder

Company Name: Sanonda Group Corporation Legal Representative: Li Zuorong

Registered Capital: RMB 240.66 million Date of Incorporation: 1994

Business Scope: manufacturing and selling of pesticides, chemicals and pharmaceutical products; import and export of pesticides, chemicals, agrochemicals, chemical machinery equipments and fittings; manufacturing and selling of chemical machinery equipments; manufacturing and installation of steel structures; chemical construction and installation; and house leasing.

(2) Actual controller

Company Name: China National Agrochemical Corporation Registered Capital: RMB 459,710,634

As a large-scale wholly state-owned company, China National Agrochemical Corporation is a wholly-funded subsidiary of China National Chemical Corporation. And China National Agrochemical Corporation is principally engaged in investment, development, production and operation of pesticides, fertilizers, precision chemicals, mineral products, etc.. Incorporated in 2004 upon approval of the State Council, China National Chemical Corporation is a state-owned mega-company under the control of the State-owned Assets Supervision and Administration Commission of the State Council.

(3) Brief to change in controlling shareholder and actual controller

In the reporting period, controlling shareholder and actual controller remained unchanged.

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(4) Relationship between the Company and its actual controller

100%

20.02%

3. There were no other corporate shareholders holding over 10% share of the Company in the reporting period.

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Section IV. Particulars about Directors, Supervisors, Senior

Management and Employees

I. Particulars about changes in shares held by directors, supervisors and senior management

1. Basic information of directors, supervisors and senior management and annual remuneration

Total payment received from the

Shares held Company

GendBeginning date Ending date of Reasons for

at in the Age

er of office termoffice term at year-endchange

year-beginreporting

period (RMB 0’000; before tax)Li Male

Zuorong the Board Liu

Director

Xingping Liu Anping

Director, Standing Deputy General Manager

Male

9 Jul. 2013 9 Jul. 2013

10,69032,840

10,69032,840

Whether receive payment from the shareholding units or other related parties or not

28.00No 24.00No

Male 9 Jul. 2013 00No

He Director, Xuesong CFO Deng Guobin

Director, Deputy General Manager

Male 9 Jul. 2013 0020.00No

Male Male

9 Jul. 2013 9 Jul. 2013 9 Jul. 2013 9 Jul. 2013 9 Jul. 2013 9 Jul. 2013 9 Jul. 2013 9 Jul. 2013

4,880

0000000

4,880

0000000

No No 4.80No 4.80No 2.40No 2.40No 18.00No 18.00No

Li Hui

Independent FemalDirector e

Ai Independent

Male

Director

Zhang Independent FemalHuide Director e Independent Li Dejun Male

Director Yang Male

Guang GM

Xie Male

Chengli GM

Zhang the

Male

Jianguo Supervisory

Committee Liu Jun

Supervisor

Female MaleMaleMale

26 Feb. 2013 3,6603,660No

26 Feb. 2013 26 Feb. 2013 26 Feb. 2013 26 Feb. 2013

0000

0000

5.50No 5.50No 5.50No

Jiang

ChenggaSupervisor ng

Zhou

Supervisor

Cheng Wu

Supervisor

No

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Li Male

Zhongxi the Board Total

-

-

-

-

9 Jul. 2013

-

052,070

052,070

15.00No

Note: In the reporting period, Independent Zhang Huide and Li Dejun with a work term dating from 9 Jun. 2010.

2. Particulars about the major work experiences of current directors, supervisors and senior executives in past 5 years:

Mr. Li Zuorong successively took the posts of workshop technician, workshop Director, Chief of Technology Section and Director of Design Office in Yuansha City Pesticide Plant. Later, he successively worked as Minister of project department, Deputy General Manager and Director of the Company. Since Dec. 2005, he has been acting as Chairman of the Board and Secretary of the CPC of the Company.

Mr. Liu Xingping successively took the posts of technician in Yuansha City Pesticide Plant, Director of Electrochemical Plant, as well as Director, Deputy General Manager, Vice Chairman of the Board and General Manager of the Company. Since Dec. 2005, he has been acting as Director of the Company.

