On the other hand, if revenue from our Connected Customers further increase, over-reliance on Connected Customers may affect our operational independency, as such Connected Customers, many of which are controlled by one or more of our Directors or Controlling Shareholders, may be able to exert excessive influence on us. For details, please see the section ‘‘Relationship with Controlling Shareholders’’.

# Labour shortages or increases in labour costs could harm our business, reduce our profitability and slow our growth.

Experienced professional staff and other labour are important for the operation of our businesses, and therefore, our success depends in part on our ability to attract, retain and motivate a sufficient number of qualified engineers, construction workers and the engagement of subcontractors for certain labour intensive works. Qualified individuals in the relevant industries are in short supply and competition for workers is intense.

Any future inability to recruit and retain qualified individuals may delay the completion of our works and could result in deduction of liquidated and ascertained damages from the contract sum payable to our Group. Any such delays could have a material adverse effect on our business and results of operations. In addition, competition for qualified construction workers could also require us to pay higher wages, which could result in higher labour costs. For example, in Macau, given that it only has a total population of slightly above half a million and there have been a large number of construction projects in recent years, the labour market in Macau has been tight and average labour costs in Macau have increased significantly.

Moreover, the minimum wage requirement in Hong Kong has increased and can continue to increase our labour costs in the future. The salary level of construction workers in Hong Kong has been increasing in the past several years. As for the PRC market, there was an increase in labour cost over the past few years and the average annual wage of employees in the PRC construction industry is expected to continue to increase in the coming years. Some of our revenues, in particular in the E&M Engineering Segment, are generated from agreements with terms over one year. Most of such agreements do not contain labour cost adjustment mechanism, and we may fail to anticipate or may be unable to transfer the full impact of the increase in labour cost to our customers in the relevant agreements with such mechanism. In such or other cases, we may not be able to increase our prices in order to pass these increased labour costs on to our customers for contracts without price adjustments, in which case our business and results of operations would be negatively affected.

# Any change or deterioration of our relationship with, and the performance of, ourj oint venture partners and third party service providers may have an adverse impact on our business operation and reputation.

For the operations of our E&M Engineering Segment, we often formj oint ventures with other companies in the E&M engineering industry to tender for and carry out the E&M engineering works in major construction projects. We also engage third-party service providers as our subcontractors to perform certain, generally more labour-intensive parts, of the E&M engineering works. Any change or deterioration of our relationship with, and the performance of, such third-parties may have adverse impact on our business operation and reputation

# . We are dependent on subcontractors, and in some projects our joint venture partners, to implement certain contracts.

We are dependent on subcontractors to implement certain contracts in our E&M Engineering Segment. As we generally do not sign any long term contracts with our major subcontractors, there is no assurance that they will be able to continue to provide services to our Group at prices acceptable to us or whether we can maintain our relationship with them in the future. In the event that any of the

major subcontractors is unable to provide the required services to us and we are unable to obtain alternative providers on similar or more favourable terms, or if the costs for them to provide those required services increase substantially, our business, results of operations and profitability may be adversely affected.

For the E&M engineering works for major construction projects, we often formj oint ventures with other companies to tender for and carry out the E&M engineering works. There is no assurance that our existingj oint venture partners will continue to cooperate with us to continue to tender for and perform E&M engineering works for future projects, or on terms that are favourable or acceptable to us. If we are unable to cooperate with appropriatej oint venture partners, we may not have sufficient resources to participate in major construction projects, or if we are engaged in such projects as the sole contractor or a subcontractor, we will have to bear significant risks in relation to such projects.

We are not able to monitor the performance of our subcontractors or joint venture partners or their respective staff as directly and efficiently as with our own staff. If a subcontractor fails to provide services as required under a contract or aj oint venture partner fails to perform its responsibility as agreed, we may be required to procure other companies to perform these services on a delayed basis or at a higher price than anticipated, which could impact our profitability. If a subcontractor’s performance does not meet our standards or if aj oint venture partner’s performance does not meet the requirements which the relevant joint venture has agreed to, the quality of the project may be affected, which could harm our reputation and potentially expose us to litigation and damage claims. We may also need to undertake remedial works and therefore may increase our costs and adversely affect business and results of operations.

# . Responsibility for quality of services provided by third party service providers.

Under the terms of the contracts between our customers and us, we would not be relieved from any obligation or liability in respect of the performance of the third party service providers, and we would be responsible for the acts, defaults or neglects of them. We cannot assure you that the services rendered by any of our third party service providers will always be satisfactory or meet our customers’ quality and safety standards and timing requirement. If the performance of any third party service provider is not up to the standard required by our customers, we may need to replace such third party service provider or take other actions to remedy the situation, which could adversely affect the cost and progress of our projects and may have an adverse impact on our reputation and our ability to obtain new contracts.

# . We may incur potential liabilities arising from defaults of our third party service providers.

As the principal contractor, we may be liable to settle the outstanding wages of the employees of our third-party service providers, including self-employed ones, pursuant to the Employment Ordinance and liable to pay compensation to the injured employees of our third party service providers pursuant to the Employees’ Compensation Ordinance. Given the above, any defaults or neglects on the part of the third party service providers may also have an adverse impact on our profitability and financial conditions as we might be liable for any such defaults or neglects. Any of these factors could have a material adverse effect on our business, financial conditions and results of operations.

# . Potential competition with joint venture partners and subcontractors.

Small-scale third party service providers may expand their business operations by accumulating work experience, improving their financial strength and diversifying their scope of services over time. Such small-scale subcontractors may become sizable and achieve a market reputation in the future that may be comparable to us. Our joint venture partners, who may often be our direct competitors,


For purposes of this Section 5, Executive acknowledges and agrees that Asbury conducts business in the Area and that the Area is a reasonable geographic limitation.

Notwithstanding anything to the contrary contained in this Agreement, Asbury hereby agrees that the foregoing covenant shall not be deemed breached as a result of the passive ownership by Executive of: (i) less than an aggregate of 5% of any class of stock of a business that competes with Asbury;or (ii) less than an aggregate of 10% in value of any instrument of indebtedness of a business that competes with Asbury. Asbury further agrees that nothing in this Section 5 prohibits Executive from accepting employment from, and performing services for, businesses engaged in the finance industry, and businesses engaged in the manufacturing and/or sale of automobile parts or the provision of automotive service, provided such businesses do not also engage in the retail of automobiles within the Area. By way of example, nothing in this Section 5 would prohibit Executive from working with such businesses as American General Finance, NAPA Auto Parts, or Goodyear.

Within one day of the end of Executive’s employment with Asbury for any reason, Executive agrees to re-confirm his commitment to the post-employment restrictive covenants in this Agreement. Executive further agrees that, as part of that re-confirmation, the term “Area” and Exhibit A hereto may be amended by Asbury, but only to the extent necessary to list the addresses of Asbury’s headquarters and any automotive dealerships that Asbury owns and/or operates as of the last day of Executive’s employment with Asbury.

# 6. Construction/Enforcement of Post-Employment Covenants

Executive agrees that the provisions of Sections 3, 4, and 5 are reasonable and properly required for the adequate protection of the business and the goodwill of Asbury. However, if a judicial determination is made that any of the provisions of Sections 3, 4 or 5 constitutes an unreasonable or otherwise unenforceable restriction against Executive, such provision(s) shall be modified or severed so as to permit enforcement of the provision(s) to the extent reasonable.

# 7. Violation of Post-Employment Covenants

Executive agrees that, in the event of a material breach by Executive of any Section of this Agreement, including Sections 3, 4, or 5, Asbury shall be entitled to: (i) inform all potential or new employers of such breach; (ii) cease payments and benefits that would otherwise be made pursuant to Section 1 above (and in lieu of such payments and benefits pay Executive five hundred dollars (\$500.00)); (iii) obtain injunctive relief and damages, including reasonable attorney’s fees; and (iv) recover the amounts paid to Executive under this Agreement (other than the above-referenced \$500.00) during any period of material breach by Executive. To the extent that Executive is determined through agreement or resolution of any pending claim to not have violated any covenant at issue, he shall receive any and all severance that has not been paid under the Agreement and/or which was recovered from Executive under this Section 7.

Executive and Asbury acknowledge and agree that Executive is an “at will” employee, which means that either Executive or Asbury may terminate the employment relationship at any time, for any reason, with or without cause or notice, and that nothing in this Agreement shall be construed as an express or implied contract of employment.

Executive agrees that, as a condition to the receipt of the Severance Pay and other compensation and insurance benefits described in Section 1 above, Executive shall execute a release of all claims against Asbury (and its corporate parents, subsidiaries, franchisors, franchisees, management companies, divisions, and affiliates) and the past, present and future officers, directors, agents, officials, employees, insurers and attorneys of Asbury (and its corporate parents, subsidiaries, franchisors, franchisees, management companies, divisions, and affiliates) arising out of Executive’s employment or the end of his employment with Asbury, such release to not be revoked by Executive and to completely waive and release any claim of discrimination, harassment or wrongful discharge under local, state or federal law.

Any disputes arising under or in connection with this Agreement shall be resolved by binding arbitration before an arbitrator (who shall be an attorney with at least ten years’ experience in employment law) in the city where Executive was employed with Asbury and in accordance with the rules and procedures of the most recent employment rules of the American Arbitration

Association. Each party may choose to retain legal counsel and shall pay its own attorneys’fees, regardless of the outcome of the arbitration. Executive may be required to pay a filing fee limited to the equivalent cost of filing in the court of jurisdiction. Asbury will pay the fees and costs of conducting the arbitration. Judgment upon the award rendered by the arbitrator may be entered in any court of jurisdiction.

Executive agrees not to make any disclosures, issue any statements or otherwise cause to be disclosed any information which is designed, intended or might reasonably be anticipated to disparage Asbury, its officers or directors, its business, services, products, technologies and/or personnel. Nothing in this section is intended, nor shall be construed, to: (i) prohibit Executive from any communications to, or participation in any investigation or proceeding conducted by, any governmental agency with jurisdiction concerning the terms, conditions and privileges of employment or jurisdiction over Asbury’s business; (ii) interfere with, restrain, or prevent Executive’s communications regarding the terms and conditions of employment; or (iii) prevent Executive from otherwise engaging in any legally protected activity.

