Securities and Futures Cases (103) | What are the points of contention in exchangeable bond disputes?

【Dawang Lawyer】

This case is a dispute arising from the redemption of exchangeable corporate bonds, which includes the calculation of the accelerated maturity of the bond and the overdue interest, and there is an extended reading on the calculation of overdue interest, which increases the theoretical value of this case.

Exchangeable bonds: "bonds that can be exchanged for shares of other companies", is a kind of financial derivative with embedded options, which refers to a corporate bond issued by the holder of the shares of a listed company by pledging the shares held by them to the custodian.

The holder of the bond can exchange the bond held for the equity of the listed company pledged by the issuer in accordance with the conditions agreed upon at the time of issuance of the bond.

Stock pledge repurchase transaction: refers to the transaction in which the eligible fund integrator pledges the stock or other securities it holds, integrates the funds into the eligible financial lender, and agrees to return the funds and release the pledge at a certain period in the future.

Part I, The Judgment Of the Court of First Instance.

Based on the parties' claims and the facts ascertained, the court held that there were six points of contention in this case:

Regarding the first focus of the dispute, if the bonds involved in the case have not matured, can the plaintiff (bondholders) Changan Trust sue to repay the principal and interest of the bonds?

In the Prospectus, it is stated in the Offering Prospectus that when an issuer defaults, the issuer shall bear the liability for breach of contract. The scope of liability for breach of contract includes the principal and interest of the bond, liquidated damages, damages, costs of realizing the claim and other expenses payable.

According to the provisions of the law, if there is a dispute over the understanding of the terms of the contract, it shall be interpreted in accordance with the usual understanding; if there are two or more interpretations of the standard terms, an interpretation shall be made to the detriment of the party providing the standard terms. In the case of bond maturity, the repayment of principal and interest is the obligation of the issuer, which is common sense and does not need to be agreed in the default liability clause, so the "bond principal and interest" here should refer to the fact that in the event of an event of default by the issuer, the bondholder or its trustee has the right to require it to repay the principal and interest in advance, that is, "accelerated maturity". Therefore, whether according to the usual understanding or according to the interpretation of the issuer that is "not conducive to providing the clause and is a defaulting party", defendant 1 (issuer) Shenwu Group and defendant 2 (the actual controller of the issuer) Wu Daohong argued that there was no agreement in the offering prospectus to accelerate maturity, and the plaintiff (bondholder) Chang'an Trust Company's claim for early repayment of principal and interest was insufficient and could not be established. Moreover, combined with the clear self-admission in the Announcement on the Default of the 16 Shenwu E1 Guarantee issued by Defendant I that it "has violated the provisions of the bond offering prospectus on the additional guarantee and constituted a default event agreed in the bond offering prospectus", the plaintiff sued defendants I and defendant II in this case to pay the principal and interest of the bonds involved in the case, which has a contractual basis and legal basis and should be supported.

Regarding the second focus of the dispute, how should interest be calculated after the contract expires expedited?

The dispute in this case arose because Defendant Yi failed to perform its obligations under the Prospectus at the time of the breach of contract, which constituted a breach of contract, and the principal of the bonds involved in the case had always been under the control and use of Defendant 1, so the plaintiff's claim that Defendant 1 continue to pay the interest on the bonds at the agreed coupon rate until the date of actual payment of the principal had factual and legal basis, was also reasonable and not improper.

Regarding the third focus of the dispute, how to confirm the liquidated damages of the plaintiff and the starting time of the calculation.

According to the terms of the issuer's liability for breach of contract and the way in which it is assumed, the issuer shall bear the liability for breach of contract when an event of default occurs on the issuer. The scope of its liability for breach of contract includes the principal and interest of the bond, the principal and interest of the resale or redemption part, the liquidated damages (the defaulting party shall pay the liquidated damages at the penalty rate of 1/10,000 per day), the damages and the cost of realizing the claim, etc., so the defendant shall pay the liquidated damages to the plaintiff within 10 days from the effective date of the judgment (based on 100 million yuan, from April 27, 2018 to the actual settlement date, calculated on the standard of one ten-thousandth of a day).

The calculation of liquidated damages claimed by the plaintiff began on July 14, 2017, that is, the date when the securities regulatory authorities inspected defendant I and found that he had embezzled the funds raised from the bonds. However, Defendant 1 and Defendant 2 did not recognize this, and believed that it should be calculated from the date of accelerated expiration of the contract claimed by the plaintiff and the date of filing the lawsuit in this case.

The court held that in the absence of a clear agreement on when the liquidated damages would begin to be calculated, according to the commitment made in the Prospectus that "in the event of a breach of contract, the defendant, etc. shall bear the liability for breach of contract", it was not inappropriate for the plaintiff to claim that the liquidated damages should be calculated from the time when the breach of contract event of the defendant was confirmed by the relevant departments, and the claims of defendants I and defendant II had neither a contractual basis nor a legal basis, so they could not be established.

However, in the litigation, the plaintiff also agreed that the defendant issued an announcement to admit that the time when its conduct constituted a breach of contract in the prospectus was April 27, 2018, as the starting time for calculating the liquidated damages, and the court respected the autonomy of the parties' intentions and did not object.

With regard to focus four of the dispute, should the plaintiff's attorney's fees be supported?

The prospectus states that when an issuer defaults, the scope of liability for breach of contract by the issuer includes the cost of realizing the claim and other expenses payable. The "cost of realizing the claim" here should obviously include the lawyer's fees paid by the plaintiff for this lawsuit, so the plaintiff's claim has a contractual basis and the court supports it.

Regarding the fifth focus of the dispute, should the defendant two actual controller bear joint and several guarantee liability?

According to the "Letter of Guarantee" issued by Defendant 2, Defendant 2 provided an unconditional and irrevocable joint and several liability guarantee guarantee for the redemption of the principal and interest of the bonds involved in the case, so the plaintiff's claim that Defendant 2 bear joint and several guarantee liability for the debts borne by Defendant 2 had a contractual basis, factual basis and legal basis, and should be supported. After defendant two bears the guarantee responsibility, it has the right to recover compensation from defendant one.

Regarding the sixth point of the dispute, the plaintiff has the right of first refusal to be reimbursed for the pledged shares of Shenwu Environmental Protection 5721250 shares held by defendant 1?

According to the Prospectus, Defendant 1 used the 114,425,000 shares of Shenwu Environmental Protection held and its fruits (including share transfer, share transfer and cash dividends) as the pledge security property for the issuance of the bonds involved in the case, which was used to guarantee the exchange of shares by the bondholders and the repayment of the principal and interest of the bonds involved in the case. And on December 15, 2016, the above-mentioned pledge shares were registered as pledges at the Shenzhen branch of China Securities Depository and Clearing Co., Ltd. Accordingly, the plaintiff claimed that the 5721250 shares of the above-mentioned pledged shares (according to the proportion of the 100 million yuan of bonds purchased by it to the amount of 2 billion yuan issued, that is, 5%) have the right of first refusal, and have a contractual basis, factual basis and legal basis, and the court supported it.