Mr. Liu Anping successively took the posts of Vice Director and Director of Energy Source Power Plant, Deputy Chief Engineer; from Dec. 2005 to Aug. 2006, he acted as Assistant to General Manager of the Company; since Aug. 2006, he has been Standing Deputy General Manager of the Company and also director since Dec. 2005.

Mr. He Xuesong successively took the posts of section monitor of the Yuansha City Pesticide Plant, Chief of financing section of Sha City Fuel-chemical Bureau, Deputy Minister and Minister of finance department in Sanonda Group Corporation as well as Deputy Chief Accountant and Chief Accountant of the Company. Since Dec. 2005, he has been acting as Director and Chief Financial Officer of Company.

Mr. Deng Guobin successively took the posts of workshop Director of the Company, Director of the Pesticide 1st Plant, and Deputy Chief of technology division of the Company. From Dec. 2005 to Sep. 2009, he concurrently acted as director and Standing Deputy General Manager of Sanonda Zhengzhou Pesticide Plant; he has been acting as Chairman of Sanonda Jingzhou Agrochemical Co., Ltd since Sep. 2009; since Dec. 1998, he has been director and Deputy General Manager of the Company. Now he acts as Director and General Manager of the Company.

Mr. Yin Hong successively took the posts of Vice Director of Fine Chemical Factory, Manager of Keyuan Company, Deputy Chief Engineer of the Company, and Minister of development department of the Company. Since Aug. 2006, he has been acting as Director of the Company.

Ms. Li Hui is the lawyer in Wuhan Branch of Beijing Deheng Law Office and arbitrator of Wuhan Arbitrating Institute. Since Jun. 2006, she has been independent director of the Company.

Mr. Ai Qiuhong has been a teacher of Xiangtan University since 2003. From Sep. 2005 to Jun. 2008, he was a doctor scholar in Xiangtan University majored in

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chemical engineering and received doctor degree in Jun. 2008. He was ever awarded the second-grade State Scientific and Technological Progress Prize, Hunan first-grade Province Scientific and Technological Progress Prize, first-grade Province Scientific and Technological Progress Prize of Xiangtan City, second-grade Province Scientific and Technological Progress Prize of Xiangtan City and owned two National Invention Patents, applied for two National Invention Patents. He has been acted as Independent Director of the Company since Feb. 2010.

Ms. Zhang Huide associate professor of Zhongnan University of Economics and Law, supervisor of postgraduate, a CPA, member of Accounting Society of China, committee of Accounting Computerization Commission of Department of Finance of Hubei Province, training teacher for primary and intermediate accounting computerization. She is a teacher for Auditing skill applied in accounting computerization in national tax and local tax and has been involving in accounting computerization, teaching and research of ERP accounting information system as well as its actual application for many years. From Sep. 2005 to Dec 2008, she was acted as Standing Deputy General Director of accounting experiment center of Zhongnan University of Economics and Law. And she ever acted as Manager of consultant and train department of Zhengzhong Financial Software Company, Technical Director of Wuhan Tianyi Daily Chemical Company and Hubei Sanzifeng Technology. Now she acts as Independent Director of the Company, Consultant of UFIDA, Independent Director of Wuhan Jinyun Laser Co., Ltd and Independent Director of Hubei Forbon Chemical Science and Technology Co., Ltd.

Ms. Li Dejun, he successively acted as Chief Officer, Deputy Chief, Chief of Research Institute of Wuhan Province Commission for Restructuring Economic System and Editor in Chief of Overview of Private Economy, Secretary General of Hubei Province Culture and Economy Research Society, Chief of Hubei Regional Economic Development Research Center as well as Independent Director of J.S. Machine, Wuchangyu, Angel Yeast, Xingfu Industry and so on. Now he acts as Independent Director of the Company and concurrent as Independent Director of East Lake Hi-tech and Chutian High-speed.

