Exhibit 99.1

 

CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF

CHINA HGS REAL ESTATE INC.

ADOPTED AS OF JANUARY 22, 2010

The audit Committee’s responsibilities and powers as delegated by the board of directors are set forth in this Charter. Whenever the Committee takes an action, it shall exercise its independent judgment on an informed basis that the action is in the best interests of the company and its stockholders.

I. PURPOSE AND AUTHORITY OF THE COMMITTEE

 

The Audit Committee (the “Committee”) of China HGS Real Estate Inc. (the “Company”) is appointed by the Board of Directors (“Board”) to assist the Board in (1) monitoring the quality, reliability and integrity of the accounting policies and financial statements of the Company; (2) overseeing the Company’s compliance with legal and regulatory requirements; (3) reviewing the independence, qualifications and performance of the Company’s internal and external auditors, (4) overseeing the performance of the Company’s internal audit function and independent auditors and (5) preparing a Committee report as required by the Securities and Exchange Commission (the “SEC”) to be included in the Company’s annual proxy statement.

II. COMPOSITION OF THE COMMITTEE

The Committee shall be comprised of three or more members of the Board. The members of the Committee shall satisfy all applicable requirements then in effect of the NASDAQ Stock Market LLC, or any stock exchange or national securities association on which the Company’s securities are listed or quoted and any other applicable regulatory requirements, including without limitation requirements relating to director independence, financial literacy, nomination and size of the Committee, as well as the independence and experience requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations of the SEC. No member of the Committee may serve on the Committee of more than three public companies, including the Company, unless the Board (i) determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee and (ii) discloses such determination in the annual proxy statement.

All members of the Committee shall have a working familiarity with basic finance and accounting practices (or acquire such familiarity within a reasonable period after his or her appointment) and at least one member must be an “audit committee financial expert” under the requirements of the Sarbanes-Oxley Act. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Company or by a third party.

The members of the Committee shall appointed annually to one-year terms by majority vote of the Board, upon recommendation of the Nominating Committee, at the first meeting of the Board following the annual meeting of the Company’s stockholders and shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation, retirement, removal from office or death. The members of the Committee may be removed, with or without cause, by a majority vote of the Board. Vacancies on the Committee shall be filled by majority vote of the Board at the next Board meeting following the occurrence of the vacancy or as soon as practicable thereafter.

 

Unless a Chair is elected by the full Board, the members of the Committee shall designate a Chair by majority vote of the full Committee membership. The Chair will chair all meetings of the Committee and set the agendas for Committee meetings. The Chair shall establish an annual calendar with a proposed agenda of the audit, financial and other related matters to be addressed at each of the committee’s scheduled meetings during the year. Committee members are expected to make suggestions for agenda items. A vacancy in the position of Committee Chair shall be filled by majority vote of the committee at the next Committee meeting following the occurrence of the vacancy or as soon as practicable thereafter.

III. MEETINGS AND PROCEDURES OF THE COMMITTEE

The Committee shall meet as often as its members deem necessary to fulfill the Committee’s responsibilities, but not less frequently than quarterly. A majority of the Committee members shall constitute a quorum for the transaction of the Committee’s business. The Committee shall act upon the vote of a majority of its members at a duly called meeting ate which a quorum is present. Any action of the Committee may be taken by a written instrument signed by all of the members of the Committee. The Committee shall have the authority to establish other rules and procedures for notice and conduct of its meetings consistent with the Company’s bylaws and this Charter. A majority of the members of the Committee present in person or by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other shall constitute a quorum.

The Committee may form subcommittees for any purpose that the Committee deems appropriate and may delegate to such subcommittees such poser and authority within the scope of the Committee’s authority as the Committee deems appropriate; provided, however, that no subcommittee shall consist of fewer than two members; and provided further that the Committee shall not delegate to subcommittee any power or authority required by any applicable law, regulation or listing standard to be exercised by the Committee as a whole.

All non-management directors that are not members of the Committee may attend meetings of the Committee but may not vote. Additionally, the Committee may invite to its meetings any director, member of management of the Company and such other persons as it deems appropriate in order to carry out its responsibilities. However, when necessary, the Committee may meet in executive session without such other persons present, and in all cases such officers shall not be present at meetings at which their performance and compensation are being discussed and determined.