(a) This Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of Executive and Asbury, including any successor to or assign of Asbury.

(b) Upon the end of Executive’s employment with Asbury for any reason, the provisions of this Agreement shall survive to the extent necessary to give effect to the provisions herein, including Sections 3, 4 and 5.

(c) The headings and captions are provided for reference and convenience only and shall not be considered part of this Agreement.

(d) Executive also covenants to reasonably cooperate with Asbury if Executive is needed as a witness in any litigation or legal matters involving Asbury.

(e) Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing, (ii) delivered personally, by nationally recognized overnight courier service or by certified or registered mail, first-class postage prepaid and return receipt requested, (iii) deemed to have been received on the date of delivery or on the third business day after mailing, and (iv) addressed as follows (or to such other address as the party entitled to notice shall later designate in accordance with these terms):

If to Asbury:	Asbury Automotive Group, Inc.
c/o The Office of the General Counsel
2905 Premiere Parkway, Suite 300
Duluth, GA 30097

If to Executive:	To the most recent address of Executive set forth in the        personnel records of Asbury.

(f) This Agreement supersedes any and all prior agreements between Asbury and Executive relating to payments upon Termination of employment or Severance Pay and may only be modified in a writing signed by Asbury and Executive.

(g) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia.

(h) All payments hereunder shall be subject to any required withholding of federal, state, local and foreign taxes pursuant to any applicable law or regulation.

(i) If any provision of this Agreement shall be held invalid or unenforceable, such holding shall not affect any other provisions, and this Agreement shall be construed and enforced as if such provisions had not been included. No provision of this Agreement shall be waived unless the waiver is agreed to in writing and signed by Executive and the Chief Human Resources Officer of Asbury. No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.


# II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION—continued

# 39 Related party transactions—continued

# (c) Year end balances with related parties—continued

All the balances with related parties above were unsecured and repayable within one year.

On June 17, 2018, pursuant to the shareholders’ resolution, each existing issued and unissued share of US\$0.000025 each in the share capital of the Company were subdivided into 10 shares of US\$0.0000025 each (“Share Subdivision”), following which the number of authorized shares of the

# 40 Events after the reporting period—continued

Company became 6,883,856,790 Class A ordinary shares, 28,012,081,370 Class B ordinary shares, and 10,512,504,810 convertible redeemable preferred shares. The number of outstanding Class A ordinary shares and Class B ordinary shares became 6,695,187,720 and 3,741,581,500, respectively, the latter of which included the additional shares issued to Lei Jun on April 2, 2018 as detailed below.

On April 2, 2018, the Company issued 63,959,619 Class B ordinary shares (or 639,596,190 Class B ordinary shares following the Share Subdivision) at par value to Smart Mobile Holdings Limited, an entity whose interest is held on trust for the benefit of Lei Jun and his family members, to reward Lei Jun for his contribution to the Company. Accordingly, RMB9,827,157,000 was recognized as share-based compensation expenses on April 2, 2018 by the Group.

On March 29, 2018, iQIYI Inc. (“iQIYI”), an investment engaging in the provision of internet video streaming services in mainland China, for which the Group accounted as long-term investments measured at fair value through profit or loss, has undergone initial public offering by listing certain of its new ordinary shares on the Nasdaq Stock Exchange. The conversion of the preference shares in iQIYI owned by the Group into ordinary shares was completed on April 2, 2018, following which the Group reclassifies the investment in associate as accounted for using the equity method.

No audited financial statements have been prepared by the Company or any of the companies now comprising the Group in respect of any period subsequent to March 31, 2018 and up to the date of this report.

Save as disclosed in this report, no dividend or distribution has been declared or made by the Company or any of the companies now comprising the Group in respect of any period subsequent to March 31, 2018.


	Attributable to owners of the Company	Non-
controlling
interests	Total
equity

Share
capital	Share
premium	Share
option
reserve	Revaluation
reserve	Other
reserve	Retained
earnings	Total

HK$’000
(note 29)	HK$’000	HK$’000
(note 30)	HK$’000
(note 30)	HK$’000
(note 30)	HK$’000
(note 30)	HK$’000	HK$’000	HK$’000

At 1 April 2020	4,060	110,371	4,100	–	36,311	19,791	174,633	–	174,633

Profit for the year	–	–	–	–	–	16,124	16,124	(150)	15,974

Other comprehensive income:

Net change in financial assets at fair
value through other
comprehensive income	–	–	–	31	–	–	31	–	31

Total comprehensive income
for the year	–	–	–	31	–	16,124	16,155	(150)	16,005

Recognition of equity settled
share-based payment (note 31)	–	–	1,359	–	–	–	1,359	–	1,359

Lapse of share options	–	–	(385)	–	–	385	–	–	–

Dividends (note 12)	–	–	–	–	–	(19,892)	(19,892)	–	(19,892)

Acquisition of subsidiaries (note 35)	–	–	–	–	–	–	–	1,546	1,546

At 31 March 2021	4,060	110,371	5,074	31	36,311	16,408	172,255	1,396	173,651

	Attributable to owners of the Company	Total
equity

Share
capital	Share
premium	Share
option
reserve	Other
reserve	Retained
earnings

HK$’000
(note 29)	HK$’000	HK$’000
(note 30)	HK$’000
(note 30)	HK$’000
(note 30)	HK$’000

At 1 April 2019	398	–	730	35,913	21,788	58,829

Arising on reorganisation (note 29)	(398)	–	–	398	–	–

Capitalisation issue of shares
(note 29)	3,280	(3,280)	–	–	–	–

Issue of shares under public offer and
placing (note 29)	720	120,240	–	–	–	120,960

Share issue expenses	–	(11,728)	–	–	–	(11,728)

Profit and total comprehensive
income for the year	–	–	–	–	14,150	14,150

Exercise of share options
(notes 29 and 31)	60	5,139	(1,622)	–	–	3,577

Recognition of equity settled share-
based payments (note 31)	–	–	4,992	–	–	4,992

Dividends (note 12)	–	–	–	–	(16,147)	(16,147)

At 31 March 2020	4,060	110,371	4,100	36,311	19,791	174,633


There exists Wigner theorem [23] about group-theoretical classification of the linear nor-mal modes. According to this theorem, the modes are classified by irreducible representations (irreps) of the symmetry group \( G _ { 0 } \) of the system in equilibrium. In this way, we can introduce the basis \( \Phi = \{ \phi _ { j } | j = 1 . . N \} \) in the space of all possible atomic displacements, constituted by the complete set of basis vectors of the irreps entering into the mechanical representation of the considered system. Therefore, any vibrational regime \( \mathbf { X } ( t ) = \{ x _ { 1 } ( t ) , x _ { 2 } ( t ) , \ldots , x _ { n } ( t ) \} \) in this system can be decomposed into the above basis with coefficients depending on time t:

In this equation, each term \( c _ { j } ( t ) \phi _ { j } \) can be considered as nonlinear normal mode according to the definition (1). Indeed, the vector multiplier \( \phi _ { j } \) determines the displacement pattern of all atoms, i.e. the space structure of NNM, while \( c _ { j } ( t ) \) determines time-evolution of the mode. However, for brevity, we often use the term nonlinear normal mode (or vibrational mode) individually for \( \phi _ { j } \), as well as for \( c _ { j } ( t ) \).

The basis vectors \( \phi _ { j } \) correspond to different irreps \( \Gamma _ { n } \) of the group \( G _ { 0 } \) and, therefore, the displacement vector X(t) in (3) can be written as the sum of contributions associated with individual representations of the equilibrium symmetry group \( G _ { 0 } \):

Here, \( \Phi [ \Gamma _ { n } ] \) is the set of basis vectors of the irrep \( \Gamma _ { n } \).

According to Wigner theorem, the small vibrations of the molecule associated with the different irreducible representations \( \Gamma _ { n } \) are independent from each other. It means that if one excite (by using the appropriate initial conditions when solving linear differential equations) a dynamical regime X(t) corresponding to a given irrep \( \Gamma _ { n } \), this regime can never leads to excitation of the modes belonging to another irreps in the decomposition (4). Therefore, one can ask: “What will happen if we consider large and, therefore, nonlinear vibrations of the molecule?” The theory of the bushes of nonlinear normal modes starts from this question.

The answer was given in Ref. [6] (see also [8], devoted to discussion of the bush theory). It turns out that there exist certain selection rules for excitation transfer from one mode to another. These rules are originate from some group-theoretical restrictions which can be written as a certain system of linear algebraic equations [6]. In particular, one can deduce from this system that excitation from the mode with the given symmetry group G can

transfer only to those nonlinear normal modes whose own symmetry is higher or equal to G. The above selection rules lead to possibility for existence of bushes of NNMs.

Each bush represents a set of NNMs that conserves the energy of initial excitation until it loses stability because of the phenomenon similar to the parametric resonance with some modes outside a given bush. This phenomenon occurs if amplitudes of some bush modes attain sufficiently large values (see details in [8, 10]).

Every bush possesses its own symmetry that is determined by intersection of all symmetry groups of its modes. As was already mentioned, when the given bush loses stability, it transforms into another bush with lower symmetry and with higher dimension.

Let us consider the simplest bushes for nonlinear vibrations of \( S F _ { 6 } \) molecule using some results obtained in [14]. In the equilibrium state, depicted in Fig. 1, the molecule \( S F _ { 6 } \) possesses point symmetry group \( G _ { 0 } = O _ { h } \). All vibrational modes for this molecule, classified by irreps of the group \( O _ { h } \), can be found in Table. 3 in [14] [three translational modes must be excluded since the central atom (S) is supposed to be immovable].