Mr. Yang Guang successively took the posts of Workshop Director of 2nd Pesticide Factory of the Company, Deputy Chief and Chief of the Production Scheduling Department. From Jun. 2006 to Jan. 2007, he was supervisor of the Company; he has been assistant to General Manager of the Company since Jan. 2007.

Mr. Xie Chengli successively took the posts of Vice Director, Director, Deputy Secretary and Secretary of Hubei Sanonda Co., Ltd the Pesticide 1st Plant. From Jan. 2006 to Feb. 2009, hr acted as General Manager and Chairman of the Board of Directors of Hubei Sanonda Tianmen Agrochemical Co., Ltd; since Feb. 2009, he has been working as Assistant to General Manager of the Company.

Mr. Zhang Jianguo, successively took the posts of Clerk of Organizing Cadres Section, Vice Secretary of the Party Branch of the Workshop, Deputy Director of Enterprise Management Department in the Yuansha City Pesticide Plant, as well as Deputy Director and Director of the Office, Secretary of the Board, Director, Vice Secretary of the CPC in the Company. Since Dec. 2005, he has been acting as Chairman of the Supervisory Committee, Vice Secretary of the CPC, Secretary of

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Discipline Committee and Chairman of Labor Union in the Company.

Ms. Liu Jun successively took the posts of accountant of Financial Company, Chief Accountant of Sanonda Jingchun Company, Chief Accountant of Sanonda Jingzhou Agrochemical Company, and Chief of Accounting Department in Financial Company of the Company. Since Feb. 2007, he has been acting as Deputy General Manager of Financial Company and Chief of Capital Accounting Department of the Company. He also has been supervisor of the Company since Jun. 2003.

Mr. Jiang Chenggang successively took the posts of Chief of Quality Check Department, Organizing Clerk of Political Work Department, Deputy Secretary of the Party Branch, and Vice Director of Phosphate Plant, Deputy Chief and Chief of Political Work Department. Since Jun. 2006, he has been supervisor and Deputy Director of the Office of the Company.

Mr. Zhou Cheng successively took the posts of Vice Director, Director of the Pesticide 5th Plant of the Company, Director, Deputy Secretary of Branch of the Pesticide 2nd Plant of the Company. He has been acting as Employee Supervisor of the Company and Director, Secretary of Branch of Pesticide 2nd Plant of the Company since Dec. 2009.

Mr. Wuhai Rong successively took the posts of Workshop Director of sodium hudroxide workshop in Electrochemical Plant, Vice Director of Electrochemical Plant, Chairman of Labor Union of Electrochemical Plant, Director of Electrochemical Plant and Secretary of Branch of Electrochemical Plant. He has been acting as Supervisor, Director of Electrochemical Plant and Secretary of Branch of Electrochemical Plant.

Mr. Li Zhongxi successively took the posts of Office Secretary of the Company, Director of Packing Plant of the Company and Manager of Packing Company of the Company. He has been acting as Secretary of the Board and Office Director of the Company since Feb. 2000.

3. During the reporting period, there was no equities incentive entitled to the directors, supervisors and senior management staffs during the reporting period

4. Particulars about directors and supervisors holding posts in shareholding companies

Name Li Zuorong Liu Xingping Liu Pingan Yin Hong

Name of the

Shareholding Company

Sanonda Group Corporation Sanonda Group Corporation Sanonda Group Corporation Sanonda Group Corporation

Post in the Shareholding Company Chairman of the Board, Secretary of CPC

Director, General Manager

Director

Assistant to General Manager

Office term Dec. 2005 to now Aug. 2006 to now Aug. 2006 to now Aug. 2006 to now

5. Changes in directors, supervisors and senior executives

On 26 Feb. 2010, the Company convened the 1st Special Session of Shareholders General Meeting, elected the 6th Supervisory Board with members of Ms. Liu Jun, Mr. Jiang Chenggang and Mr. Wu Hairong. Mr. Zhang Jianguo and Mr. Zhou Cheng were elected as Employee Supervisor of the 6th Supervisory Board of the Company on the

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11th Employees’ Assembly dated 3 Dec. 2009.