The second part is the arguments of both the parties.

1. The main views of the appellant (defendant one of the original trial) Shenwu Group.

(1) There were two errors in the judgment regarding the payment of interest: 1. The interest base should be based on the principal amount of the outstanding bonds; 2. The interest calculation period should be from December 15, 2017 to the date of actual settlement, but no later than December 14, 2019. Failure to specify a deadline may exceed the benefits that the plaintiff could expect under the bond contract.

Note: The plaintiff's 2016 non-publicly issued exchangeable corporate bonds (the bonds referred to as "16 Shenwu E1", code "117063") held by the plaintiff have a maturity of 3 years, and the starting and ending dates are from December 15, 2016 to December 15, 2019, with a coupon rate of 4.6%. Except for the interest already paid by Defendant 1 for the period from 15 December 2016 to 14 December 2017, the plaintiff expects to receive interest for the period from 15 December 2017 to 14 December 2019. The first instance judgment found that the interest was based on $100 million, from December 15, 2017 to the date of actual payment, and was calculated at an annual interest rate of 4.6%.

(2) Although the amount of the subject matter of the dispute in this case is relatively large, the facts of the case are relatively clear, the legal relationship is not complicated, and the amount of the disputed lawyer's fees should be adjusted, and it is appropriate to be less than 100,000 yuan.

2. The main views of the appellee (plaintiff in the original trial) Changan Trust.

(1) The court of first instance has ascertained that the defendant has defaulted on the "2016 Non-public Issuance of Exchangeable Corporate Bonds prospectus of Beijing Shenwu Environmental Energy Technology Group Co., Ltd." and shall pay the principal and interest of the bonds and the costs of realizing the creditor's rights, including lawyers' fees, in accordance with the agreement.

(2) Determination of the amount of interest involved in the case. The principal amount of $100 million should be calculated until the date of actual repayment, because Defendant 1 should pay interest to the plaintiff for the period of appropriation of funds at the interest rate during the loan period.

The disputed bonds are debt financing instruments issued by non-financial enterprises with legal personality and agreed to repay the principal and interest within a certain period of time, which is essentially a legal relationship of lending, so according to the provisions of the Supreme People's Court's "Several Issues Concerning the Application of Law in the Trial of Private Lending Cases", the interest in this case can be calculated according to the interest rate during the borrowing period.

(3) Lawyers' fees, etc. involved in the case. The plaintiff's claim for attorneys' fees is legal and well-founded, falls within the scope of defendant's damages for breach of contract, and the amount is reasonable. The first-instance judgment was correct and should be upheld.

Part III, The Adjudication Views of the Court of Second Instance.

Regarding the first focus of the dispute, the issue of the basis for calculating interest involved in the case.

Since the principal amount of the bonds involved in this case was RMB100 million, and the defendant 1 also confirmed the fact that the principal amount of RMB100 million had not been repaid, the court of first instance ruled that the interest in this case should be calculated on the basis of the bonds of RMB100 million, which had a factual basis and legal basis, and was not improper.

Regarding the second focus of the dispute, the issue of the time for payment of interest involved in the case.

In order to raise funds, the issuer of the disputed bonds, Defendant 1, issued and promised the subscribers to repay the principal and interest on a specified date in order to raise funds. The agreement on the interest rate in the Prospectus is the agreement on the cost of the defendant's use of the bond funds and the payment of the fees for the period of capital occupation to the subscriber. Although the prospectus did not stipulate the payment of interest outside the period, the defendant, the user of the bond funds, did not have the right to use the principal amount of the bond free of charge in the event of its own default.

Therefore, if defendant I is unable to repay the principal amount of the bond after the agreed date of redemption of the principal of the bond, it should continue to pay the fees for the period of capital occupation at the agreed coupon rate of 4.6%.

Regarding the third focus of the dispute, the issue of bearing attorneys' fees. The plaintiff submitted the entrustment agency contract signed with the law firm, which stipulated that the upfront lawyer's fee was 175,000 yuan. The standard of collection of the agency fee did not exceed a reasonable range, and the corresponding transfer voucher and VAT invoice were also submitted, so the defendant's appeal opinion on the adjustment of the lawyer's fee had no factual and legal basis, and the court did not accept it.

Part IV, Extended Reading of the Case.

The deadline for calculating the interest on overdue loans is not stipulated by law, which is highly controversial in academic circles, and it is also a difficult problem in the actual judicial adjudication. The different points of view are summarized below:

1. Interest on overdue loans shall be calculated until the date on which the repayment of the loan is completed. This view dominates practice and is adopted by most judges in their decisions. The reason for this is that although the Civil Procedure Law stipulates that if the person subject to enforcement fails to perform the obligation to pay money within the period specified in the judgment, he shall pay double the interest on the debt during the period of delayed performance. However, the borrower's failure to perform the obligation to pay money within the period specified in the judgment is a continuation of the breach. There is both statutory and agreed, and according to the legal doctrine of agreement over statutory law, the lender has the right to require the borrower to pay interest until the date on which the loan is repaid, and may also choose to double the interest on the debt during the period of delay in performance.

2. Interest on overdue loans shall be calculated until the expiry of the performance period (also known as the grace period) determined by the judgment. The reason is that the main purpose of judicial adjudication is to determine the dispute, and after the court confirms the facts disputed by the parties, it determines the merits and demerits, determines a performance period, and requires the borrower to perform its obligations according to this period, which is where the coercive force of the law lies. If the borrower fails to perform his obligations within this period, he shall bear the responsibility of public law, such as doubling the interest on debts during the period of delay in performance in the Civil Procedure Law, and refusing to perform judgments and rulings in criminal law.

3. Interest on overdue loans shall be calculated until the date on which the judgment takes legal effect. The rationale for this is essentially the same as for the second view. The difference is that Article 108 of the General Principles of Civil Law stipulates the principle that "debts should be paid off", which of course contains the meaning of full and timely settlement. It may be repaid in instalments by the debtor only if it is temporarily insolvent. The exception to this instalment is the grace period, which is theoretically called the "grace clause". Article 206 of the Contract Law (Article 675 of the Civil Law) stipulates that if there is no agreement on the term of the loan or the agreement is not clear, the borrower can return it at any time, and the lender may urge the borrower to return it within a reasonable period of time. This "reasonable period" is generally 10 days, and even without reminder, the legal effect from the time of prosecution to judgment is often greater than 10 days. Granting borrowers a certain period of performance or grace period is mainly a "favor" to debtors who are temporarily incapable of performing their debts. Accordingly, there is no need to give "favors" to persons who do not perform their debts in accordance with the law. In practice, the court's judgment always gives the borrower a certain grace period, which distorts the original intention of the legislation and should be an abuse of the adjudication power.