For the present consideration, we need explicit forms of the displacement patterns of NNMs \( \phi _ { 1 } \), \( \phi _ { 2 } \), \( \phi _ { 3 } \), corresponding to one-dimensional irrep \( \Gamma _ { 1 } \), two-dimensional irrep \( \Gamma _ { 5 } \) and three-dimensional irreps \( \Gamma _ { 1 0 } \). These displacement patterns are given in Table I.

TABLE I. Displacement patterns of the NNMs in \( S F _ { 6 } \) molecule

In this table, for each fluorine atom, according to the numbering in Fig. 1, we point out three coordinates \( x , y , z \), which determines displacement of the nucleus of this atom from the equilibrium position. One can see from Table 1 that the molecule shape in the vibrational regime, corresponding to the mode \( \phi _ { 1 } \) represents, at any moment t, the regular octahedron. Its size vibrates in time becoming larger or lesser in comparison with the octahedron corresponding to the equilibrium state. This NNM is called “breathing” mode. It represents one-dimensional bush with symmetry group \( O _ { h } \). The symmetry group of the breathing mode, \( O _ { h } , \), is higher than that of each other vibrational mode and, therefore, according to the above mentioned selection rules, the excitation from this mode cannot


\( \langle { e ^ { \prime } , \langle { v , z } \rangle } \rangle \), \( e p o c h ( z ) = e ^ { \prime } \), and z succeeds all zxid values previously broadcast in \( e ^ { \prime } \).

Step \( \ell . \).3.2: Upon receiving acknowledgments from a quo-rum of followers to a given proposal \( \langle { e ^ { \prime } , \langle { v , z } \rangle } \rangle \), the leader sends a commit \( C O M M T ( e ^ { \prime } , \langle v , z \rangle ) \) to all follow-ers.

Step \( f \).3.1: Follower f initially invokes \( r e a d y ( e ^ { \prime } ) \) if it is leading.

Step \( f \).3.2: Follower f accepts proposals from \( \ell \) following reception order and appends them to \( h _ { f } \) .

Step \( f \).3.3: Follower f commits a transaction \( \langle v , z \rangle \) by invoking \( a b d e l i \nu e r ( \langle v , z \rangle ) \) once it receives \( C O M M T ( e ^ { \prime } , \langle v , z \rangle ) \) and it has committed all transactions \( \langle v ^ { \prime } , z ^ { \prime } \rangle \) such that \( \langle v ^ { \prime } , z ^ { \prime } \rangle \in h _ { f } \) , \( z ^ { \prime } \prec _ { z } z \).

Step \( \ell . \).3.3: Upon receiving a CEPOCH(e) message from follower f while in Phase 3, leader \( \ell \) proposes back \( N E W E P O C H ( e ^ { \prime } ) \) and \( N E W L E A D E R ( e ^ { \prime } , I _ { e ^ { \prime } } \circ \beta _ { e ^ { \prime } } ) \).

Step \( \ell \).3.4: Upon receiving an acknowledgement from f of the \( N E W L E A D E R ( e ^ { \prime } , I _ { e ^ { \prime } } \circ \beta _ { e ^ { \prime } } ) \) proposal, it sends a commit message to f. Leader \( \ell \) also makes \( Q \leftarrow Q \cup \{ f \} \).

Note that a realization of this protocol does not re-quire sending complete histories with \( A C K – E ( f . a , h _ { f } ) \) and \( N E W L E A D E R ( e ^ { \prime } , I _ { e ^ { \prime } } ) \), only the last transaction identifier in the history followed by missing transactions. It is also possible to omit values in acknowledgements and commit messages in Phase 3 to reduce the size of messages.

The following section discusses the Zab protocol in more detail along with some implementation aspects.

In our implementation of Zab, a Zab process can be looking for a leader (ELECTION state), following (FOLLOWING state), or leading (LEADING state). When a process starts, it enters the ELECTION state. While in this state the process tries to elect a new leader or become a leader. If the process finds an elected leader, it moves to the FOLLOWING state and begins to follow the leader. Processes in the FOLLOWING state are followers. If the process is elected leader, it moves to the LEADING state and becomes the leader. Given that a pro-cess that leads also follows, states LEADING and FOLLOW-ING are not exclusive. A follower transitions to ELECTION if it detects that the leader has failed or relinquished leadership, while a leader transitions to ELECTION once it observes that it no longer has a quorum of followers supporting its leadership.

The basic delivery protocol is similar in spirit to two phase commit [16] without aborts. The primary picks values to broadcast in FIFO order and creates a transaction \( \langle v , z \rangle \). Upon receiving a request to broadcast a transaction, a leader pro-poses \( \langle e , \langle v , z \rangle \rangle \) following the order of zxid of the transactions. The followers accept the proposal and acknowledge by sending an \( A C K ( e , \langle v , z \rangle ) \) back to the leader. Note that a follower does not send the acknowledgment back until it writes the proposal to local stable storage. When a quorum of processes have accepted the proposal, the leader issues a \( C O M M I T ( e , \langle v , z \rangle ) \). When a process receives a commit message for a proposal \( \langle e , \langle v , z \rangle \rangle \), the process delivers all undelivered proposals with zxid \( z ^ { \prime } \), \( z ^ { \prime } \prec _ { z } z \).

Co-locating the leader and the primary on the same process has practical advantages. The primary-backup scheme we use requires that at most one process at a time is able to generate updates that can be incorporated into the service state. A primary propagates state updates using Zab, which in turn requires a leader to initiate proposals. Leader and primary correspond to different functionality, but they share a common requirement: election. By co-locating them, we do not need separate elections for primary and leader. Also important is the fact that calls to broadcast transactions are local when they are co-located. We consequently co-locate leader and primary.

Leader election occurs in two stages. First, we run a leader election algorithm that outputs a new process as the leader. We can use any protocol that, with high probability, chooses a process that is up and that a quorum of processes selects. This property can be fulfilled by an \( \Omega \) failure detector [17].

Figure 5 shows the events for both the leader and followers when establishing a new leader. An elected leader does not become established for a given epoch e until it completes Phase 2, in which it successfully achieves consensus on the proposal history and on itself as the leader of e. We define a established leader and a established epoch as follows:

Definition V.1. (Established leader) A leader \( \ell _ { e } \) is estab-lished for epoch e if the \( N E W L E A D E R ( e , I _ { e } ) \) proposal of \( \ell _ { e } \) is accepted by a quorum Q of followers.

Definition V.2. (Established epoch) An epoch e is established if there is an established leader for e.

Once a process determines that it is a prospective leader by inspecting the output of the leader election algorithm, it starts a new iteration in Phase 1. It initially collects the latest epoch of a quorum of followers Q, proposes a later epoch, and collects the latest epoch and highest zxid of each of the followers in Q. The leader completes Phase 1 once it selects the history from a follower f with latest epoch and highest zxid in a \( A C K { - } E ( f . a , h _ { f } ) \). These steps are necessary to guarantee that once the prospective leader completes Phase 1, none of the followers in Q accept proposals from earlier epochs. Given that the history of a follower can be arbitrarily long, it is not efficient to send the entire history in a \( A C K { - } E ( f . a , h _ { f } ) \). The last zxid of a follower is sufficient for the prospective leader to determine if it needs to copy transactions from any given follower, and only copies missing transactions.

In Phase 2, the leader proposes itself as the leader of the new epoch and sends a \( N E W L E A D E R ( e , I _ { e } ) \) proposal, which contains the initial history of the new epoch. As with \( A C K – E ( f . a , h _ { f } ) \), it is not necessary to send the complete initial history, but instead only the transactions missing. A leader becomes established once it receives the acknowledgments to the new leader proposal from a quorum of followers, at which point it commits the new proposal. Followers deliver

the initial history and complete Phase 2 once they receive a commit message for the new leader proposal.

One interesting optimization is to use a leader election primitive that selects a leader that has the latest epoch and has accepted the transaction with highest zxid among a quorum of processes. Such a leader provides directly the initial history of the new epoch.

A leader proposes operations by queuing them to all con-nected followers. To achieve high throughput and low latency, the leader has a steady stream of proposals to the followers. By the channel properties, we guarantee that followers receive proposals in order. In our implementation, we use TCP connec-tions to exchange messages between processes. If a connection to a given follower closes, then the proposals queued to the connection are discarded and the leader considers the corresponding follower down.

Detecting crashes through connections closing was not a suitable choice for us. Timeout values for a connection can be of minutes or even hours, depending on the operating system configuration and the state of the connection. To mutually detect crashes in a fine-grained and convenient manner, avoiding operating system reconfiguration, leader and followers exchange periodic heartbeats. If the leader does not receive heartbeats from a quorum of followers within a timeout interval, the leader renounces leadership of the epoch, and transitions to the ELECTION state. Once it elects a leader, it starts a new iteration of the algorithm, and starts a new iteration of the protocol proceeding to Phase 1.

When a follower emerges from leader election, it connects to the leader. To support a leader, a follower f acknowledges its new epoch proposal, and it only does so if the new epoch proposed is later than f.p. A follower only follows one leader at a time and stays connected to a leader as long as it receives heartbeats within a timeout interval. If there is an interval with no heartbeat or the TCP connection closes, the follower abandons the leader, transitions to ELECTION and proceeds to Phase 1 of the algorithm.

Figure 5 shows the protocol a follower executes to support a leader. The follower sends its current epoch f.a in a current epoch message (CEPOCH(f.a)) to the leader. The leader sends a new epoch proposal (NEWEPOCH(e)) once it receives a current epoch message from a quorum Q of followers. The new proposed epoch e must be greater than the current epoch of any follower in Q. A follower acknowledges the new epoch proposal with its latest epoch and highest zxid, which the leader uses to select the initial history for the new epoch.