On 9 Jul. 2010, the Company convened the 3rd Special Session of Shareholders General Meeting, of which Mr. Li Zuorong, Mr. Liu Xingping，Mr. He Fuchun, Mr. Liu Anping, Mr. He Xuesong, Mr. Deng Guobin, Mr. Yin Hong, Ms Li Hui, Mr. Ai Qiuhong, Ms. Zhang Huide and Mr. Li Deijun were elected as Directors of the 6th Board of Directors.

On 6 Dec. 2010, Director and GM of the Company Mr. He Fuchun submitted resignation to the Board of the Company due to personal reason. According to regulations of Articles of Association of the Company, the Board of the Company accepted the resignation from Mr. He Fuchun.

6. Particulars about the annual remuneration of directors, supervisors and senior executives

Basis for the decision procedure and recognition of remuneration of directors, supervisors and senior executives: the Rules for Implementing Remuneration of Directors, Supervisors and Senior Executives drew up standing principle of the remuneration of directors, supervisors and senior executives, and decide the appraisal index of operation achievements or management duties for the Senior Executives, according to the overall development strategy and annual operating target, while at the end of the year, the Board appraised Senior Executives based on the work report and business achievement of Senior Executives.

Independent directors of the Company would not enjoy salary in the Company while the Company would drop annual allowance of RMB 48,000 to independent directors respectively. Independent directors would present relevant meetings, perform responsibilities according to Articles of Association and apply for allowance factually. Annual remuneration for supervisors was paid according to their posts.

II. Particulars about employees

As at 31 Dec. 2010, the Company totally had 2518 employees in service. The Company executed overall labor contract system, and carried out relevant provisions stipulated by the state as well as local laws and statutes. Expenses for retirees were all paid by society.

Classification according to structures was as follows: 1. Classification based on specialty

Specialty category

Production personnel Technical personnel Financial personnel Sales personnel

Administrative personnel

Number

169349447108176

Number

72215011789

2. Classification based on education background

Education background

Master

University diploma Junior college Others

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Section V. Corporate Governance Structure

I. Corporate governance of the Company

(I) In the reporting period, the Company continuously improved the legal person corporate governance structure and standardized the operation of the Company, stringently according to requirements of relevant laws and regulations like the Company Law, Securities Law, and Guidelines for the Corporate Governance of Listed Companies, as well as Guiding Opinions on Establishing the Independent Director System in Listed Companies. The actual situation of the legal person governance structure of the Company was basically consistent with the requirements of regulatory documents about corporate governance released by China Securities Regulatory Commission.

In the reporting period, in order to improve quality and transparency of information disclosure of annual report and in accordance with Public Notice on Do Well in Disclosure of Annual Report & Relevant Work (document No.[2009]34) from CSRC and actual conditions of preparation of annual report and disclosure work, the Company formulated Working System on Annual Report for Audit Committee of the Board, Working System on Annual Report for Independent Directors, Report System on Annual Report for the Company, Responsibility System on Serious Errors in Disclosure Annual Report, Administrative System on Report and Submitting Information to Other Units and so on. In this way, the Company intensified factuality, accuracy, completeness and promptness of annual report of the Company and modified inside information of the Company and behavior of insider on buying or selling shares. Meanwhile, the Company implemented Administrative System on Significant Capital Flow so as to improve operation and management level and risk prevention ability.

1. About shareholders and shareholders’ general meeting: The Company earnestly executed relevant laws and statutes as well as Articles of Association and Rules for Procedure of the Shareholders’ General Meeting, and procedure for convening, holding and voting of shareholders’ general meeting was legitimate and valid; the Company full took over shareholders’ interest and ensure that all shareholders, especially minority, enjoyed equal position and exercised shareholders’ rights.