Following each of its meetings, the Committee shall report its deliberations at the next meeting of the Board, including a description of all actions taken by the Committee at the meeting and an identification of any matters that require action by the Board. The Committee shall keep written minutes of its meetings which shall be maintained with the books and records of the Company.

 

IV. COMMITTEE AUTHORITY AND RESPONSIBILITIES

The Committee shall have the sole authority to appoint or replace the independent auditor. The Committee shall be directly responsible for determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Committee.

The Committee shall pre-approve all auditing services and permitted non-audit services to be performed for the Company by its independent auditor, including the fees and terms thereof (subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by Committee prior to the completion of the audit). The Committee may form and delegate authority to subcommittees of the Committee consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting.

The Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to (i) the independent auditor for the purpose or rendering or issuing an audit report and (ii) any advisors employed by the Committee.

The Committee shall make regular reports to the Board. The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The committee annually shall review the Committee’s own performance.

The Committee shall:

A. Financial Statement and Disclosure Matters

1. Meet with the independent auditor prior to the audit to review the scope, planning and staffing of the audit.

2. Review and discuss with management and the independent auditor the annual audited financial statements, and recommend to the Board whether the audited financial statements should be included in the Company’s Form 10-K.

3. Review and discuss with management and the independent auditor the Company’s quarterly financial statements prior to the filing of its Form 10-Q including the results of the independent auditor’s review of the quarterly financial statements.

4. Discuss with management and the independent auditor, as appropriate, significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including:

(a) any significant changes in the Company’s selection or application of accounting principles;

(b) the Company’s critical accounting policies and practices;

(c) all alternative treatments of financial information within US generally accepted accounting principles (“GAAP”) that have been discussed with management and the ramifications of the use of such alternative accounting principles;

(d) any major issues as to the adequacy of the Company’s internal controls and any special steps adopted in light of material control deficiencies; and

(e) any material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.

 

5. Discuss with management the Company’s earnings press releases generally, including the use of “pro forma” or “adjusted” non-GAAP information, and any financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be general and include the types of information to be disclosed and the types of presentations to be made.

6. Discuss with management and the independent auditor the effect on the Company’s financial statements of (i) regulatory and accounting initiatives and (ii) off-balance sheet structures.

7. Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.

8. Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 114 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.

9. Review disclosures made to the Committee by the Company’s President and CFO (or individuals performing similar functions) during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting and any fraud involving management or other employees who have a significant role in the Company’s internal control over financial reporting.

B. Oversight of the Company’s Relationship with the Independent Auditor

1. At least annually, obtain and review a report from the independent auditor, consistent Independence Standards Board Standard 1, regarding (a) the independent auditor’s internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues and (d) all relationships between the independent auditor and the Company. Evaluate the qualifications, performance and independence of the independent auditor, including whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, and taking into account the opinions of management and the internal auditor. The Committee shall present its conclusions with respect to the independent auditor to the Board.

2. Verify the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.

3. Oversee the Company’s hiring of employees or former employees of the independent auditor who participated in any capacity in the audit of the Company.

4. Be available to the independent auditor during the year for consultation purposes.

C. Compliance Oversight Responsibilities

1. Obtain assurance from the independent auditor that Section 10A(b) of the Exchange Act has not been implicated.

2. Review and approve all related-party transactions, including analyzing the shareholder base of each target business so as to ensure that the Company does not consummate a business combination with an entity that is affiliated with the Company’s management.

3. Inquire and discuss with management the Company’s compliance with applicable laws and regulations and with the Company’s Code of Ethics in effect at such time, if any, and, where applicable, recommend policies and procedures for future compliance.

4. Establish procedures (which may be incorporated in the Company’s Code of Ethics, in effect at such time, if any) for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or reports which raise material issues regarding the Company’s financial statements or accounting policies.

5. Discuss with management and the independent auditor any correspondence with regulators or governmental agencies and any published reports that raise material issues regarding the Company’s financial statements or accounting policies.