4. Interest on overdue loans shall be calculated until the date on which the lender sues. The reason is that the borrower fails to repay the loan according to the agreed period or still does not repay the loan after being reminded, and the lender believes that its legitimate rights and interests have been damaged, and files a lawsuit in accordance with the law to protect its legitimate rights and interests. The court can only determine and adjudicate on the facts that have already occurred, but cannot determine and adjudicate the facts that have not occurred, that is, it cannot prejudge the facts that will occur in the future. The period from the date of the lender's lawsuit to the date of legal effect of the judgment is the stage of the court's review of the ruling, and there is no mention of the borrower's default. After the judgment has become legally effective, if the borrower fails to perform the obligations set forth in the judgment, he shall bear the responsibility under public law and will be punished by law.

【Basic Facts】

The appellant, Shenwu Technology Group Co., Ltd., appealed to this court against the civil judgment of the Beijing No. 1 Intermediate People's Court (2018) Jing 01 Min Chu No. 598 in connection with the dispute over the bond transaction of the appellee, Chang'an International Trust Co., Ltd., and the defendant Wu Daohong. After filing the case on March 5, 2019, this court formed a collegial panel in accordance with law and held a public hearing for trial. The case is now closed.

Appellant Shenwu Group appealed:

1. Revoke the interest payment part of item 1 of the first-instance judgment and change the judgment to Shenwu Group's payment of interest to Chang'an Trust Company (based on the principal amount of the unpaid bonds, from December 15, 2017 to the date of actual payment, but not more than December 14, 2019, calculated at an annual interest rate of 4.6%); second, revoke the third item of the first-instance judgment, and change the judgment to Shenwu Group to bear responsibility within the scope of 100,000 yuan of legal fees.

Facts and reasons:

1. The 2016 non-public issuance of exchangeable corporate bonds (bonds referred to as "16 Shenwu E1", code "117063", hereinafter referred to as the bonds involved in the case) held by Changan Trust Company is 3 years, the starting and ending dates are from December 15, 2016 to December 15, 2019, and the coupon rate is 4.6%. In addition to the interest already paid by Shenwu Group for the period from December 15, 2016 to December 14, 2017, Changan Trust Company expects to receive interest from December 15, 2017 to December 14, 2019. The interest payment portion of the first item of the first judgment is based on 100 million yuan, from December 15, 2017 to the date of actual payment, calculated at an annual interest rate of 4.6%. There were two errors in the interest payment part of the judgment in the first paragraph: 1. The interest calculation base should be based on the principal amount of the unpaid bond. 2. The interest accrual period shall be from December 15, 2017 to the date of actual repayment, but no later than December 14, 2019. If the deadline is not specified, it may exceed the interest expected by Changan Trust Company in accordance with the bond contract. 2. Although the amount of the subject matter of the dispute in this case is relatively large, the facts of the case are relatively clear, the legal relationship is not complicated, and it is appropriate to change the judgment to pay lawyers' fees of less than 100,000 yuan, and Shenwu Group and Wu Daohong bear responsibility within this scope.

The appellee, Chang'an Trust Company, argued:

First, the first-instance judgment found that the facts were clear and the law was correct.

2. The court of first instance has ascertained that Shenwu Group has defaulted on the "Prospectus for the Non-Public Issuance of Exchangeable Corporate Bonds of Beijing Shenwu Environmental Energy Technology Group Co., Ltd. in 2016" (hereinafter referred to as the "Prospectus"), and shall bear the cost of paying the principal and interest of the bonds and lawyers' fees to realize the claims in accordance with the agreement.

3. The interest in this case shall be calculated on the basis of the principal amount of RMB100 million until the date of actual liquidation. Shenwu Group shall pay interest to Chang'an Trust Company during the period of capital occupation in accordance with the interest rate during the loan period. The disputed bonds are debt financing instruments issued by non-financial enterprises with legal personality and agreed to repay the principal and interest within a certain period of time, which is essentially a legal relationship of lending, so the relevant provisions on loans in the Contract Law of the People's Republic of China and judicial interpretations may be applied. According to the provisions of the Supreme People's Court's "Several Issues Concerning the Application of Law in the Trial of Private Lending Cases", interest may be calculated at the interest rate during the borrowing period in this case. Shenwu Group's payment of capital occupation fees during the period of capital occupation is the basic principle of the legal relationship of lending and lending, and Shenwu Group's grounds for appeal have no factual or legal basis.

4. Regarding lawyers' fees. The lawyers' fees claimed by Changan Trust Company are legal and well-founded, fall within the scope of Shenwu Group's liquidated damages, and are within a reasonable range. Therefore, Shenwu Group's claim on lawyers' fees should be supported, and the court of first instance was completely correct in its judgment. In summary, the first-instance judgment was correct and should be upheld.

Wu Daohong, the defendant in the original trial, agreed with Shenwu Group Company's appeal opinion.

The plaintiff in the original trial, Chang'an Trust Company, filed a lawsuit with the court of first instance and requested:

1. Order Shenwu Group to repay the principal amount of bonds of RMB100 million and interest to Changan Trust Company in accordance with the law (based on RMB100 million, calculated at an annual interest rate of 4.6% from December 15, 2017 to the date of actual payment); 2. Order Shenwu Group to pay liquidated damages to Chang'an Trust Company in accordance with the law (based on RMB100 million, calculated on a daily basis from July 14, 2017 to the date of actual payment); Order Shenwu Group to pay 175,000 yuan in legal fees to Chang'an Trust Company in accordance with the law; fourth, in accordance with the law, order Chang'an Trust Company to enjoy the right of first refusal in respect of 5721250 the pledged shares of Shenwu Environmental Protection Technology Co., Ltd. held by Shenwu Group; fifth, order Wu Daohong to bear joint and several liability for the amount of the above-mentioned first, second and third claims; sixth, lawfully order Shenwu Group and Wu Daohong to bear the litigation costs of this case.

The court of first instance found the facts:

1. The relevant circumstances of the bonds in this case.

On November 18, 2016, Shenwu Group obtained the Shenzhen Stock Exchange's "No Objection Letter on Beijing Shenwu Environmental Energy Technology Group Co., Ltd.'s 2016 Non-public Issuance of Exchangeable Corporate Bonds meets the Conditions for Transfer of Shenzhen Stock Exchange" (Shenzhen Securities Letter [2016] No. 749), and the total amount of approval for Shenwu Group's non-public issuance of exchangeable corporate bonds is not more than RMB2 billion. According to the issuance overview of section 1 of the Offering Prospectus and the announcement of the results of the issuance of non-public exchangeable corporate bonds by Beijing Shenwu Environmental Energy Technology Group Co., Ltd. in 2016, the first day of the bond issuance is December 15, 2016, and the duration of the bond is 3 years from the first day of issuance; the issuance target is not more than 200 qualified investors; the full name of the bonds is "Beijing Shenwu Environmental Energy Technology Group Co., Ltd. 2016 non-public issuance of exchangeable corporate bonds". The bond is referred to as "16 Shenwu E1", the bond code is 117063, the coupon rate is fixed during the existence of the bond, the coupon rate is 4.60%; the coupon amount of the bond is 100 yuan, issued at par value, and the actual funds raised after issuance are RMB 2 billion; the bond trustee is Huachuang Securities Co., Ltd., and the lead underwriter is Huachuang Securities in the form of consignment sales; after the comprehensive assessment of United Credit Rating Co., Ltd., the issuer's credit is AA-grade, and the credit rating of the bond is AA grade.