2. About directors and the Board of Directors: the Company earnestly executed relevant laws and statutes as well as Rules for Procedure of the Board of Directors, procedure for convening, holding and voting the Board Meeting were all strictly in accordance with the above rules; directors of the Company are honest, credit and diligent. With attitude of earnest and responsibility, they attended the Board Meeting and Shareholders’ General Meeting, reviewed and examined relevant resolutions, and accepted inquiries from shareholders.

3. About supervisors and the Supervisory Committee: the Company earnestly executed relevant laws and statutes as well as Rules for Procedure of the Supervisory Committee, procedure for convening, holding and voting the Board Meeting were all strictly in accordance with the above rules; all the supervisors of the Company earnestly performed their duties, supervised on operating management, decision-making procedure and financial status as well as diligence and duty performance of directors and senior executives with attitude of being responsible to shareholders, and protected interest of the Company and shareholders.

4. About relationship between the Company and controlling shareholder: controlling shareholder of the Company standardized action, and never directly or indirectly intervened in decision-making and operation of the Company over shareholders’ general meeting; the Company strictly separated in personnel, assets, finance,

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organization and business from the controlling shareholder, and the Board of Directors, the Supervisory Committee and operating management organization operated and ran independently.

5. About related transactions and guarantees: during the reporting period, the Company strictly executed regulations on related transactions and guarantees stipulated in Articles of Association, related transactions were fair and reasonable, decision-making procedure was legitimate and trading price was fair and reasonable. During the reporting period, the Company neither guaranteed for other units except for controlling subsidiaries, nor guaranteed violating regulations of Notice Concerning Some Issues on Regulating the Funds between Listed Companies and Related Parties and Listed Companies’ Provision of Guaranty to Other Parties with document No. ZJFZ [2003] 56, or any action of cash flow with related parties violated regulations.

6. About information disclosure: The Board of Directors and managements paid more attention to information disclosure. The Company strictly in line with relevant laws and statutes as well as regulations stipulated in Rules for Listing Shares in Shenzhen Stock Exchange, Articles of Association and Administrative System on Information Disclosure, strengthened management on information disclosure affairs, performed obligation of information disclosure, authentically, correctly, completely, fairly and timely disclosed relevant information, and ensured that all shareholders gained information equally.

II. Particulars about duty performance of independent directors

1. In the reporting period, all independent directors of the Company faithfully performed their duties with diligence according to Articles of Association and Work System of Independent Director, actively attended the Board meeting of the Company, carefully examined all meeting materials as well as made objective and fair judgment on them. Moreover, they issued independent opinions on relevant issues, as well as professional opinions on significant decision-making of the Company, making full use of their professional advantages, and as a result, they protected the interests of the Company and the small and medium shareholders.

2. In the reporting period, the Company totally held 8 Board meetings, one Annual Shareholders’ General Meeting and one provisional shareholders’ general meeting. Three Independent Directors did not raise any objection or disagreement on proposals of the meetings. Brief to their attendance at the meetings is as follow:

Independent directors

Li Hui Ai QiuHong Zhang Huide Li Dejun

Meetings should be

attended

131133

Times of personal attendance

131133

Times of entrusting

attendance

0 0 0 0

III. Separation between the Company and the controlling shareholder in business, personnel, assets, organization and finance

The Company and controlling shareholders of Sanonda Group strictly in line with regulations of Corporate Governance Principle for Listed Companies that the Company was strictly separated in personnel, assets, finance, organization and business from the controlling shareholder, and the Board of Directors, the Supervisory Committee and operating management organization operated and ran independently. 1. Independence of the Company’s business: The Company possesses independent

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purchasing and sales system and operated independently. The affiliated transactions between them are legal, transparent and fair, and the transaction price was reasonable. 2. Independence of the Company’s personnel: The Company has established independent systems of labor, personnel and wage. The procedure that Senior Executives of the controlling shareholder concurrently act as Directors of the Company is legal. General Managers and other senior executives drew salary from the Company, and they didn’t hold any post of administrative management in controlling shareholder.

3. Independence of the Company’s assets: The Company possesses independent production system, auxiliary production system and supporting facilities. Industrial property, trademark as well as non-patent technology related with the operation all belongs to the Company. The assets of the Company and controlling shareholders are definite, and there was no free occupy or use.