6. Discuss with the Company’s legal counsel legal matters that may have a material impact on the financial statements or the Company’s compliance policies.

7. Review proxy disclosure to ensure that it is in compliance with SEC rules and regulations.

 

 
 

V. COMMITTEE RESOURCES

The Committee, in discharging its oversight role, is empowered to study or investigate any matter of interest or concern that the Committee deems appropriate. The Committee shall have the authority to retain special legal, accounting or other advisers to advise the Committee, including without limitation the sole authority to determine the fees payable and other terms of retention of the independent auditor for the purpose of rendering or issuing the annual audit reports and any independent legal, accounting or other advisers retained to advise the Committee. The Company shall provide for appropriate funding for (i) compensation to the Company’s independent auditors for the purpose of preparing or issuing audit reports or performing other work, (ii) compensation to any independent legal, accounting or other advisers employed by the Committee and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

VI. UNDERSTANDING AS TO THE COMMITTEE’S ROLE

Management of the Company is responsible for the day-to-day operation of the Company’s business. In addition, the independent auditors and management have the fundamental responsibility for the Company’s financial statements and disclosures. As a result, the Company’s officers and employees and other persons who may be engaged by the Committee may have more time, knowledge and detailed information about the Company than do the Committee members. The Committee will review information, opinions, reports or statements presented to the Committee by the Company’s officers or employees or other persons as to matters the Committee members reasonably believe are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. While the Committee has the responsibilities and powers set forth in this charter, each member of the committee, in the performance of his or her duties, will be entitled to rely in good faith upon reports presented to the Committee by these experts. The Committee is not responsible for certifying the Company’s financial statements or the auditor’s report. Accordingly, the Committee’s role does not provide any special assurances with regard to matters that are outside the Committee’s area of expertise or that are the traditional responsibility of management and the auditors.

 

 

5

Exhibit 99.2

 

CHARTER OF THE COMPENSATION COMMITTEE OF

THE BOARD OF DIRECTORS OF

CHINA HGS REAL ESTATE INC.

ADOPTED AS OF JANUARY 22, 2010

The Compensation Committee’s responsibilities and powers as delegated by the board of directors are set forth in this Charter. Whenever the Committee takes an action, it shall exercise its independent judgment on an informed basis that the action is in the best interests of the Company and its stockholders.

I.	PUPOSE AND AUTHORITY OF THE COMMITTEE

 

The Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of China HGS Real Estate Inc. (the “Company”) shall evaluate and recommend to the Board, as appropriate, the compensation philosophy and practices of the Company with respect to is Executive Officers (as such term is defined in the rules and regulations of the Securities and Exchange Commission “SEC”) to be the Company’s President, any vice president in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the Company) and administer the Company’s stock option plans, and it shall perform any other responsibilities vested in it pursuant to this charter.

II.	COMPOSITION OF THE COMMITTEE

The Committee shall be comprised of three or more members of the Board. The members of the Committee shall satisfy all applicable requirements then in effect of the NASDAQ Stock Market LLC (“NASDAQ”), or any stock exchange or national securities association on which the Company’s securities are listed or quoted and any other applicable regulatory requirements, including without limitation requirements relating to director independence, nomination and size of the Committee. In addition, at least two of the Committee members shall qualify as (1) “non-employee directors” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 (the “Exchange Act”) and (2) “outside directors” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) Collectively, the requirements set forth in the immediately preceding two sentences are referred to as the “Independence Requirements”.

The members of the Committee shall be appointed annually to one-year terms by majority vote of the Board, upon recommendation of the Nominating Committee, at the first meeting of the Board following the annual meeting of the Company’s stockholders and shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation, retirement, removal from office or death. The members of the Committee may be removed, with or without cause, by a majority vote of the Board. Vacancies on the Committee shall be filled by ma vote of the Board at the next Board meeting following the occurrence of the vacancy or as soon as practicable thereafter.

Unless a Chair is elected by the full board, the members of the Committee shall designate a Chair by majority vote of the full Committee meetings. The Chair shall establish an annual calendar with a proposed agenda of the compensation-related matters to be addressed at each of the Committee’s scheduled meetings during the year. Committee members are expected to make suggestions for agenda items. A vacancy in the position of Committee Chair shall be filled by majority vote of the Committee at the next Committee meeting following the occurrence of the vacancy or as soon as practicable thereafter.