Regarding the repayment method of the bond, according to the record of the "Offering Prospectus", the bond adopts simple interest to pay interest on an annual basis, without compound interest, and no interest is calculated after the deadline. Interest is paid annually. The last instalment interest is paid along with the principal (the face value of the unveriated convertible bond at maturity of the bond). The bond adopts the interest payment method of once a year, and the interest calculation start date is the first day of the issuance of the bond, that is, December 15, 2016. The annual coupon payment date is the day of each full year from the first day of the issuance of the Exchangeable Bond, that is, December 15 of each year of the bond's existence period, if that day is a statutory holiday or rest day, it will be extended to the next trading day, and no additional interest will be paid during the extension period. The interest calculation period is from 15 December 2016 to 14 December 2019. The principal redemption date is the first trading day after the expiry of the term of the Convertible Bonds, i.e. 15 December 2019 (or the next trading day thereafter in the event of a statutory holiday or rest day). The issuer will redeem all the unveriquated exchangeable bonds from investors at the agreed redemption price on the redemption date of the principal of the exchangeable bonds. According to the confirmation of Changan Trust Company and Shenwu Group, the first interest of the bonds involved in the case has been paid by Shenwu Group on schedule.

Regarding the subject of the exchange of shares and the period of the exchange of shares, according to the "Prospectus" and the "Announcement of the Results of the Offering", the subject of the exchangeable bond is Shenwu Environmental Protection, and the number of shares to be exchanged = the actual total amount of the exchangeable bonds / the price of the exchange (if the subject stock is issued before and during the period of existence, the subject stock is issued with bonus shares, converted into additional shares, issued new shares or allotments, cash dividends are distributed, etc., the number of shares to be used for exchange is adjusted and increased accordingly; if the exchange, redemption, etc. occurs during the existence of the bond, the number of shares to be exchanged, redeemed, The number of shares to be exchanged for exchange will be reduced accordingly according to the outstanding balance of the bonds. The exchange term of the exchangeable bonds begins on the first trading day after the expiration of 6 months after the end date of the exchangeable bond issuance to one trading day before the delisting date of the exchangeable bond, and the delisting date of the exchangeable bond is 2 trading days before the principal redemption date. That is, the exchange period of the exchangeable bonds is from June 15, 2017 to December 11, 2019. If it is a statutory holiday or a rest day, it will be postponed to the next trading day.

Regarding the bond guarantee, according to the prospectus, there are two guarantees for the bond. The first is the pledge guarantee of Shenwu Environmental Protection shares, and the Shenwu Environmental Protection shares and their fruits that are prepared for exchange are the secured property of this exchangeable bond. Prior to the issuance of the exchangeable bonds, the issuer pledged 114.425 million shares of Shenwu Environmental Protection (including shares intended for exchange) and its fruits (including share transfers, share transfers and cash dividends) held by Shenwu Environmental Protection to the bond trustee, namely Huachuang Securities, to provide guarantee for the exchange of shares and the repayment of the principal and interest of the bonds by the bondholders, and to meet the initial pledge guarantee ratio of not less than 140% on the issuance date (when calculating the initial pledge guarantee ratio, the stock price adopts the average price of the closing price of the 20 trading days before the issuance date). The 114.425 million shares of Shenwu Environmental Protection (including the shares intended for exchange) that the issuer intends to provide pledge guarantee for the bonds are all unlimited sale and circulation A shares. Among them, with regard to maintaining the guarantee ratio and additional guarantee, Shenwu Group promised in the Offering Prospectus that during the existence of the exchangeable bond, the value of the secured property should maintain a certain guarantee ratio, and during the existence of the bond, when the guarantee ratio is less than 120% for 10 consecutive trading days, the issuer should add the underlying stock and/or cash collateral within 10 trading days so that the guarantee ratio is not less than 140%. The issuer shall provide additional guarantees and complete the registration of the additional guarantee for the property to be secured, which may be in the form of the underlying stock or cash held by the issuer or a combination of both. The underlying shares of the additional guarantee shall be an unlimited sale conditional share at the time of exchange. The second guarantee is the guarantee guarantee of the actual controller Wu Daohong and his wife. Mr. and Mrs. Wu Daohong, the actual controllers of the issuer, provided an irrevocable joint and several liability guarantee guarantee for the bond. On October 13, 2016, Wu Daohong and Li Dan, as guarantors, issued the "Guarantee Letter for the 2016 Non-public Issuance of Exchangeable Corporate Bonds of Beijing Shenwu Environmental Energy Technology Group Co., Ltd.", in which Wu Daohong and Li Dan promised that the two parties were legal husband and wife, and out of true intention, they jointly promised to provide an unconditional and irrevocable joint and several liability guarantee for the maturity and redemption of the non-publicly issued exchangeable corporate bonds issued by the issuer. The specific guarantee matters are as follows: The type, amount and term of the bonds guaranteed in Article 1 are the non-publicly issued exchangeable corporate bonds of Shenwu Environmental Energy Technology Group Co., Ltd. filed with the Securities Association of China in 2016, and the total denomination of the issuance does not exceed RMB2,000,000,000 (the actual amount is subject to the total amount of the actual bonds finally obtained by the Shenzhen Stock Exchange without objection letter and issued for the record). The specific variety, scale, term and term of the bond shall be specified in the Prospectus. Article 2: In the form of guarantee, the guarantor provides the guarantee in the form of a full unconditional and irrevocable joint and several liability guarantee guarantee. Article 3 Assumption of guarantee liability, when the bond pays interest or matures under this guarantee letter, if the issuer cannot fully redeem the interest or principal and interest of the bond, the guarantor shall take the initiative to assume the guarantee liability and transfer the redemption funds to the account designated by the bond registration agency. Bondholders may separately or jointly require the guarantor to assume the guarantee liability. The bond trustee, Huachuang Securities, is obliged to represent the bondholder in requiring the guarantor to perform the guarantee obligations. If, after the maturity of the bond, the bondholder has the same type of maturity debt to the guarantor, the debt may be offset against its claim against the guarantor under this guarantee letter in accordance with law. Article 4 The scope of the guarantee, the scope of the guarantor's guarantee includes the principal and interest of the bond, as well as liquidated damages, damages, costs for realizing the claim and other expenses payable. The scope of the guarantee specified in the guarantee letter will be reduced or invalidated accordingly with the exchange of shares held by the holder of the exchangeable corporate bonds, the resale of the bonds held by the exchangeable corporate bonds and the redemption, repayment or repayment of the principal, interest and expenses agreed under the guarantee letter by the guarantor. During the guarantee period, the period during which the guarantor bears the guarantee liability is from the date of issuance of the bond to two years after the expiration of the bond performance period. If the bondholder does not require the guarantor to bear the guarantee liability during this period, or if the bondholder claims against the issuer during the guarantee period and does not request the guarantor to bear the guarantee liability before the expiration of the limitation period, the guarantor shall be exempted from the guarantee liability. From the date of completion of the full exchange of shares in the exchangeable corporate bonds or the date of completion of the full repayment of the principal and interest of the unveriated bonds, the trustee will issue a confirmation letter that the guarantor's guarantee liability has been completed. Article 10 Accelerated maturity, before the maturity of the bonds under this guarantee letter, when the property situation of the guarantor deteriorates or any other major event that is sufficient to affect the interests of the bondholders such as major litigation or arbitration occurs, the bond issuer shall provide a new guarantee within a certain period of time, and when the bond issuer does not provide a new guarantee, the bondholder has the right to require the bond issuer and the guarantor to pay the principal and interest of the bond in advance.