4. Independence of the Company’s organization: The Company has independent site for production and operations as well as independent offices.

5. Independence of the Company’s finance: The Company has established independent financial and accounting department, normative and independent accounting system and financial management system, and it possesses independent bank account and pays tax independently. Accountant doesn’t have con-current jobs in controlling shareholders’ companies.

IV. Establishment and Improvement of Internal Control System of the Company 1. Report on Self-Appraisal of Internal Control System

The 5th Session of the 6th Board of Directors reviewed and approved Report on Self-Appraisal of Internal Control System of the Company 2010. Report on Self-Appraisal of Internal Control System of the Company was published in detail on at the same day.

2. Opinions on the Self-Appraisal

(1) Opinion of the Supervisory Committee Concerning Self-Appraisal of Internal Control

In accordance with relevant provisions stipulated by China Securities Regulatory Commission and Shenzhen Stock Exchange and based on the actuality, the Company followed the basic principles of internal control, established and improved the internal control system covering all sections of the Company, guaranteed normal production and operation of the Company and protected security and integrity of the Company’s assets; the Company set up internal audit department and ensured effective implement of internal control activity. During the reporting period, there was no breach of relevant statutes concerning internal control or internal control system of the Company.

The Supervisory Committee believed that Self-Appraisal Report on Internal Control for 2010 authentically, factually and objectively reflected actuality of internal control of the Company.

(2) Opinion of the Independent Directors Concerning Self-Appraisal of Internal Control

The independent directors of the Company believed that preparation format and content of Self-Appraisal Report on Internal Control for 2010 are in line with requirements of documents and authentically and accurately reflected actuality of internal control of the Company. Internal control system, which has been set up by the

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Company, was generally in line with relevant laws and statutes of the state as well as requirements from supervisory ministry, neither there were serious defaults in internal control system, nor no serious warp in actual progress of implement, and was able to fit for demand of operation and management as well development of the Company; the key control activities of the Company were launched stringently according to rules of various internal control systems of the Company. The internal control over shareholding subsidiaries, affiliated transactions, external guarantee, and use of raised proceeds, significant investments and information disclosure was strict, sufficient and effective, which assured normal running of operation and management of the Company. Independent directors of the Company hoped that the Company would gradually improve internal control, put forward the development of all work of internal control of the Company and continuously promote management of the Company.

3. Establishment and implementation of internal control system on financial report of the Company

In accordance with laws, administrative rules and regulations of Ministry of Finance of the State Council of PRC established defined work for accounting post which was separated and counter-control and counter-supervise and Post Responsibility System was conducted in the Company. Financial system clearly defined person on drafting financial report acted as GL accountant, audit accountant perform responsibility of review and supervision for accounting information and materials of accounting document, accounting book and so on. Once the accounting policies and accounting estimates were approved by the Company, it shall not be alter at discretion. Financial accounting adopted UFIDA software reviewed and approved by Ministry of Finance that is strict in accounting process, accurate in articulation and scientific and completed on the procedure of financial report. With the help of UFIDA software, the Company implemented target control, efficient collection, analysis and handling of data that achieve a favorable operation for successively over 10 years. Moreover, on the aspect of internal audit system of the Company, the Company established internal audit department to conduct internal audit supervision for financial incomings and outgoings of the Company. There was neither significant omission in the financial report 2009, no significant faults in financial report 2010. In the reporting period, all members of Audit Committee accomplished their responsibilities and submitted relevant explanation in writing; independent directors earnestly performed duties of diligence and faithfulness, cared for production and operation conditions of the Company, communicated with administration authorities, carried out field work, intently paid attention to information confidentiality in preparation of annual report, prevent reveal of inside information, behavior of insider trading and other laws-breaking and laws-forbidden actions from happening. Independent opinions were distributed for guaranteed particulars, related transactions and significant events.