In Phase 2, a follower acknowledges the new leader pro-posal \( ( N E W L E A D E R ( e , I _ { e } ) \)) by setting its \( f , G \) value to e and accepting the transactions in the initial history. Note that once a follower accepts a new epoch proposal for an epoch e, it does not send an acknowledgement for any other new epoch proposal for the same epoch e. This property guarantees that no two processes can become established leaders for the same epoch e. Once it receives a commit message from the leader for the new leader proposal, the follower completes Phase 2 and proceeds to Phase 3. In Phase 3, the follower receives new proposals from the leader. A follower adds new proposals to its history and acknowledges them. It delivers these proposals when it receives commit messages from the leader.

Note that a follower and a leader follow the recovery protocol both when a new leader is emerging and when a follower connects to an established leader. If the leader is already established, the \( N E W L E A D E R ( e , I _ { e } ) \) proposal has already been committed so any acknowledgements for the \( N E W L E A D E R ( e , I _ { e } ) \) proposal are ignored.

Zab requires the presence of a leader to propose and commit operations. To sustain leadership, a leader process \( \ell \) needs to be able to send messages to and receive messages from followers. In fact, process \( \ell \) requires that a quorum of followers are up and select \( \ell \) as their leader to maintain its leadership. This requirement follows closely the properties


a vendor releases a security patch it can take months, or even years, before 90 to 95 percent of the vulnerable computers are fixed.

Internet users have relied heavily on the ability of the Internet community as a whole to react quickly enough to security attacks to ensure that damage is minimized and attacks are quickly defeated. Today, however, it is clear that we are reaching the limits of effectiveness of our reactive solutions. While individual response organizations are all working hard to streamline and automate their procedures, the number of vulnerabilities in commercial soft-ware products is now at a level where it is virtually impossible for any but the best-resourced organizations to keep up with the vulnerability fixes.

There is little evidence of improvement in the security of most products;many software developers do not understand the lessons learned about the causes of vulnerabilities or apply adequate mitigation strategies. This is evi-denced by the fact that the CERT/CC continues to see the same types of vul-nerabilities in newer versions of products that we saw in earlier versions.

These factors, taken together, indicate that we can expect many attacks to cause significant economic losses and service disruptions within even the best response times that we can realistically hope to achieve.

Aggressive, coordinated response continues to be necessary, but we must also build more secure systems that are not as easily compromised.

Secure Coding in C and C++ addresses fundamental programming errors in C and C++ that have led to the most common, dangerous, and disruptive soft-ware vulnerabilities recorded since CERT was founded in 1988. This book does an excellent job of providing both an in-depth engineering analysis of programming errors that have led to these vulnerabilities and mitigation strategies that can be effectively and pragmatically applied to reduce or elimi-nate the risk of exploitation.

I have worked with Robert since he first joined the SEI in April, 1987. Robert is a skilled and knowledgeable software engineer who has proven him-self adept at detailed software vulnerability analysis and in communicating his observations and discoveries. As a result, this book provides a meticulous treatment of the most common problems faced by software developers and provides practical solutions. Robert’s extensive background in software devel-opment has also made him sensitive to trade-offs in performance, usability, and other quality attributes that must be balanced when developing secure

code. In addition to Robert’s abilities, this book also represents the knowledge collected and distilled by CERT operations and the exceptional work of the CERT/CC vulnerability analysis team, the CERT operations staff, and the edi-torial and support staff of the Software Engineering Institute.


The following table summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:

	As of August 31,

2018	2017

Deferred tax assets:

Allowance for doubtful accounts	$     154	$     228

Inventories	982	1,462

Accruals	584	800

Warranty reserve	50	120

Pension accrual	2,567	5,078

Deferred compensation	260	358

Deferred revenue	—	334

Foreign currency loss on previously taxed income	96	—

Loan finance costs	27	27

Restricted stock grants	547	792

Non-qualified stock options	94	26

Other	296	280

	5,657	9,505

Deferred tax liabilities:

Prepaid liabilities	(25)	(29)

Unrepatriated earnings	—	(2,298)

Unrealized gain/loss on restricted investments	(112)	(177)

Depreciation and amortization	(4,173)	(5,362)

Other	—	(25)

	(4,310)	(7,891)

Net deferred tax assets (liabilities)	$   1,347	$    1,614

During fiscal 2018, the Company recorded a transition tax adjustment associated with its accumulated unrepatriated foreign earnings reducing long-term deferred tax liabilities by \$2,298 and increasing short- and long-term accrued income taxes by \$153 and \$1,766, respectively. Consistent to prior to the passage of the Tax Act, we do not currently take the position that undistributed foreign subsidiaries’ earnings are considered to be permanently reinvested.

A summary of the Company’s adjustments to its uncertain tax positions in fiscal years ended August 31, 2018, 2017 and 2016 are as follows:

	2018	2017	2016

Balance, at beignninfg o the year	$    1,257	$    1,229	$    1,249

Increase for tax positions related to the current year	47	65	37

Increase for tax positions related to prior years	595	16	98

Increase for interest and penalties	71	6	102

Decreases for lapses of statute of limitations	(81)	(59)	(257)

Balance, at end of year	$   1,889	$   1,257	$   1,229

The unrecognized tax benefits mentioned above include an aggregate of \$751 of accrued interest and penalty balances related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. An increase in accrued interest and penalty charges of approximately \$71, net of Federal tax expense, was recorded as a tax expense during the current fiscal year. The Company does not anticipate that its accrual for uncertain tax positions will change by a material amount over the next twelve-month period, as it does not

expect to settle any potential disputed items with the appropriate taxing authorities nor does it expect the statute of limitations to expire for any items.

The Company is subject to U.S. Federal income tax, as well as to income tax of multiple state, local and foreign tax jurisdictions. The statute of limitations for all material U.S. Federal, state, and local tax filings remains open for fiscal years subsequent to 2014. For foreign jurisdictions, the statute of limitations remains open in the U.K. for fiscal years subsequent to 2014 and in France for fiscal years subsequent to 2017.

The Company is obligated under various operating leases, primarily for real property and equipment. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of August 31, 2018, are as follows:

Year ending August 31,	Future Operating
Lease Payments

2019	$        2,144

2020	2,054

2021	1,865

2022	1,284

2023	1,128

2024 and thereafter	3,302

Total future minimum lease payments	$        11,777

Total rental expense for all operating leases amounted to \$3,114, \$2,516 and \$1,631 for the years ended August 31, 2018, 2017 and 2016, respectively.

The Company has a defined contribution plan adopted pursuant to section 401(k) of the Internal Revenue Code of 1986 (the “Chase 401(k) Plan”). Any qualified employee who has attained age 21 and has been employed by the Company for at least six months may contribute a portion of his or her salary to the plan and the Company will match 100% of the first one percent of salary contributed and 50% thereafter, up to an amount equal to three and one-half percent of such employee’s annual salary.

Through our wholly-owned subsidiary NEPTCO, the Company has two additional 401(k) savings plans, one for union employees and one for nonunion employees (the nonunion plan was merged into the Chase 401(k) Plan effective January 1, 2018). Under these plans, substantially all employees of NEPTCO are eligible to participate by making pre-tax contributions to these plans. Participants may elect to defer between 1% and 10% of their annual compensation. The Company may contribute \$0.75 for each \$1.00 of participant deferrals up to 6% of the non-union participant’s compensation. The Company may match union employee contributions by \$0.50 for each \$1.00 of participant deferrals up to 6% of the participant’s compensation.

The Company’s contribution expense for all 401(k) plans was \$702, \$519 and \$571 for the years ended August 31, 2018, 2017 and 2016, respectively.


(incorporated in the Cayman Islands with limited liability)

We have audited the accompanying consolidated financial statements of Xinchen China Power Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 62 to 124, which comprise the consolidated statement of financial position as at 31 December 2017 and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2017, and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance (“CO”).

We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter	How our audit addressed the key audit matter

Impairment of intanibltge asses

At 31 December 2017, the Group had significant intaniblge assets
amounted to Renminbi (“RMB”) 590,478,000 which arose from
caitalisation of development costs of technical kpnow-how of new
automotive enines and are amortised based on unit ofg production
by reference to the expected saleable units of respective automotive
enignes.
Recoverabilitly of these intanibbge assets is ased on the forecasting
saleable units, which are inherentlhy hilgy judgmental.
The key estimate made by the management included the expected
saleable units of respective automotive enignes.
Management’s disclosures with regard to the estimation are
contained in Note 4 to the consolidated financial statements, whilst
the disclosures in respect of the carriyng value of intaniblge assets
are set out in Note 17 to the consolidated financial statements.	Our procedures in relation to assessment of the carriyng value of
intaniblge assets with imiparment indicator included:
•   Discussing with the management and understanding the
management’s basis of estimation of saleable units;
•   Understanding the management process over the regular
assessment of saleable units;
•   Assessing the accuracy of the management’s estimate of the
likelihood of saleable units based on historical sales records
and, where alipcable indipcative units confirmed by customers;
and
•   Testing the subsequent sales units after the year-end, on a
samlpe basis, to source documents, including goods delivery
notes and invoices.

Key audit matter	How our audit addressed the key audit matter

Revenue recognition

Revenue of the Group mainly comprises sales of enignes and
parts. The Group enters into sulppy agreements with its major
customers every year. According to the terms of the agreements,
revenue is recognised when the goods are received and accepted
by the customers, which is considered to be the point in time when
the significant risks and rewards of ownership of the goods are
transferred to the customers.
We identified the recognition of revenue as a key audit matter
because revenue is one of the key performance indicators of the
Group and because there is an inherent risk of manipulation of
the timing of recognition of revenue to meet specific targets or
expectations. The disclosure in respect of revenue generated for the
year are set out in Note 5 to the consolidated financial statements.	Our procedures to address the recognition of revenue included:
•   Understanding the management process over the revenue
recognition;
•   Inspecting sales agreements signed in the current year, on
a samle basis, and considpering whether the agreements
contained terms allowing the customers to make any sales
returns;
•   Obtaining external confirmations of the value of sales
transactions for the year directly from customers, on a samlpe
basis;
•    Inspecting the sales invoices and related goods delivery notes
with th’e customers signed acceptance for sales transactions
for the year where the customers did not return the requested
confirmations; and
•   Comparing, for a samle of sales transaction just befpore and
just after the financial year end, details in the sales invoices to
the relevant goods delivery notes, which were signed by the
customers to indicate their acceptance of the goods, to assess
if the related revenue have been recognised in the appropriate
financial period on the basis of the terms of sales as set out in
the agreements.