Regarding the event of bond default, Article 5 of the Offering Prospectus, "Debt Repayment Plan and Other Guarantee Measures", Article 5 of the Offering Prospectus, "Issuer's Liability for Breach of Contract and Related Treatment", stipulates the default event of Shenwu Group under the bond: 1. At the time of the coupon payment period, maturity, accelerated repayment (if applicable) or resale or redemption of the bond, the issuer fails to repay the principal and/or interest due and payable; 2. In addition to the stock pledge set under the Stock Pledge Agreement, the issuer shall, in its assets, Security on property or shares that substantially adversely affects the issuer's ability to repay principal and interest on the Bonds, or the sale of its material assets, etc., which will have a material and material adverse impact on the Issuer's ability to repay the principal and interest on the Bonds; and will have a material adverse effect on the issuer's performance of the principal and interest repayment of the bonds, and after written notice from the trustee or the written notice of the bondholders holding more than 10% of the total par value of the bonds held separately or in combination, the default has not been corrected within 30 calendar days from the date of receipt of the notice by the issuer or within a reasonable period of time required by the above notice, whichever is shorter; In violation of the provisions of the legal documents related to the Bonds, the Credit Enhancement Institution and other institutions with repayment obligations failed to urge the guarantor, the Credit Enhancement Institution or other institutions with repayment obligations to correct the breach within 30 natural days of receipt of the written notice or within the reasonable period required by the above notice ( whichever is shorter) within 30 natural days of receipt of the written notice or within the reasonable period required by the above notice ( whichever is shorter) after receiving the written notice by the trustee or by the bondholder holding more than 10% of the outstanding voting rights of the bond individually or collectively 5. During the period of existence of the bond, the issuer dissolves, cancels, revokes, suspends business, liquidates, loses solvency, is appointed by the court as a receiver or has commenced relevant legal procedures; 6. Any applicable or future laws, rules, regulations, judgments, or orders, decrees or orders of the government, regulatory or legislative judiciary or authorities, or changes in the interpretation of the above provisions cause the issuer's performance of its obligations under the Bond Trusteeship Agreement or this Bond to become illegal 7. During the existence of the bond, the issuer has other circumstances that have a material adverse impact on the time redemption of the principal and interest of the bond. The liability for breach of contract of the issuer and the way in which it should bear the default: When the issuer has a default event, the issuer shall bear the liability for breach of contract. The scope of its liability for breach of contract includes the principal and interest of the bond, the principal and interest of the resale or redemption part, the liquidated damages (the defaulting party pays liquidated damages to the receiving party at a penalty rate of one per 10,000 per day), damages and the cost of realizing the claim and other expenses payable.

Regarding the liability for breach of contract against the issuer and the way in which it is borne, Article 5(2) of Section 5 of the Offering Prospectus states that when an issuer has an event of default, the issuer shall bear the liability for breach of contract. The scope of liability for breach of contract includes the principal and interest of the bond, liquidated damages, damages, costs of realizing the claim and other expenses payable.

Regarding the use of funds, Section 11 of the Prospectus , "Use of Raised Funds", on the use of the raised funds, the use plan and the special account management arrangement, states: "(1) The purpose and use plan of the raised funds. The scale of the bond issuance shall not exceed RMB2 billion, and the remaining funds will be used to supplement the issuer's working capital after deducting the issuance expenses. After the issuance of the bonds is completed and the funds raised are received, the issuer will reasonably arrange the use plan of the funds according to the actual arrival time, amount of funds and the needs of the use of funds. The issuer undertakes that it will use the funds raised from this bond in strict accordance with the provisions of the prospectus of this bond and shall not be changed, and the funds raised from this bond will not be misappropriated or occupied by the actual controller (Wu Daohong), and shall not be lent to others to use or make up for operating losses. "

Regarding information disclosure, Article 3(5) of Section 5 of the Prospectus states: (5) Strictly perform the obligation of information disclosure. The issuer will follow the principle of true, accurate and complete information disclosure, so that the issuer's solvency and use of the raised funds will be supervised by the bondholders, bond trustees and shareholders of the issuer to prevent debt repayment risks. The issuer will disclose information on major matters in accordance with the relevant provisions of the Administrative Measures, the Bond Trusteeship Management Agreement, this Offering Prospectus and other laws, regulations and normative documents. At the same time, according to Item (5) of Article 12 of the Offering Prospectus, Shenwu Group has the obligation to disclose information on the contents of the bonds involved in the case, including annual reports, interim reports, major events, and tracking rating reports.

In addition, the prospectus also explains and stipulates other circumstances regarding bonds.

At the same time, the statement of the Prospectus states: "All investors who have subscribed, transferred and legally held the Bonds shall be deemed to have voluntarily accepted and agreed to the relevant provisions of the Prospectus, the Rules of the Meeting of Holders, the Trustee Management Agreement, and the Stock Pledge Guarantee Agreement on the rights and obligations of the Bonds; agreed that the Bond Trustee signed the Stock Pledge Guarantee Agreement on behalf of the bondholders to handle the matters related to the pledge guarantee; agreed that the Trustee acted as the agent for the pledge rights and interests, and agreed to accept the Pledge Guarantee Agreement; There is no objection to all the contents of the Stock Pledge Security Agreement. This Prospectus, the Rules of the Meeting of Holders, the Trustee Management Agreement, the Stock Pledge Guarantee Agreement and the Bond Trustee Report are placed at the Bond Trustee and the Bondholder has the right to consult it at any time. "