At present, internal control system of annul financial report of the Company operates well. In the reporting period, there’s no significant defect in financial report in respect of internal control.

V. Special campaigns for corporate governance improvement

The Company has seriously carried out the spirit of CSRC for special campaigns for corporate governance improvement, further strengthened the sense of standardized operation, brought Board of Directors, Supervisory Committee and Shareholder’s

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General Meeting into full play in governance systems, smoothly completed self-inspection of special campaigns for corporate governance improvement and rectification work of the Company. There’s no governance problem unsolved of the Company at present.

VI. Horizontal competition and related transactions

In the reporting period, the Company, in accordance with requirements of document of Notice on Conducting Special Activities of Solving Horizontal Competition and Reducing Related Transactions (E-Zheng-Jian-Ju-Zi [2010] No.24), seriously inspected related cases such as related transactions and horizontal competition, which are as followings:

1. Explanation on related transactions and horizontal competition

In Apr. 2005, China National Agrochemical Corporation signed Agreement on Equity Transfer with Jingzhou State-owned Assets Administration Bureau (the original controller of the Company), received 100% equity of Sanonda Group Co., Ltd. that had been held by the Bureau, and became the actual controller of the Company. In line with characteristics of pesticide and chemical industry, China National Agrochemical Corporation strengthened its group-purchasing advantage for chemical raw materials and formed local monopolized control over partial chemical raw materials, which formulated daily related transaction events such as purchase of raw materials to Sanonda Group Co., Ltd. and its actual controller by the Company.

At the same time, China National Agrochemical Corporation, the Company’s actual controller, soon purchased Shandong Dacheng Pesticide Co., Ltd., of which products such as DDVP and paraquat constructed horizontal competition against correspondent products of the Company.

2. Influence of related transactions and horizontal competition on corporate operation Most related transactions between Sanonda Group Co., Ltd. and the Company were fair and lawful transactions normally occurred in routine production of the Company with market-based purchase prices and no harm to equity of Hubei Sanonda Co., Ltd. and shareholders. Besides, guarantee costs provided for Sanonda Group Co., Ltd. and its actual controller in the purpose of ensuring financing funds for the Company needed joint liability guarantees offered by Sanonda Group Co., Ltd., China National Agrochemical Corporation and China National Chemical Corporation. It was executed in light of Management Method for Financing Guarantees in China National Chemical Corporation and charging standard of credit-guarantee limited companies. It was rational to pay guarantee costs, of which the pricing is fair, with no harm to equity of the Company and all shareholders, especially minority shareholders.

The amount concerning horizontal competition against Shandong Dacheng Pesticide Co., Ltd., the affiliated party controlled by the same controller of the Company, accounted for low proportion to operating revenue of the Company. Meanwhile, key sales regions of the Company differed from Shandong Dacheng, as a result, there’s no significant influence on the Company caused by evident competition.

3. Relevant measures to solve horizontal competition and reduce related transactions In respect of existence of horizontal competition, the Company has events relating to horizontal competition and relevant requirements of regulators to China National Agrochemical Corporation, the actual controller of the Company, and cooperated with the actual controller to do well to solve such problems.

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In respect of existence of related transactions, the Company will, in compliance with relevant rules in laws and regulations such as Company Law, Listing Rules of Stocks of Shenzhen Stock Exchange and Articles of Association, strictly execute decision procedures, timely fulfill the obligation of information disclosure, continually standardize related transactions, so as to ensure rational, fair and lawful transaction prices, and earnestly protect equity of the Company and all shareholders, especially minority shareholders.

VII. Establishment and implementation of appraisal mechanism, incentive mechanism and related reward systems for senior executives of the Company In respect of incentive and restraint mechanism, the Company conducts appraisal on annual business performance and performance of personal duties to realize annual remuneration to senior executives. The Company shall, in line with market-oriented principles, constantly perfect appraisal and incentive mechanism, closely link remuneration of senior executives with administration level and business performance, fully arouse and motivate enthusiasm and creativity of senior executives, and maximize shareholder’s value as a result.

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