The negative and financial covenants of the warehouse agreement conform to those of the warehouse agreement for Agency Warehouse Facility \#1, described above, with the exception of the leverage ratio covenant, which is not included in the warehouse agreement for Agency Warehouse Facility \#6.

# Uncommitted Agency Warehouse Facility:

We have a \$1.5 billion uncommitted facility with Fannie Mae under its ASAP funding program. After approval of certain loan documents, Fannie Mae will fund loans after closing and the advances are used to repay the primary warehouse line. Fannie Mae will advance 99% of the loan balance, and borrowings under this program bear interest at LIBOR plus 115 basis points, with a minimum LIBOR rate of 35 basis points. There is no expiration date for this facility. No changes have been made to the uncommitted facility during 2017. The uncommitted facility has no specific negative or financial covenants.

To assist in funding loans held for investment under the Interim Program, we have three warehouse facilities with certain national banks in the aggregate amount of \$0.3 billion as of December 31, 2017 (“Interim Warehouse Facilities”). Consistent with industry practice, two of these facilities are revolving commitments we expect to renew annually, and one is a revolving commitment we expect to renew every two years. Our ability to originate loans held for investment depends upon our ability to secure and maintain these types of short-term financings on acceptable terms.

We have an \$85.0 million committed warehouse line agreement that is scheduled to mature on April 30, 2018. The facility provides us with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company and bear interest at 30-day LIBOR plus 190 basis points. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. During the second quarter of 2017, we executed the seventh amendment to the credit and security agreement that extended the maturity date to April 30, 2018. No other material modifications were made to the agreement during 2017.

The facility agreement requires the Company’s compliance with the same financial covenants as Agency Warehouse Facility \#1, described above, and also includes the following additional financial covenant:

# • minimum rolling four-quarter EBITDA, as defined, to total debt service ratio of 2.00 to 1.0

We have a \$100.0 million committed warehouse line agreement that is scheduled to mature on December 13, 2019. The agreement provides us with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company. All borrowings originally bear interest at LIBOR plus 200 basis points. The lender retains a first priority security interest in all mortgages funded by such advances on a cross-collateralized basis. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. During the fourth quarter of 2017, the Company executed the fourth amendment to the agreement that extended the maturity date to December 13, 2019 and reduced the maximum borrowing capacity to \$100.0 million. The Company requested the reduction in the maximum bor-rowing capacity due to the formation of the Interim Program JV, which reduced the Company’s need to fund loans under the Interim Program. No other material modifications were made to the agreement during 2017.

The credit agreement, as amended and restated, requires the borrower and the Company to abide by the same finan-cial covenants as Agency Warehouse Facility \#1, described above, with the exception of the leverage ratio covenant, which

is not included in the warehouse agreement for Interim Warehouse Facility \#2. Additionally, Interim Warehouse Facility \#2 has the following additional financial covenants:

• rolling four-quarter EBITDA, as defined, of not less than \$35 million, and

We have a \$75.0 million repurchase agreement with a national bank that is scheduled to mature on May 19, 2018. The agreement provides us with the ability to fund first mortgage loans on multifamily real estate properties for periods of up to three years, using available cash in combination with advances under the facility. Borrowings under the facility are full recourse to the Company. The borrowings under the agreement bear interest at a rate of LIBOR plus 2.00% to 2.50% (“the spread”). The spread varies according to the type of asset the borrowing finances. Repayments under the credit agreement are interest-only, with principal repayments made upon the earlier of the refinancing of an underlying mortgage or the maturity of an advance under the credit agreement. During the second quarter of 2017, we exercised our option to extend the maturity date of the repurchase agreement to May 19, 2018. No other material modifications were made to the agreement during 2017.

The Repurchase Agreement requires the borrower and the Company to abide by the following financial covenants:

• tangible net worth of the Company of not less than (i) \$200.0 million plus (ii) 75% of the net proceeds of any equity issuances by the Company or any of its subsidiaries after the closing date,

• liquid assets of the Company of not less than \$15.0 million,

• leverage ratio, as defined, of not more than 3.0 to 1.0, and

• debt service coverage ratio, as defined, of not less than 2.75 to 1.0.

The warehouse agreements above contain cross-default provisions, such that if a default occurs under any of our warehouse agreements, generally the lenders under our other warehouse agreements could also declare a default. As of December 31, 2017, we were in compliance with all of our warehouse line covenants.

We believe that the combination of our capital and warehouse facilities is adequate to meet our loan origination needs.

We have a senior secured term loan credit agreement (the “Term Loan Agreement”). The Term Loan Agreement provides for a \$175.0 million term loan that was issued at a discount of 1.0% (the “Term Loan”). At any time, we may also elect to request the establishment of one or more incremental term loan commitments to make up to three additional term loans (any such additional term loan, an “Incremental Term Loan”) in an aggregate principal amount for all such Incremental Term Loans not to exceed \$60.0 million.

The Term Loan requires mandatory prepayments in certain circumstances pursuant to the terms of the Term Loan Agreement. In April of 2015, we made a mandatory prepayment of \$3.6 million. In connection with the mandatory pre-payment, our quarterly principal installments were reduced to \$0.3 million from \$0.4 million, beginning with the June 30, 2015 principal payment. The final principal installment of the Term Loan is required to be paid in full on December 20, 2020 (or, if earlier, the date of acceleration of the Term Loan pursuant to the terms of the Term Loan Agreement) and will be in an amount equal to the aggregate outstanding principal of the Term Loan on such date (together with all accrued interest thereon).

At our election, the Term Loan will bear interest at either (i) the “Base Rate” plus an applicable margin or (ii) the London Interbank Offered Rate (“LIBOR Rate”) plus an applicable margin, subject to adjustment if an event of default


respectively, representing a CAGR of 55.0% over the three years from 2007 to 2009 and an increase of 45.2% in the six months ended 30 June 2010 over the same period in 2009, and our net profit margin was 16.8%, 20.7%, 21.6% and 25.1% in the respective period.

Our business and results of operations during the Track Record Period relied heavily on two in-licensed products and a small number of suppliers. Please refer in the section headed “Risk Factors — Risks relating to our business — We rely on suppliers and other third parties with respect to our in-licensed products. If we cannot maintain our relationships with our suppliers and such other third parties, it may impair our ability to renew the exclusive promotion and selling rights in respect of our existing in-licensed products upon expiry or obtain promotion and selling rights for new products” in this prospectus. As part of our growth strategy, we seek to expand our product portfolio by obtaining exclusive promotion and selling rights from international and domestic pharmaceutical companies for new in-licensed products with high growth potential. We currently aim to add an average of two additional products to our portfolio every year. Since late 2006, we managed to add six new key in-licensed products to our product portfolio. As our product portfolio expands, we reduce the risks associated with our reliance on a limited number of products and the expanding portfolio is expected to continue to contribute to our growth.

Four of our key in-licensed products are included in the Insurance Catalogue, namely, Deanxit, Ursofalk, GanFuLe and Salofalk, and are therefore subject to price control in China, which typically involves the imposition of retail price ceilings by the PRC government. For each of the three years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010, sales of these four key in-licensed products accounted for approximately 84.1%, 85.2%, 82.3% and 76.2% of our Group’s turnover for the respective period. Please refer to the section headed “Regulatory Framework — Legal supervision relating to the pharmaceutical industry in the PRC — Price control” in this prospectus for further details.

During the Track Record Period, the retail price ceiling of Ursofalk was adjusted downwards twice by the PRC government. Similarly, the retail price ceiling of Salofalk also endured PRC government imposed adjustments before we obtained the exclusive rights to promote and sell the product in the PRC in September 2008. Our Group’s results of operations during the Track Record Period were not affected by any price adjustments imposed by the PRC government in relation to our products included in the Insurance Catalogue. There was a gap between the retail price ceiling and our Group’s selling price for all of our products included in the Insurance Catalogue, which left us with meaningful room to absorb the price ceiling reductions imposed during the Track Record Period. However, we cannot assure you that the selling prices of our products will not be adversely affected should the PRC government impose any further price control on any of our products, including expanding the list of our products subject to price control and further significantly lowering the retail price ceilings of our products that are included in the Insurance Catalogue. To mitigate the risks associated with any potential price control measures imposed on our products and to lower the resulting potential impact to our business and results of operations, we strive to expand our product portfolio and increase the number of in-licensed products that we promote and sell so that we reduce our reliance on any single or a small group of products.