 

III.	MEETINGS AND PROCEDURES OF THE COMMITTEE

The Committee shall meet as often as its members deem necessary to fulfill the Committee’s responsibilities. A majority of the Committee members shall constitute a quorum for the transaction of the Committee’s business. The Committee shall act upon the vote of a majority of its members at a duly called meeting at which a quorum is present Any action of the committee may be taken by a written instrument signed by all of the members of the Committee. The Committee shall have the authority to establish other rules and procedures for notice and conduct of its meetings consistent with the company’s bylaws and this Charter. A majority of the members of the Committee present in person or by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other shall constitute a quorum.

The Committee may form subcommittees for any purpose that the Committee deems appropriate and may delegate to such subcommittees such power and authority within the scope of the Committee’s authority as the Committee deems appropriate; provided, however, that no subcommittee shall consist of fewer than two members; and provided further that the Committee shall not delegate to a subcommittee any power or authority required by any applicable law, regulation or listing standard to be exercised by the Committee as a whole.

All non-management directors that are not members of the Committee may attend meetings of the Committee but may not vote. Additionally, the Committee may invite to its meetings any director, member of management of the Company and such other persons as it deems appropriate in order to carry out its responsibilities. However, when necessary, the Committee may meet in executive session without such other persons present, and in all cases such officers shall not be present at meetings at which their performance and compensation are being discussed and determined.

Following each of its meetings, the Committee shall report its deliberations at the next meeting of the Board, including a description of all actions taken by the committee at the meeting and an identification of any matters that require action by the Board. The Committee shall keep written minutes of its meetings which shall be maintained with the books and records of the Company.

IV.	COMMITTEE AUTHORITY AND RESPONSIBILITIES

The following functions shall be the recurring activities of the Committee in carrying out its responsibilities outlined in Section I of this Charter. These functions should serve as a guide with the understanding that the Committee may carry out additional or substitute functions and adopt additional policies and procedures as may be appropriate in light of changing business, legislative, regulatory, legal or other conditions. The Committee shall also carry out any other responsibilities and duties delegated to it by the Board from time to time related to the purposes of the Committee outlined in Section I of this Charter.

The Committee shall have the following specific powers and duties:

1. To review and approve the Company’s overall compensation philosophy and policies for executive officers of the Company and its subsidiaries generally; to review and approve the compensation, including salary, bonuses and benefits of the executive officers of the Company other than the President; and to review and recommend the compensation of the President (including salary, bonuses and benefits) for approval by all of the directors serving on the Board who satisfy the Independence Requirements;

2. To review and approve the corporate goals and objectives relevant to the compensation of executive officers of the Company and its subsidiaries, including the President, with the primary overall objectives of the Company’s executive compensation program focused on attracting, retaining and motivating the Company’s management, providing a strong link between executive compensation and performance and such other objectives as may from time to time be determined by the Committee to be in the best interests of the Company. The committee shall oversee and evaluate the performance of the executive officers in light of such goals and objectives, request and obtain detailed information about executive compensation packages and, based on such review and supplemental executive retirement plans, severance payments, change-in-control agreements and all other compensation and benefits of the executive officers;

3. To request that management obtain information in order for the Committee to assess executive compensation, including compensation surveys and studies of the compensation practices of comparable companies;

4. To oversee, review, monitor and make recommendations to the board with respect to compensation plans, equity-based plans and plans pertaining to incentive compensation, pensions, benefits and retirement savings and to exercise all the authority of the Board with respect to the administration and interpretation of such plans;

 

5. To review and approve all awards of shares or share options pursuant to the Company’s plans;

6. To review and approve any employment contract or related agreement, such as a severance arrangement or a supplementary pension, for any executive officer;

7. To review director compensation, if any, and recommend from time to time to the Board any proposed changes in such compensation;

8. To review periodically the need for a Company policy regarding compensation paid to the Company’s executive officers in excess of limits deductible under Section 162(m) of the Code;