2. Matters related to Shenwu Group and the bonds involved after the issuance of the bonds.

On March 9, 2017, Beijing Shenwu Environmental Energy Technology Group Co., Ltd. issued an announcement on the name change, which said: Beijing Shenwu Environmental Energy Technology Group Co., Ltd. needs to change its company name due to business development needs. After the change, the name is Shenwu Technology Group Co., Ltd. Shenwu Group has completed the industrial and commercial registration procedures for name change and obtained a new business license on March 8, 2017. In addition to the change of the enterprise name, other industrial and commercial registration matters have not changed, and the basic information of the changed industrial and commercial registration is as follows: The change of the company name involves the change of the full names of the two corporate bonds issued by the company, and the "2016 corporate bonds of Beijing Shenwu Environmental Energy Technology Group Co., Ltd." will become "Shenwu Technology Group Co., Ltd. 2016 corporate bonds", the abbreviation and code remain unchanged, and it is still "16 Shenwu Bonds" and "123034"; "Beijing Shenwu Environmental Energy Technology Group Co., Ltd. 2016 non-public issuance of exchangeable corporate bonds" will become "Shenwu Technology Group Co., Ltd. 2016 non-public issuance of exchangeable corporate bonds", abbreviation and code unchanged, still "16 Shenwu E1" and "117063". All rights and obligations of the above-mentioned bonds will be inherited by Shenwu Group, and during the existence of the above-mentioned bonds, Shenwu Group will conscientiously perform the issuer's obligations such as information disclosure and periodic payment in accordance with the original issuance terms and conditions. The change of the company name does not affect any rights and interests of the shareholders and creditors of the company.

In June 2017, Shenwu Group released the "2016 Annual Report of Shenwu Technology Group Co., Ltd. on the Non-public Issuance of Exchangeable Corporate Bonds".

On November 21, 2017, Shenwu Group issued the Announcement on Receiving the Decision on Administrative Supervision Measures from the Beijing Securities Regulatory Bureau, which stated that on November 20, 2017, it received the Decision on Administrative Regulatory Measures of the Beijing Regulatory Bureau of the China Securities Regulatory Commission (Shenwu Technology Group) ([2017] No. 138 - Decision on Ordering Corrective Measures against Shenwu Technology Group Co., Ltd.) at the Beijing Regulatory Bureau of the China Securities Regulatory Commission. The main contents of the decision on administrative supervision measures made by the Beijing Securities Regulatory Bureau to Shenwu Group are as follows: "First, the use of funds raised by exchangeable corporate bonds is inconsistent with the agreement, and the management of special accounts is not in place. The "16 Shenwu E1" bonds issued by your company agreed to raise funds to supplement working capital. However, after verification, "16 Shenwu E1" actually received 1.982 billion yuan after deducting the underwriting expenses of the issuance, mainly for repaying various types of loans, of which: 200 million yuan was transferred to Shanghai Huantian Industrial Co., Ltd. to repay short-term loans, 1.2 billion yuan was used to repay the stock pledge loan of Tianfeng Securities, 200 million yuan was used to repay the private debt of Dalian Bank, and another 300 million yuan was used to repay the bank loans of the company and its subsidiaries. In the process of using the raised funds, the relevant requirements for the storage and transfer of the special account are not strictly implemented, and the management of the special account is not in place. The listing violated the relevant provisions of Article 15 of the Administrative Measures for the Issuance and Trading of Corporate Bonds. 2. Failure to disclose material matters in a timely manner. 1. Your company's cumulative new borrowings for the year since the beginning of February 2016 have exceeded 20% of the net assets at the end of the previous year, and your company has not disclosed the matter in a timely manner. Your company's cumulative new borrowings for the year since the beginning of April 2017 have exceeded 20% of the net assets at the end of the previous year, and your company has not disclosed the matter in a timely manner. 2. On May 30, 2016, your company absorbed the merged subsidiary Beijing Wanhebang Investment Management Co., Ltd., and your company failed to disclose the merger in a timely manner. 3. There are errors and omissions in the information disclosure of the annual report of corporate bonds. 1. In the "2016 Corporate Bond Annual Report" disclosed by your company, the situation of repayment, extension and reduction of bank credit on time, the change of bank credit, the issuance of corporate bonds by listed subsidiaries, the reasons why the company's fees in 2016 exceeded 30% year-on-year, and the situation and reasons for the change of the annual audit accountant in 2016. The above conduct violates the relevant provisions of Article 42 of the Administrative Measures for the Issuance and Trading of Corporate Bonds and Articles 15, 16, 29 and 32 of the Guidelines for the Content and Format of Information Disclosure of Companies Publicly Offering Securities No. 38. 2. In the "2016 Corporate Bond Annual Report" disclosed by your company, it is disclosed that there are no non-operating transactions and capital borrowings during the reporting period. However, the audit report shows that the company had 1.347 billion yuan of other receivables at the end of 2016. In addition, after verification, your company prepaid 700 million yuan of fund investment to Hubei Chuyuan Jianghan Construction Co., Ltd. and 475 million yuan of prepaid fund investment to Shenzhen Orient Caizhi Asset Management Co., Ltd. and its related party Shenzhen Tiger Hui Asset Management Co., Ltd., all of which should be included in other receivables. The total amount of other receivables from the above transactions has reached 2.522 billion yuan, all of which are non-operating transactions and have exceeded 10% of the net assets at the end of the previous year. The above conduct violates the relevant provisions of Article 42 of the Administrative Measures for the Issuance and Trading of Corporate Bonds and Article 36 of Standard No. 38. 3. The "2016 Corporate Bond Annual Report" disclosed by your company did not disclose the equity pledge of beijing Huafu Engineering Co., Ltd., a holding subsidiary, and the asset restriction disclosure of the "2016 Corporate Bond Annual Report" was inaccurate. The above conduct violates the relevant provisions of Article 42 of the Administrative Measures for the Issuance and Trading of Corporate Bonds and Article 26 of Standard No. 38. In accordance with the provisions of Article 58 of the Administrative Measures for the Issuance and Trading of Corporate Bonds, our bureau has decided to take administrative supervision measures against your company to order corrections. "

On February 9, 2018, Shenwu Environmental Protection, a holding subsidiary of Shenwu Group, issued the "Pre-disclosure Announcement on the Default Disposal of The Controlling Shareholder's Stock Pledge Repurchase Transaction", which stated that Shenwu Environmental Protection recently received a notice from Huarong Securities Co., Ltd. and learned that the stock pledge repurchase transaction between Huarong Securities and the company's controlling shareholder, Shenwu Group, will be disposed of in default, as follows: First, the specific circumstances of the transaction. Huarong Securities and Shenwu Group conducted an initial transaction of stock pledge repurchase on October 13, 2016, and 11.16 million shares of Shenwu Environmental Protection Outstanding Shares held by Shenwu Group were originally scheduled to be repurchased on October 12, 2017, and then extended to January 12, 2018. As of February 2, 2018, Shenwu Group has not completed the repurchase transaction as agreed in the agreement, which constitutes an overdue breach. 2. Methods of disposal of breach of contract. According to the relevant provisions of the "Several Provisions on the Reduction of Shares by Shareholders, Directors, Supervisors and Senior Managers of Listed Companies" issued by the China Securities Regulatory Commission, the relevant provisions of the "Detailed Rules for the Implementation of the Reduction of Shares by Shareholders, Directors, Supervisors and Senior Management of Listed Companies on the Shenzhen Stock Exchange" issued by the Shenzhen Stock Exchange and the agreement between the two parties, Huarong Securities will formally start the default disposal procedure, and intends to adopt centralized bidding transactions or block transactions through the trading system, and the number of shares disposed of will not exceed 11.16 million shares, depending on the actual situation.