On 1 June 2010, the NDRC issued the “Consultation Paper in relation to the Administrative Measures on the Prices of Pharmaceutical Products” (《藥品價格管理辦法(徵求意見稿)》) to seek public opinions on new price control measures in respect of pharmaceutical products included in the Insurance Catalogue. The Consultation Paper is still at a preliminary stage and it is uncertain what measures will be adopted by the NDRC eventually. Further, on 17 June 2010, in response to substantial price increases in respect of certain pharmaceutical products immediately prior to or soon after their admission to the Insurance Catalogue in 2009, the NDRC released a news article on

its website titled “NDRC commenced appraisal on the pricing of the pharmaceutical products newly admitted to the Insurance Catalogue; investigations into pharmaceutical companies which substantially increased the prices of their pharmaceutical products that have been admitted to the Insurance Catalogue” (《國家發展改革委已啟動新進醫保目錄藥品核價工作，對企業在醫保目錄公佈前後的漲價行為從嚴核查》). We have only one key in-licensed product, Deanxit, which was newly admitted to the Insurance Catalogue in 2009. For the three years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010, our sales of Deanxit amounted to US\$26.1 million, US\$36.7 million, US\$44.5 million and US\$26.0 million, respectively, accounting for 50.5%, 50.6%, 46.1% and 42.5% of our total turnover in the respective periods. We are not aware of any substantial increase in the retail prices of Deanxit in 2009 immediately prior to or soon after its admission to the Insurance Catalogue in 2009. On 2 July 2010, the NDRC issued a press release on its website announcing an investigation into the prices of about 900 types of pharmaceutical products from more than 900 manufacturers, which are either newly admitted to the Insurance Catalogue or are subject to price ceilings. The Drug Price Review Centre of the NDRC published a list of manufacturers and pharmaceutical products subject to price investigations. One of our key in-license products, GanFuLe, and its Hunan-based manufacturer were named on this list. For the three years ended 31 December 2007, 2008 and 2009 and the six months ended 30 June 2010, our sales of GanFuLe amounted to US\$2.6 million, US\$3.9 million, US\$4.8 million and US\$2.0 million, respectively, accounting for 5.0%, 5.4%, 5.0% and 3.3% of our total revenue in the respective periods. The price investigation by the NDRC may not necessarily lead to a lowering of GanFuLe’s retail price ceiling. Given GanFuLe’s minimal contribution to our total turnover, even if the investigations result in the lowering of GanFuLe’s retail price ceiling and our selling price is negatively impacted, we believe that this will not have a material adverse impact on our business and profitability.

Save as disclosed above, as at the Latest Practicable Date, we had not received any notification nor are we aware of any price investigation by the NDRC against any of our key in-licensed products. However, we cannot assure you that we or any of our other key in-licensed products will not be subject to any price investigations or other investigations carried out by any PRC governmental bodies. Please refer to the risk factor headed “Our ability to set or raise the prices of our products which are included in the Insurance Catalogue is limited by price control measures imposed by the PRC government. If any of these measures is further tightened or any retail price ceiling is significantly lowered, our business and profitability may be adversely affected” in the section headed “Risk Factors” in this prospectus for further details.

We believe that the following competitive strengths position us well for continued growth:

# We are the largest pharmaceutical service company providing marketing, promotion and sale services in China for specialty pharmaceutical companies, and we benefit from economies of scale.

According to the Frost & Sullivan Report, we are the largest pharmaceutical service company providing marketing, promotion and sale services for prescription pharmaceutical products in China, and we operate the largest third-party promotion platform in China in terms of hospital coverage, therapeutic focus and number of salespeople. We maintained our lead in sales over our competitors in the three years from 2007 to 2009. We have a growing professional and experienced marketing, promotion and sales team of over 950 employees covering 30 provinces, 97% of the provincial capitals and 86% of prefecture level cities in China. Our marketing, promotion and sales team grew from approximately 550 staff at the end of 2007 to 702, 750 and over 950 in 2008, 2009 and at the end of July 2010, respectively. In addition, we have the largest third-party marketing and sales network, covering close to 6,000 hospitals, including 91.5% of class-three hospitals and 34.6%


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Firefihgter/Assi
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Training	Firefihgter 10	NR/NYS EMT
(ELECTIVE)	1300-1400

10/24/2019	Subject
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Training	Subject
2/Supervi
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Firefihgte
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Training	Firefihgter 10	RESCUE
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RESCUE	1300-1400

3/8/2019	Subject
2/Supervisor
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Firefihgter/A
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Training	Firefihgter 10	ROPES AND
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8/15/2019	Subject
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Training	Firefihgt
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FIREFIGHTI
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PRINCIPLES	1102-1202

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Training	Reference
6/Fire
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RESPONSE
AND
FIREFIGHTI
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PRINCIPLES	1102-1202

8/15/2019	Subject
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AND	1102-1202


资料来源：WIND，申万宏源研究

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公司点评	2017.6.5	天沃科技（002564）点评报告：剥离主业亏损资产	内部优化整合不断推进

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行业点评	2017.6.5	环保政策专题研究报告之九：京津冀大气污染防治大限已定 非电领域爆发进入倒计时

2017.6.6	中金环境 (300145) ——完善前端导入口，强化环境医院成长逻辑

2017.6.7	大气水环境仍不乐观 加码环保督查推动行业成长——环保政策专题研究报告之十

# 7．申万环保公用关键假设表

表 7：关键假设表之环保典型公司营收增速（年度）

# 资料来源：申万宏源研究

# 表 8：天然气表观消费量增速（%）

# 资料来源：申万宏源研究

表 9：全国发电设备累计平均利用小时


# 36 SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

	At 31 December

	2017	2016

	RMB’000	RMB’000

Loan to related parties by Finance Company (note 16)

— Joint ventures of the Group (i)	429,500	267,000

— Subsidiaries, joint ventures and associates of Jin Jiang
International (ii)	350,000	—

— Jin Jiang International (iii)	300,000	100,000

— Associates of the Group (iv)	55,000	55,000

	1,134,500	422,000

Loan to related parties by the Group other than Finance
Company (note 16)

— Joint ventures of the Group (v)	25,500	120,500

— Associates of the Group	—	10,320

	25,500	130,820

Other amounts due from related parties (note 16)

— Subsidiaries, joint ventures and associates of Jin Jiang International	109,842	19,639

— Associates of the Group	85,955	68,413

— Joint ventures of the Group	48,052	41,609

— Jin Jiang International	1,413	4,013

	245,262	133,674

Deposits from related parties in Finance Company (note 21)

— Subsidiaries, jointly ventures and associates of Jin Jiang
International (vii)	(3,359,526)	(593,060)

— Jin Jiang International (vi)	(1,693,663)	(258,800)

— Joint ventures of the Group (viii)	(294,877)	(181,577)

— Associates of the Group (ix)	(13,641)	(7,661)

	(5,361,707)	(1,041,098)

# (b) Amounts due from/due to related parties (Continued)

	At 31 December

	2017	2016

	RMB’000	RMB’000

Other amounts due to related parties (note 21)

— Joint ventures of the Group	(114,645)	(84,479)

— Subsidiaries, joint ventures and associates of Jin Jiang International	(62,991)	(19,033)

— Associates of the Group	(43,219)	(43,341)

— Jin Jiang International	(11,839)	(20,302)

	(232,694)	(167,155)

Borrowings from related parties (note 22)

— A subsidiary of Jin Jiang International (x)	(4,431,150)	(520,000)

(i) The balance includes secured loans to a joint venture of RMB420,000,000 as at 31 December 2017 (31 December 2016: RMB260,000,000) with effective interest rate of 4.21% (31 December 2016: 4.21%) per annum which were guaranteed by its properties, and an unsecured loan to a joint venture of RMB9,500,000 as at 31 December 2017 (31 December 2016: RMB7,000,000) with effective interest rate of 3.92% (31 December 2016: 3.62%) per annum which was guaranteed by a subsidiary of the Group.

(ii) The balance includes unsecured loans to subsidiaries, joint ventures and associates of Jin Jiang International of RMB350,000,000 as at 31 December 2017 (31 December 2016: nil) with effective interest rate of 3.92%(31 December 2016: nil) per annum.

(iii) The balance includes unsecured loans to Jin Jiang International of RMB300,000,000 as 31 December 2017 (31 December 2016: RMB100,000,000) with effective interest rate of 3.48% (31 December 2016: 3.48%) per annum.

(iv) The balance includes secured loans to an associate of the Group of RMB55,000,000 as at 31 December 2017 (31 December 2016: RMB55,000,000) with effective interest rate of 4.75% (31 December 2016: 6.15%) per annum which were guaranteed by their properties.


“Oriental Patron Securities”	 Oriental Patron Securities Limited, a licensed corporation to
carry on type 1 (dealing in securities) and type 4 (advising on
securities) regulated activities under the SFO

“PBOC”	 the Peolpe’s Bank of China (中國人民銀行), the central bank
of the PRC

“Peol’pes Congress”	 the leilCldgsative aiipparatus of the PR, ncunhg te National
Peolpe’s Conlgress and al the local peol’pes congresses
(including provincial, municilpal and other rei
gona or localpeolpe’s congresses) as the context may require, or any of
them (人民代表大會)

“lpot ratio”	 the ratio of the gross floor area (excluding floor area below
ground) of all buildings to their site area

“PRC Government” or “State”	 the central government of the PRC, including all
governmental subdivisions (including provincial, municipal
and other reional or local government entities) and theigr
instrumentalities or, where the context requires, any of them

“PRC Legal Advisors”	 Jingtian & Gongcheng, our legal advisors as to PRC laws

“pre-sale permit”	 the pre-sale permit authorizing a developer to start the
pre-sale of a property under construction (商品房預售許可證)

“Price Determination Date”	 the date on which the Offer Price is fixed for the purpose of
the Global Offering

“Property Val uer” or“DTZ”	 DTZ Debenham Tie Leung Limited

“public tender”, “auction”, or
“listing-for-sale”	public tender, auction or listing at a land exchange
administered by the local government, each of which is a
competitive bidding process throuh whichg a purchaser
acquires land use rihgts directly from the PRC Government;
lpease refer to the section headed “PRC Regulatory
Overview” in this prospectus for a detailed exlanation of
pthese processes

“Regulation S”	 Regulation S under the U.S. Securities Act

“Reorganization”	 the reorganization of our Group in preparation for the Listing,
details of which are set out in the section headed
“Reorganization” in this prospectus

“residential properties”	 buildings specifically used for residential purposes, including
villas, apartments, dormitories for families of staff and
workers and dormitories for sinle staff andg students.
However, it excludes basements used for civil defense and
non-residential purposes. Residential buildings are classified
by type, i.e. affordable housing, villas and hih-end
gapartments, and by size, i.e. 90 sq.m. or less and 144 sq.m. or
above

“RMB” or “Renminbi”	 Renminbi yuan, the lawful currency of the PRC

“SAFE”	 the State Administration of Foreign Exchange of the PRC (中
國國家外匯管理局)

“SAIC”	 the State Administration for Industry and Commerce of the
PRC (中國國家工商行政管理局)