9. To review executive officer and director indemnification and insurance matters;

10. To serve as a counseling committee to the President of the Company regarding matters of key personnel selection, compensation matters and such other matters as the Board may from time to time direct;

11. To review the procedures and policies of the Company designed to ensure compliance with applicable laws and regulations relating to compensation of executive officers and to monitor the results of these compliance efforts;

12. To maintain minutes or other records of meetings and activities of the Committee and to report to the Board following meetings of or actions taken by the Committee;

13. To have prepared and to review and discuss with management the Company’s compensation discussion and analysis disclosure required by the SEC and, based on this review and discussion, recommend to the Board the inclusion of such disclosure in the Company’s proxy statement or annual report, in accordance with applicable rules and regulations promulgated by the SEC, NASDAQ and other regulatory bodies;

14. To conduct or authorize investigations into any matters within the Committee’s purpose and powers;

15. To review and reassess the powers of the Committee and the adequacy of this Charter periodically and recommend any proposed changes to the Board for approval;

16. To conduct an annual performance review and evaluation of the Committee; and

17. To consider such other matters in relation to the compensation polices of the Company as the Committee or the Board may, in its discretion, determine to be advisable.

 

V.	DELEGATION OF DUITES

In fulfilling its responsibilities, the Committee is entitled to form and delegate any or all of its responsibilities to a subcommittee consisting of one or more members of the Committee, when appropriate and permitted by applicable legal and regulatory requirements; provided, however, that the Committee shall not delegate its responsibilities for any matters that involve executive compensation or any matters where it has determined such compensation is intended to comply with Section 162(m) of the Code or is intended to be exempt form Section 16(b) under the Exchange Act pursuant to Rule 16b-3, unless the members of such subcommittee qualify as “outside directors” under Section 162(m) and “non-employee directors” under Rule 16b-3. Where so permitted, a subcommittee of the Committee may exercise the powers and authority of the Committee and the Board while acting within the scope of the powers and responsibilities delegated to it.

If any Committee member does not qualify as a “non-employee director” for purposes of Rule 16b-3 under the 1934 Act and as an “outside director” under Section 162(m)of the Code, the Committee shall establish a subcommittee (the “Section 162(m) Subcommittee”) whose members shall qualify as “non-employee directors” for purposes of Rule 16b-3 under the 1934 Act and “outside directors” under Section 162(m) of the Code, and whose duties shall include (1) the approval of grants of stock options to the Company’s executive officers, including the President, in accordance with Rule 16b-3 under the 1934 Act, (2) the adoption of performance goals with respect to performance based compensation for executive officers including the president in accordance with Section 162(m) of the Code, (3) the determination of whether performance goals have been met before performance-based compensation is paid to executive officers in accordance with Section 162(m) of the Code, (4) the administration of the Company’s 2007 performance Incentive Equity Plan and (5) any other action required to be performed by a committee or subcommittee of “non-employee directors” (pursuant to Rule 16b-3) and “outside directors” (pursuant to Section 162(m))

VI.	EVALUATION OF THE CHARTER

The Committee shall periodically, and at least annually, evaluate this charter. The committee shall report to the Board the results of its evaluation, including any recommended amendments to this charter and any recommended changes to the Company’s or the Board’s policies or procedures.

VII.	COMMITTEE RESOURCES

The Committee, in discharging its oversight role, is empowered to study or investigate any matter of interest or concern that the Committee deems appropriate. The Committee shall have the authority to retain special legal, accounting or other advisers to advise the Committee, including without limitation the sole authority to retain and terminate any compensation consulting firm used to assist in the evaluation of Director, President, or senior executive compensation and the sole authority to approve such firm’s fees and other retention terms. The Company shall provide for appropriate funding for such counsel or experts retained by the Committee.

VIII.

UNDERSTANDING AS TO THE COMMITTEE’S ROLE

Management of the Company is responsible for the day-to-day operation of the Company’s business. As a result, the Company’s officers and employees and other persons who may be engaged by the Committee may have more time, knowledge and detailed information about the Company than do the Committee members. The Committee will review information, opinions, reports or statements presented to the Committee by the Company’s officers or employees or other persons as to matters the Committee members reasonably believe are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. While the Committee has the responsibilities and powers set forth in this Charter, each member of the Committee, in the performance of his or her duties, will be entitled to rely in good faith upon reports presented to the Committee by these experts. Accordingly, the Committee’s role does not provide any special assurances with regard to matters that are outside the Committee’s area of expertise or that are the traditional responsibility of management.