On February 1, 2018, Shenwu Energy Conservation Co., Ltd., a holding subsidiary of Shenwu Group, issued the "Announcement on the Suspension of Trading Due to the Pledge of Shares Pledged by the Controlling Shareholder Touching the Liquidation Line", which stated: On February 1, 2018, Shenwu Energy Conservation received a notice from the controlling shareholder Shenwu Group that due to the large decline in the company's stock price in recent days, the part of the pledged shares it held has touched the liquidation line, and there may be a risk of liquidation. In accordance with the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange and other relevant regulations, upon the Company's application, the Company's shares (stock abbreviation: Shenwu Energy Saving, stock code: 000820) have been suspended since the opening of the market on February 2, 2018 (Friday). The Company undertakes to suspend trading for no more than 10 trading days, and the latest resumption time is February 23, 2018. As of the date of this announcement, shenwu group, the controlling shareholder of the company, holds 349410462 shares of the company's shares, accounting for 54.83% of the company's total share capital, of which 33,6690,000 shares have been pledged, accounting for 96.36% of the total number of shares held by Shenwu Group. At present, Shenwu Group maintains close and effective communication with the pledgee and is actively taking measures to reduce the possibility of triggering the risk of liquidation by adding collateral and other means. The Board of Directors of the Company will pay close attention to the progress of the matter and fulfill its information disclosure obligations in a timely manner in accordance with the relevant provisions of the Shenzhen Stock Exchange.

On February 11, 2018, in view of the adverse impact of the above matters on the overall credit status of Shenwu Group, United Rating issued the Announcement on Downgrading the Long-term Credit Rating of Shenwu Technology Group Co., Ltd. and the Credit Rating of "16 Shenwu E1" Bonds and Including them in the Credit Rating Watch List, which downgraded the long-term credit rating of Shenwu Group from "AA-" to "A-" and downgraded the credit rating of "16 Shenwu E1" debt from "AA" to "A-". At the same time, the long-term credit rating of the main body of Shenwu Group and the credit rating of the "16 Shenwu E1" debt issued by it are included in the credit rating observation list.

On March 2, 2018, United Rating issued the "Announcement on Downgrading the Long-term Credit Rating of shenwu Technology Group Co., Ltd. and the credit rating of the "16 Shenwu E1" bonds and continuing to be included in the credit rating watch list", which downgraded the long-term credit rating of the main body of Shenwu Group from "A-" to "BBB", and downgraded the credit rating of the "16 Shenwu E1" debt from "A-" to "BBB", while continuing to reduce the long-term credit rating of the main body of Shenwu Group and the "16 Shenwu E1" issued by Shenwu Group. The credit rating of the debt is included in the credit rating watch list.

On March 5, 2018, Shenwu Group issued the "Announcement on the Freezing of The Shares Held by Shenwu Group", which stated that the shares of Shenwu Environmental Protection and Shenwu Energy Conservation held by Shenwu Group were judicially frozen and frozen in judicial rotation, and the basic circumstances of the judicial freezing of the shares held by Shanxi Securities Co., Ltd. were as follows: 1. Shanxi Securities Co., Ltd. through the Shanxi Provincial High People's Court took property preservation measures to freeze the shares of Shenwu Energy Conservation 31820462 shares (of which 22,100,000 shares had been pledged) held by Shenwu Group. The freeze period is from February 13, 2018 to February 12, 2021. Shanxi Securities Co., Ltd., through the High People's Court of Shanxi Province, took property preservation measures to freeze the 929415 shares of Shenwu Environmental Protection held by Shenwu Group, and the freezing period is from February 13, 2018 to February 12, 2021. 2. Beijing State-owned Assets Financial Leasing Co., Ltd., through the Second Intermediate People's Court of Beijing Municipality, shall take pre-litigation property preservation measures to freeze the 317,590,000 shares of Shenwu Energy Conservation held by Shenwu Group (all of which have been pledged) after the initial offering, and the judicial waiting list of the restricted shares of Shenwu Energy Conservation 31820462 held by Shenwu Group will be judicially frozen, and the freezing period is from February 14, 2018 to February 13, 2021. Beijing State-owned Assets Financial Leasing Co., Ltd., through the Beijing No. 2 Intermediate People's Court, has taken pre-litigation property preservation measures to freeze the 315695000 shares of Shenwu Environmental Protection held by Shenwu Group (which have been pledged), and the 929415 shares of Shenwu Environmental Protection held by Shenwu Group will be frozen in turn for a period from February 14, 2018 to February 13, 2021. As of February 28, 2018, the total number of Shenwu Energy Saving shares held by Shenwu Group was 34910462 shares, accounting for 54.83% of the total number of Shenwu Energy Saving shares. The number of frozen shares is 349410462 shares, accounting for 54.83% of the total number of shares of Shenwu Energy Conservation. As of February 28, 2018, Shenwu Group held 431018037 shares of Shenwu Environmental Protection, accounting for 42.67% of the total share capital of Shenwu Environmental Protection, of which the cumulative number of shares frozen by the judiciary was 316624415 shares, accounting for 73.46% of the total number of Shenwu Environmental Protection shares held by Shenwu Group.

On March 15, 2018, United Ratings issued the Announcement on Downgrading the Long-term Credit Rating of Shenwu Technology Group Co., Ltd. and the Credit Rating of the "16 Shenwu E1" Bonds and Continuing to Be Included in the Credit Rating Watch List", which downgraded the long-term credit rating of the main body of Shenwu Group from "BBB" to "B", and downgraded the credit rating of the "16 Shenwu E1" debt from "BBB" to "B", and at the same time lowered the long-term credit rating of the entity of Shenwu Group and the "16 Shenwu E1" issued by Shenwu Group and the "16 Shenwu E1" issued by Shenwu Group. The credit rating of the debt is included in the credit rating watch list.