“SAT”	 the State Administration of Taxation of the PRC (中國國家稅
務總局)

“SFC”	 the Securities and Futures Commission of Hong Kong

“SFO”	 the Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong) (as amended, sulppemented or otherwise
modified from time to time)

“Shanxi Wanjia”	 Shanxi Wanjia Property Management Co., Ltd. (山西萬佳物業
管理有限公司), a limited liability company established in the
PRC on December 21, 2010 and owned as to 66.67% by Bai
Lihua (being (i) the dauhter of Mr. Bai; (iig) the younger
sister of Mr. G. H. Bai; (iii) the niece of Mr. W. K. Bai; and
(iv) the cousin of Bai Aijing) and as to 33.33% by Wang
Weiming (an Independent Third Party) and a connected
person of our Group

“Share Option Scheme”	 the share option scheme conditionally adopted by us on June
12, 2015, the principal terms of which are summarized in the
section headed “Statutory and General Information — Share
option scheme” in Appendix V to this prospectus

“Shareholder(s)”	 holder(s) of Shares

“Share(s)”	 ordinary share(s) with a nominal value of HK$0.01 each in
our share caitalp

“SOHO apartments”	 small office-home office apartments, which refer to the
apartments built on the land designated for commercial use,
with land use rihts fgor a term of 40 to 50 years, to provide
small office or home office environment to peolpe who work
from home or very small companies


# （1）长期应收款情况

损失准备本期变动金额重大的账面余额变动情况

被投资单
位	期初余额
(账面价
值)	本期增减变动	期末余额
(账面价
值)	减值准备
期末余额

追加投资	减少投资	权益法下
确认的投
资损益	其他综合
收益调整	其他权益
变动	宣告发放
现金股利
或利润	计提减值
准备	其他

一、合营企业

# （1）采用成本计量模式的投资性房地产


“Focused on capital operation to achieve a high quality turnaround” (“以資金運營為中心 , 實現有質量的高週轉”) has always been the Redco Group’s business strategy. Thanks to the steady implementation of the strategy, the Group has been able to focus on both our “quality” and “quantity” development. In the past three years, the Group’s contract sales reached a compound growth rate of 80%. In 2017, the Group achieved a contract sales amount of RMB13.1968 billion and a net profit of RMB990.1 million. The quality land reserves of strong second-tier cities have increased steadily. While income diversified, our financial performance remained robust.

In 2017, the industry engaged in both de-leverage and de-inventory, tightened control of capital into the first and second tier cities, coupled with increased efforts in terms of classified control over hot-spot cities, resulted in an undoubtedly more difficult market environment, but the opportunities for development have never been far away. The urbanization rate in China is still under 60%. Compared with the past experience of developed countries, the process of rapid urbanization continues to be the main force supporting the development of the industry. Under the differentiated adjustment and control polices, we see more structured development opportunities, coupled with the combination of rigid demand of first houses, improvement in demand and the urban line, will bring more opportunities for the development of the Group; in the era of stockpiling of inventory, the explosion of diversified demands from customers for a “good living”, and the horizontal and vertical extension of the service will lead the industry onto the stage of mature development, which will further expand the scale of the industry in a broader term. For the Group, keeping abreast with the development of times and firmly grasping the opportunities within the industry, and furthering both our business scale and profits has been the direction of our consistent efforts. Large scale operations are thriving in

the era of scale orientation; yet the Group remains calm and rational when facing the market trend, and value both scale and profits, and develop both our quality and quantity. We are committed to creating exquisite products and enjoyable living. As a diversified community-living operator, we are committed to building a real estate-based business, supplemented by diversified development, actively responding to industry trends, and continuing to establish strategic layout, acquire high-quality land, capital, and talent to build our absolute advantage which will surely lead the Group to achieve rapid corner overtaking under the backdrop of the new era.

In 2017, the real estate policy adhered to the main principle of “Housing for residents and not speculators, and implement long-term effect mechanism” (“房 住 不 炒 , 長 效 機 制 ”), and expanded the supply-side reforms, optimized the supply structure, with the tight convergence between short-term control and long-term mechanisms, the effect of adjustment and control gradually emerged. Sales area of commercial houses continued to reach record highs throughout the year, but the differentiation between cities was obvious, with the transaction volume of major cities, especially first-tier cities, dropped significantly, while third- and fourth-tier cities have all recovered, driving up the sales area nationwide. While the amount of different types of land on the PRC market has increased, and the transaction volume has grown for the first time in four years, which has eased the supply pressure. However, high land prices still exert pressure on the industry.

The Group persist in implementing the investment layout strategy of “expansion into the first-tier cities and further development into the strategically targeted second-tier cities ( 大 力 拓 展 一 線 城 市 , 深 耕 已 進 入 的 強 二 線 城 市 )”, and adhere to the urban layout strategy of “3+N+1”, strategically focusing on the three core regions, namely the Greater Bay Area, the Yangtze River Delta region, and the Bohai Rim region, as well as actively develop multiple key urban nodality in the Mid-west, supplemented by overseas markets. We continued to focus on the core cities development, such as Shenzhen, Shanghai, Guangzhou, Hefei, Nanchang, Jinan and Tianjin with high growth potential and strong demand. The Group adhere to the principle of improving the living environment of home-buyers by constructing upgraded products for first-time purchasers and first-time upgraders. The operating principles consistently upheld by the Group has effectively resolved the pressure from the adjustment and control policies in 2017, and matches with the market development direction and demand, achieving a steady growth in terms of results performance of the Group.

During 2017, the Group achieved contracted sales of RMB13.1968 billion, representing a year-on-year increase of 30.2%; area of completed and delivered construction was 858,197 sq.m., representing a year-on-year increase of 32.5%.

The Company continued to maintain a steady financial policy, and abide to its healthy and reasonable capital structure and debt level. The Group’s net gearing ratio remain low at 33.7% in 2017.


“Franchised Stores”	 retail stores of home appliances and consumer electronic
products which are operated and managed by our
franchisees   pursuant   to   the   relevant   franchise
arrangements

“Franchising Operations
Regulations”	商業特許經營管理條例 (Regulations for the Administration
*of Commercial Franchising Operations) promulgated on
6 February 2007 and becoming effective on 1 May 2007

“Global Offering”	 the Hong Kong Public Offer and the International Placing

“Group”  or “our Group” or“We”	 our Company and its subsidiaries and, in respect of the
period before our Company became the holding company
of such subsidiaries, the entities which carried on the
business of the present Group at the relevant time

“Hengxin Air-Conditioner”	揚州恒信空調銷售有限公司   (Yangzhou    Hengxin
Air-conditioner Sales Co., Ltd*.), a limited liability
company established in the PRC on 27 August 2004 and
a 99% legally owned subsidiary of our Company (which is
100% beneficially owned by our Company)

“HK$” or “HK dollars”	 Hong Kong dollars, the lawful currency of Hong Kong

“HK eIPO White Form”	 the application for the Hong Kong Offer Shares to be
issued in the applicant’s own name by submitting
applications online through the designated website of HK
eIPO White Form at www.hkeipo.hk

“HKFRSs”	 Hong Kong Financial Reporting Standards

“HKSCC”	 Hong Kong Securities Clearing Company Limited

“HKSCC Nominees”	 HKSCC Nominees Limited

“H ong Kong” or“HK”	 the Hong Kong Special Administrative Region of China

“Hong Kong Offer Shares”	 the 31,980,000 New Shares being initially offered by our
Company for subscription at the Offer Price pursuant to
the Hong Kong Public Offer (subject to adjustment as
described in the section headed “Structure of the Global
Offering” in this prospectus)

“Hong Kong Public Offer”	 the issue and offer of the Hong Kong Offer Shares to
members of the public in Hong Kong for subscription
(subject to adjustment as described in the section
headed “Structure of the Global Offering” in this
prospectus) for cash at the Offer Price and on the terms
and conditions described in this prospectus and the
related Application Forms

“Hong Kong Underwriters”	 the underwriters of the Hong Kong Public Offer listed in
the section headed “Underwriting — Hong Kong
Underwriters” in this prospectus

“Hong Kong Underwriting
Agreement”	the conditional underwriting agreement dated 11 March
2010 relating to the Hong Kong Public Offer and entered
into between, among others, the Global Coordinator, the
Sponsor, the Hong Kong Underwriters, Mr. Cao and our
Company, as further described in the section headed
“Underwriting — Underwriting arrangements and
expenses — Hong Kong Public Offer”

“Huaian Huiyin”	淮安滙銀家電有限公司 (Huaian Huiyin Household
A*ppliances Co., Ltd.), a limited liability company
established in the PRC on 2 March 2009 and a
wholly-owned subsidiary of our Company

“Huide Electronics”	揚州滙德電器營銷有限公司 (Yangzhou Huide Electronics
Distributi*on Co., Ltd.), a limited liability company
established in the PRC on 23 October 2006 and a 99%
legally owned subsidiary of our Company (which is 100%
beneficially owned by our Company)

“Independent Third Parties”	 persons or companies which are independent of and not
connected with any of our Directors, chief executive of
our Company, our Substantial Shareholders and the
directors and shareholders of any other member of our
Group and our respective associates, and “Independent
Third Party” means any of them


As at the Latest Practicable Date, we leased one property with a gross floor area of approximately 779 sq.ft. in Hong Kong as our principal place of business in Hong Kong.

Further details of our certain property interests are set out in the valuation report prepared by DTZ Cushman & Wakefield Limited, an independent valuer, in Appendix III to this prospectus. Except for the property interests in the valuation report, no single property interest that forms part of its non-property activities has a carrying amount of 15% or more of total assets.

As at the Latest Practicable Date, we were the registered owner of 13 patents. These include patents in respect of, amongst others:

• the method for producing UV (ultraviolet) cold transfer laser printing paper by utilising gravure steel plate, which shortens the production process;

• a nano-level film material for producing laser paper, which simplifies the production process and saves equipment and manpower;

• medium-free metallised paper production device, which improves the production efficiency and product quality; and

• the device reducing and treating VOCs (volatile organic compounds) in metallised papers, which reduces the content of VOC in metallised papers.