4

Exhibit 99.3

 

CHARTER OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS OF

CHINA HGS REAL ESTATE INC.

ADOPTED AS OF JANUARY 22, 2010

The Nominating and corporate Governance Committee’s responsibilities and powers as delegated by the board of directors are set forth in this Charter. Whenever the Committee takes an action, it shall exercise its independent judgment on an informed basis that the action is in the best interests of the Company and its stockholders.

I. PURPOSE AND AUTHORITY OF THE COMMITTEE

The Nominating and Corporate Governance Committee (the “Committee”) of China HGS Real Estate Inc. (the “Company”) is appointed by the Board of Directors (the “Board”) to (1) assist the Board in identifying individuals qualified to become members of the Board and executive officers of the Company, (2) select, or recommend that the Board select, director nominees for election as directors by the stockholders of the Company; (3) develop and recommend t the Board a set of effective governance policies and procedures applicable to the Company; (4) lead the Board in its annual review of the Board’s performance; (5) recommend to the Board director nominees for each committee, (6) make recommendations regarding committee purpose, structure and operations and (7) oversee and approve a management continuity planning process.

II. COMPOSTION OF THE COMMITTEE

The Committee shall be comprised of three or more members of the Board. The members of the Committee shall satisfy all applicable requirements then in effect of the NASDAQ Stock Market LLC (“MASDAQ”), or any stock exchange or national securities association on which the Company’s securities are listed or quoted and any other applicable regulatory requirements, including without limitation requirements relating to director independence, nomination and size of the Committee.

The members of the Committee shall be appointed annually to one-year terms by majority vote of the Board at the first meeting of the Board following the annual meeting of the Company’s stockholders and each member shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation, retirement, removal from office or death. The members of the Committee may be removed, with or without cause, by a majority vote of the Board Vacancies on the Committee shall be filled by majority vote of the Board at the next Board meeting following the occurrence of the vacancy or as soon as practicable thereafter.

Unless a Chairman is elected by the full Board, the members of the Committee shall designate a Chairman by majority vote of the full Committee membership. The Chairman will chair all meetings of the Committee and set the agendas for Committee meetings. The Chairman will chair all meetings of the calendar with a proposed agenda of corporate governance matters and nominations to be addressed at each of the Committee’s scheduled meetings during the year Committee members are expected to make suggestions for agenda items. A vacancy in the position of Committee Chair shall be filled by majority vote of the Committee at the next Committee meeting following the occurrence of the vacancy or as soon as practicable thereafter.

 

III. MEETINGS AND PROCEDURES OF THE COMMITTEE

The Committee shall meet as often as its members deem necessary to fulfill the Committee’s responsibilities. A majority of the Committee members shall constitute a quorum for the transaction of the Committee’s business. The Committee shall act upon the vote of a majority of its members at a duly called meeting at which a quorum is present. Any action of the Committee may be taken by a written instrument signed by all of the members of the Committee. The Committee shall have the authority to establish other rules and procedures for notice and conduct of its meetings consistent with the Company’s bylaws and this Charter. A majority of the members of the Committee present in person or by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other shall constitute a quorum.

The Committee may form subcommittees for any purpose that the Committee deems appropriate and may delegate to such subcommittees such power and authority within the scope of the Committee’s authority as the Committee deems appropriate; provided, however, that no subcommittee shall consist of fewer than two members; and provided further that the Committee shall not delegate to a subcommittee any power or authority required by any applicable law, regulation or listing standard to be exercised by the Committee as a whole.

All non-management directors that are not members of the Committee may attend meetings of the Committee but may not vote. Additionally, the Committee may invite to its meetings any director, member of management of the Company and such other persons as it deems appropriate in order to carry out is responsibilities. However, when necessary, the Committee may meet in executive session without such other persons present, and in all cases such officers shall not be present at meetings at which their performance and compensation are being discussed and determined.