On April 28, 2018, Shenwu Group issued the Announcement on the Default of the 16 Shenwu E1 Guarantee, which stated that, according to the provisions of the Prospectus of the Bonds, the Company shall perform the Prospectus and the Stock Pledge Guarantee Agreement of the Bonds within 30 calendar days from March 28, 2018 (before April 27, 2018, including the day) and the "Stock Pledge Guarantee Agreement". Shenwu Technology Group Co., Ltd. 2016 Non-public Issuance of Exchangeable Corporate Bonds 2018 First Bondholders Meeting Resolution" and "Shenwu Technology Group Co., Ltd. 2016 Non-public Issuance of Exchangeable Corporate Bonds 2018 Third Bondholders Meeting Resolution" and other relevant documents stipulated in the additional guarantee obligations. As of April 27, 2018, the Company has not fulfilled the above-mentioned additional guarantee obligations and has not made the guarantee ratio not less than 140% and the Company has violated the provisions on the additional guarantee in the Prospectus of the Bonds, constituting a default event stipulated in the Prospectus of the Bonds.

On July 27, 2018, Shenwu Environmental Protection issued the Announcement on the Knowledge of the Controlling Shareholder, which stated that shenwu environmental protection received a notice from the controlling shareholder, Shenwu Group, on July 23, 2018, that Shenwu Group had recently learned of the Civil Ruling (2018) Jing 04 Caibao No. 27 of the Fourth Intermediate People's Court of Beijing Municipality. In accordance with the relevant regulations, the Company hereby announces the relevant circumstances as follows: The main content of the Civil Ruling is that bank of Nanjing Co., Ltd. Beijing Branch v. Shenwu Environmental Protection, Shenwu Group, Wu Daohong, Li Dan, Xinjiang Shengxiong Energy Co., Ltd. Financial Loan Contract Dispute, the applicant Bank of Nanjing Co., Ltd. Beijing Branch applied for property preservation to the Fourth Intermediate People's Court of Beijing on June 19, 2018. Request that the bank deposits of the four respondents be frozen in accordance with law of 100,884,498.17 yuan or that other assets of equivalent value be sealed or seized. Bank of Nanjing Co., Ltd. Beijing Branch has provided a guarantee. The Fourth Intermediate People's Court of Beijing Municipality ruled to seal, seize and freeze the property of Shenwu Environmental Protection, Shenwu Group, Wu Daohong and Li Dan, with a limit of 100884498.17 yuan. The period for freezing bank deposits is one year, the period for seizing movable property is two years, and the period for seizing immovable property and freezing other property rights is three years. The ruling shall be enforced as of 21 June 2018.

On December 15, 2018, Shenwu Group did not pay the corresponding interest to Chang'an Trust Company as stipulated in the Prospectus.

3. Bond holdings of Changan Trust Company.

According to the "Investor Securities Holding Information (Shenzhen Market)" issued by China Securities Depository and Clearing Co., Ltd. provided by Changan Trust Company, on March 21, 2018, the holder name of "16 Shenwu E1" was "Chang'an Trust Company - Chang'an Trust Maodian No. 11 Exchangeable Bond Investment Collective Fund Trust Plan", and the number of holdings was 1000000000; the custody unit was 287900, and the custody unit name was Hengtai Securities Hohhot New Town South Street Department. On April 12, 2017, Changan Trust Company paid rmb10,150,000,000 and subscribed for 1 million bonds involved in the case.

On December 15, 2016, Shenwu Company registered the pledge of the above 114,425,000 shares of Shenwu Environmental Protection Technology Co., Ltd. (stock code: 300156) at the Shenzhen branch of China Securities Depository and Clearing Co., Ltd.

On June 28, 2018, Changan Trust Company (Party A) and Beijing Shue Tak (Shanghai) Law Firm (B B, hereinafter referred to as Shu Tak) signed an agency contract, stipulating that Party A intends to entrust Party B to file a lawsuit and participate in negotiations on behalf of Party A or the trust plan in the case of a dispute over the transaction of 16 Shenwu E1 exchangeable bonds between Party A or the trust plan and Shenwu Group, Wu Daohong, Li Dan, etc. Party A agrees to entrust Party B as the agent of the case, and Party B agrees to accept Party A's entrustment. Party A agrees to pay Party B a lawyer's fee as follows: Upfront Agency Fee: Within five days from the date of signing this entrustment agency contract, Party A (or the trust plan) shall pay Party B a one-time preliminary agency fee of 175,000 yuan. The agency period under the above agency fees is the first instance, the second instance (if any) and the implementation stage. On July 6, 2017, Changan Trust Company paid an upfront agency fee of RMB 175,000 to Shu tak through Industrial and Commercial Bank of China.

In the first-instance trial, Shenwu Group and Wu Daohong approved that Chang'an Trust Company calculated the liquidated damages according to the standard of one-tenth of a day, but objected to the starting time of the calculation of liquidated damages claimed by Chang'an Trust Company. Changan Trust Company agreed to use April 27, 2018 as the starting time for liquidated damages.

The court of first instance held that:

Based on the above, the defense claims of Shenwu Group and Wu Daohong are not established. The reasons for Changan Trust Company's litigation claims are justified, the evidence is sufficient, and they have factual and legal basis; except for the above adjustments made by the court regarding the starting time of the calculation of liquidated damages, the other parts of its litigation claims are supported. Pursuant to Articles 8 and 107 of the Contract Law of the People's Republic of China, Articles 21, 31 and 63 of the Guarantee Law of the People's Republic of China, Paragraph 1 of Article 42 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application, and Article 90 of the Interpretation of the Supreme People's Court on Application, the judgment:

1. Shenwu Group shall pay the principal amount of the bonds of RMB100 million and the corresponding interest to Chang'an Trust Company within 10 days from the effective date of the judgment (based on RMB100 million, from December 15, 2017 to the date of actual payment, calculated at an annual interest rate of 4.6%); 2. Shenwu Group shall pay liquidated damages to Chang'an Trust Company within 10 days from the effective date of the judgment (based on RMB100 million, from April 27, 2018 to the actual liquidation date, calculated on a daily basis); Shenwu Group shall pay a lawyer's fee of 175,000 yuan to Chang'an Trust Company within 10 days from the effective date of the judgment; fourth, Chang'an Trust Company shall have the right of first refusal in respect of the pledged shares of Shenwu Environmental Protection 5721250 shares (stock code: 300156) held by Shenwu Group; fifth, Wu Daohong shall bear joint and several liquidation liability to Chang'an Trust Company for the debts incurred by Shenwu Group in the first, second and third items of the judgment; Wu Daohong has the right to recover from Shenwu Group after assuming the guarantee liability; Other claims of Changan Trust Company were dismissed. If the obligation to pay money is not performed within the period specified in the judgment, the interest on the debt during the period of delay shall be doubled in accordance with the provisions of Article 253 of the Civil Procedure Law of the People's Republic of China.

This court confirms the facts found by the court of first instance.

In summary, the judgment of the court of first instance found that the facts were clear and the law was correct and should be upheld. In accordance with the provisions of article 170, paragraph 1, item (1) of the Civil Procedure Law of the People's Republic of China, the judgment is as follows: the appeal is rejected and the original judgment is upheld.