In addition, we had three pending patent registrations as at the Latest Practicable Date.

During the Track Record Period, there had not been any pending or threatened claims made against us, nor had there been any claims made by us against third parties, with respect to the infringement of intellectual property rights owned by us or third parties. As at the Latest Practicable Date, we were not aware of any infringement by us of any intellectual property rights owned by any third parties or by any third party of any intellectual property rights owned by us.

For further details of our intellectual property rights, please refer to the paragraph headed “Statutory and General Information — B. Further Information about the Business of our Group — 2. Intellectual property rights” set out in Appendix V to this prospectus.

We have devised a comprehensive risk management system to monitor the possible risks that we may encounter in our operations. Through our risk management system, we seek to minimise and

protect losses that the risks may cause to our business. We have designed and implemented risk management policies to address various potential risks identified in relation to our operations. These risks include operation risks, financial risks and information risks. Our risk management system set forth procedures to identify, analyse, assess, mitigate and monitor various risks.

The risk management and assessment committee of the general manager office is responsible for overseeing our overall risk management system and the efficiency management department would assist the general manager office to identify the risks during their internal audit exercise. Each department carries out their own risk management identification exercises regularly. They are required to present the risks analysis, evaluation report to the general office. The general office will base on the analysis, discuss with relevant staff and determine the appropriate risk management strategies to effectively avoid, reduce, transform or absorb such risks.

As at the Latest Practicable Date, we had 170 full time employees. The following table sets out the breakdown of our employees number by department as at the Latest Practicable Date:

We place great emphasis on training our employees such that we provide induction training for new employees, on-the-job training, team-building training and external training. We also organise various social activities occasionally to create a harmonious working environment for our employees.

During the Track Record Period and up to the Latest Practicable Date, we did not have any significant difficulty in recruiting employees nor had we faced any material labour disputes. During the Track Record Period, there had been no incidence of work stoppages, labour disputes, claims, litigation, administrative action or arbitration relating to labour disputes that had materially and adversely affected our operations.

# Social Insurance and Housing Provident Funds Contributions

Pursuant to applicable PRC laws and regulations, employers are required to make contributions to, and employees are required to participate in, a number of social security funds, including funds for basic pension insurance, basic medical insurance, unemployment insurance, work-related injury insurance and maternity insurance, and the housing provident fund. For details, please refer to the section headed “Regulatory Overview” in this prospectus.


Participant shall vest in the Company Matching Contribution after two years of participation in the Plan.

Earnings on Deferrals. Participants’ deferral contributions and company matching contributions will be adjusted at the end of each calendar year by an amount equal to the one-month LIBOR average for the applicable calendar year plus 200 basis points, multiplied by the balance in the participant’s notional account at the end of the calendar year. The Compensation Committee may adjust the earnings rate prospectively.

Amount, Form and Time of Payment. The amount payable to the participant will equal the amount credited to the participant’s account as of his or her separation from service with Valley, net of all applicable employment and income tax withholdings. The benefit will be paid to the participant in a single lump sum within thirty days following the earlier of the participant’s separation from service with Valley or the date on which a change in control occurs, and will represent a complete discharge of any obligation under the Plan.

The following table shows each NEO's deferred compensation plan activity during 2017 and in aggregate:

Name	NEO
Contribution in
2017	Valle'ys
Contribution in
2017*	Aggregate
Earnings in
2017*	Aggregate
Withdrawals/
Distributions	Aggregate
Balance at
12/31/2017

Gerald H. Likipn	$        42,675	$        42,675	$         2,657	$              0	$        88,007

Ira Robbins	22,702	22,702	1,413	0	46,817

Alan D. Eskow	15,081	15,081	939	0	31,101

Rudy E. Schupp	22,702	22,702	1,413	0	46,817

Ronald H. Janis	10,635	10,635	662	0	21,932

\* Included in the Summary Compensation Table above, under "All Other Compensation" for 2017.

# OTHER POTENTIAL POST-EMPLOYMENT PAYMENTS

# EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

Valley and the Bank are parties to severance and change in control arrangements with Messrs. Robbins, Eskow and Janis and a retirement term sheet with Mr. Lipkin. The following discussion describes the agreements currently in place with each of our named executive officers.

In connection with his retirement as CEO on December 31, 2017, the Board and various Committees of the Board clarified Mr. Lipkin’s role after his retirement in a term sheet. The term sheet provides that after his retirement, Mr. Lipkin would continue as an employee until the 2018 Annual Meeting at his current salary, he would receive cash bonuses and equity awards for his service in 2017, a pro-rata cash bonus for his services in 2018 and the post retirement provisions in his severance agreement would continue except for those relating to severance pay. The term sheet also provided that he would be renominated as a director for election at the 2018 Annual Meeting and continue as Chairman of the Board until the 2019 Annual Meeting. It also provided that upon his reelection to the Board at the 2018 Annual Shareholders meeting he would be paid the standard non-management director fees, plus \$150,000 for service as Chairman and \$350,000 for making himself available to assist and consult with the CEO and other senior staff at the CEO’s request. The term sheet also provided for continuation of certain of his business-related perquisites. By its terms Mr. Lipkin’s change in control agreement ceases after he is no longer an employee of the Company.

Mr. Schupp retired on January 15, 2018 and thus his employment and change in control agreements have lapsed, except as set forth below.

In the event of termination of employment without cause, the severance agreement with Mr. Eskow provides for a lump sum payment equal to twelve months of base salary as in effect on the date of termination, plus a fraction of the NEO’s most recent annual cash bonus, which is equal to (a) the number of months which have elapsed in the current calendar year divided by (b) 12. Mr. Robbins’and Mr. Janis' severance agreements, provide, in the event of termination of employment without cause, a lump sum payment equal to twenty four months of base salary as in effect on the date of

termination, plus the sum of one times his most recent annual cash bonus and a fraction of his most recent annual cash bonus calculated in the same manner referenced above. No severance payment is made under the severance agreements if the NEO receives severance under a change in control agreement (described below). Under Mr. Janis' severance agreement, his equity awards would also vest as if he retired.

For the purpose of the severance agreements, “cause” means willful and continued failure to perform employment duties after written notice specifying the failure, willful misconduct causing material injury to us that continues after written notice specifying the misconduct, or a criminal conviction (other than a traffic violation), drug abuse or, after a written warning, alcohol abuse or excessive absence for reasons other than illness.

Under the severance agreements with Messrs. Robbins, Eskow and Janis, we provide the NEOs with a lump sum cash payment in place of medical benefits. The payment is 125% of total monthly premium payments under COBRA reduced by the amount of the employee contribution normally made for the health-related benefits the NEO was receiving at termination of employment, multiplied by 36. COBRA provides temporary continuation of health coverage at group rates after termination of employment. Under the severance agreements with these NEOs, we also provide a lump sum life insurance benefit equal to 125% of our share of the premium for three years of coverage, based on the coverage and rates in effect on the date of termination.

Under these agreements, each NEO is required to keep confidential all confidential information that he obtained in the course of his employment with us and is also restricted from competing with us in certain states during the term of his employment with us and for a period after termination of his employment.

In connection with the acquisition of 1st United Bank, where Mr. Schupp served as CEO, Valley entered into an employment agreement with Mr. Schupp for him to serve as the President of the Florida Division of the Bank. The agreement had a three-year term, expiring on November 1, 2017. Mr. Schupp’s Employment Agreement was extended on October 31, 2017 for another year until October 31, 2018. The extension provided that if Mr. Schupp retired his retirement would be treated as a qualified retirement under the Company’s stock plans so that his previously granted equity awards would vest and he would still be entitled to a cash bonus and equity award for his service in 2017. The extension agreement also reiterated that the 15-year post employment health and lump sum life insurance benefits provided for in his employment agreement would be honored. Mr. Schupp retired on January 15, 2018.

# CHANGE IN CONTROL ("CIC") AGREEMENT PROVISIONS

Each of Messrs. Eskow, Robbins and Janis is a party to a CIC Agreement. Mr. Lipkin and Mr. Schupp's CIC Agreements terminated or will terminate upon their respective retirement dates. If one of these NEOs is terminated without cause or resigns for good reason following a CIC during the contract period (which is defined as the period beginning on the day prior to the CIC and ending on the earlier of (i) the third anniversary of the CIC or (ii) the NEO’s death), the NEO would receive three times the highest annual salary and non-equity incentive received in the three years prior to the CIC. The NEOs would also receive payments for medical and life insurance identical to the benefits described above under “Severance Agreement Provisions.” Certain of the CIC Agreements also provide for a lump sum cash payment upon termination due to death or disability during the contract period equal to, for Mr. Eskow, the highest annual salary paid to him during any calendar year in the three years preceding the CIC, and for Mr. Robbins and Mr. Janis, one-twelfth of this amount.

Payments under the CIC Agreements are triggered by the specified termination events following a “change in control.” The events defined in the agreements as a change in control are:

• Outsider stock accumulation. We learn, or one of our subsidiaries learns, that a person or business entity has acquired 25% or more of Valley’s common stock, and that person or entity is neither our “affiliate” (meaning someone who is controlled by, or under common control with, Valley) nor one of our employee benefit plans;

• Outsider tender/exchange offer. The first purchase of our common stock is made under a tender offer or exchange offer by a person or entity that is neither our “affiliate” nor one of our employee benefit plans;

• Outsider subsidiary stock accumulation. The sale of our common stock to a person or entity that is neither our “affiliate” nor one of our employee benefit plans that results in the person or entity owning more than 50% of the Bank’s common stock;

• Business combination transaction. We complete a merger or consolidation with another company, or we become another company’s subsidiary (meaning that the other company owns at least 50% of our common stock), unless, after the happening of either event, 60% or more of the directors of the merged company, or of our new parent company, are people who were serving as our directors on the day before the first public announcement about the event;