Following each of its meetings, the Committee shall report its deliberations at the next meeting of the Board, including a description of all actions taken by the Committee at the meeting and an identification of any matters that require action by the Board. The Committee shall keep written minutes of its meetings which shall be maintained with the books and records of the Company.

IV. COMMITTEE AUTHORITY AND RESPONSIBILITIES

1.	Developing the criteria and qualifications for membership on the Board.

2.	Recruiting, reviewing and nominating candidates for election to the board or to fill vacancies on the Board; including retaining, determining fees and retention terms and terminating any search firm used to identify director candidates.

3.	Reviewing candidates proposed by stockholders, and conducting appropriate inquiries into the background and qualifications of any such candidates.

4.	Establishing subcommittees for the purpose of evaluating special or unique matters.

5.	Monitoring and making recommendations regarding committee functions, contributions and composition.

6.	Evaluating, on an annual basis, the current composition, organization and governance of the Board and its Committees, determining future requirements and make recommendations to the Board for approval.

7.	Developing, annually reviewing and updating and recommending to the Board a set of corporate governance principles for the Company.

8.

In the event it is necessary to select a new chief executive officer of the Company, leading the process and initiating evaluation, consideration and screening of potential chief executive candidates. The full Board of Directors has the final responsibility to select the Company’s chief executive officer.

9.	Reviewing and recommending to the full Board matters and agenda items relating to the Company’s Annual Meeting of Shareholders including determining agenda items, setting the time and date of the Annual Meeting and approving the slate of Directors for election.

10.	Evaluating and recommending termination of membership of individual directors in accordance with the Board of Directors’ corporate governance principles, for cause or for other appropriate reasons.

11.	Coordinating and approving Board and Committee meeting schedules.

12.	Reviewing and assessing the Committee’s performance on an annual basis.

13.	Reviewing this Charter at least annually and making recommendations to the Board for approval and adoption of the Charter, including any additions, deletions or modifications, as may be deemed appropriate.

CHINA HGS REAL ESTATE INC.

Board of Director Candidate Guidelines

The Nominating and Corporate Governance Committee (the “Nominating Committee”) of China HGS Real Estate Inc. (the “Company”) will identify, evaluate and recommend candidates to become members of the Board of Directors(“Board”) with the goal of creating a balance of knowledge and experience. Nominations to the Board may also be submitted to the Nominating Committee by the Company’s stockholders in accordance with the Company’s policy, a copy of which is attached hereto. Candidates will be reviewed in the context of current composition of the Board, the operating requirements of the Company and the long-term interests of the Company’s stockholders. In conducting this assessment, the Committee will consider and evaluate each director-candidate based upon its assessment of the following criteria:

1.	Whether the candidate is independent pursuant to the requirements of the NASDAQ Stock Market LLC.

2.	Whether the candidate is accomplished in his or her field and has a reputation, both personal and professional, that is consistent with the image and reputation of the Company.

3.	Whether the candidate has the ability to read and understand basic financial statements. The Nominating Committee also will determine if a candidate satisfies the criteria for being an “audit committee financial expert.” As defined by the Securities and Exchange Commission.

4.	Whether the candidate has relevant experience and expertise and would be able to provide insights and practical wisdom based upon that experience and expertise.

5.	Whether the candidate has knowledge of the Company and issues affecting the Company.

6.	Whether he candidate is committed to enhancing stockholder value.

7.	Whether the candidate fully understands, or has the capacity to fully understand, the legal responsibilities of a director and the governance processes of a public company.

8.	Whether the candidate is of high moral and ethical character and would be wiling to apply sound, objective and independent business judgment, and to assume broad fiduciary responsibility.

9.	Whether the candidate has, and would be willing to commit, the required hours necessary to discharge the duties of Board membership.

10.	Whether the candidate has any prohibitive interlocking relationships or conflicts of interest.

11.	Whether the candidate is able to develop a good working relationship with other Board members and contribute to the Board’s working relationship with the senior management of the Company.

12.	Whether the candidate is able to suggest business opportunities to the Company.

 

 

Stockholder Recommendations for Directors

 

Stockholders who wish to recommend to the Nominating and Corporate Governance Committee a candidate for election to the Board of Directors should send their letters to China HGS Real Estate Inc., 6 Xinghan Road, 19th Floor, Hanzhong City, Shaanxi Province, PRC 723000. Attention: Nominating and Corporate Governance Committee, [or Address in the US :__________________________, Attn: Nominating and Corporate Governance Committee,] with a copy to the Company’s counsel, Mark E. Crone, Esq., The Crone Law Group, 101 Montgomery Street, Suite 1950, San Francisco, California 94104. The Corporate Secretary will promptly forward all such letters to the members of the Nominating Committee. Stockholders must follow certain procedures to recommend to the Nominating Committee candidates for election as directors. In general, in order to provide sufficient time to enable the Nominating Committee to evaluate candidates recommended by stockholders in connection with selecting candidates for nomination in connection with the Company’s annual meeting of stockholders, the Corporate Secretary must receive the stockholder’s recommendation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary of the mailing of the proxy statement for the annual meeting of stockholder for the preceding year. For the year 2010, stockholder recommendations must be received by the Corporate Secretary no sooner than     , 2010 and no later than      , 2010.

The recommendation must contain the following information about the candidate:

•      Name;

•      Age;

•      Business and current residence addresses, as well as residence addresses for the past 20 Years ；

•      Principal occupation or employment and employment history (name and address of employer and job title) for the past 10 years (or such shorter period as the candidate has been in the work force);

•      Educational background;

•      Permission for the Company to conduct a background investigation, including the right to obtain education, employment and credit information;

•      The number of shares of common stock of the Company beneficially owned by the candidate;

•      The information that would be required to be disclosed by the Company about the candidate under the rules of the SEC in a Proxy Statement soliciting proxies for the election of such candidate as a director (which currently includes information required by Items 401, 404 and 405 of Regulation S-K); and

•      A signed consent of the nominee to serve as a director of the Company, if elected.

The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a director of the Company. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth herein. The officer of the Company presiding at an annual meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

 

 

4

Exhibit 99.4

 

CHINA HGS REAL ESTATE INC.

CODE OF CONDUCT

 

This Code of Conduct of China HGS Real Estate Inc. (“China HGS” or the “Company”) provides the standards by which the Company’s employees, officers and directors should conduct themselves. It is the Company’s goal to foster the highest possible ethical standards in its employees’, officers’ and directors’ interactions with each other, customers, suppliers, regulators and the community at large. The Company has provided this code as a guide expects that each employee, officer and director of China HGS will use its principles of ethical conduct as foundation for behavior.

Company Assets

Electronic Communication Resources

By using any China HGS electronic equipment or systems or by accessing the Internet or any company intranet using a China HGS sign-on ID or any computer equipment or systems an employee, officer or director of China HGS acknowledges that he or she represents China HGS and agrees to comply with China HGS’ policies governing their use. China HGS provides electronic equipment and systems, including Internet and intranet services, for business-related activities. Consequently, China HGS employees, officers and directors generally should use such equipment and systems to further the business interests of China HGS and only in a manner that maintains the reputation and image of China HGS. Limited personal use of these resources is authorized so long as such use is:

• Occasional;

• Of reasonable duration;

• Does not adversely affect performance;

• Does not violate any applicable laws or compromise intellectual property rights; and

• Is not otherwise prohibited by company policy.

The following are examples of activities are prohibited and may result in disciplinary action, up to and including termination. They include, but are not limited to:

• Breaking into or attempting to break into any computer system, inside or outside of China HGS ;

• Accessing the fillies or communications of others without appropriate authorization;

• Sending or posting sensitive materials without an appropriate level of encryption or other security measures;

• Sending chain letters;

• Sending copies of documents, software or graphics that violate copyright laws;

• General advertising or listings for personal benefit;

• Communications that are addressed to another user in any manner that could reasonably cause him or her distress, embarrassment, or unwarranted attention, as this may constitute harassment;

• Personal attacks, including, without limitation, attacks based on race, color, religion, sex, gender, sexual orientation, national origin, ancestry, age, disability, veteran status or any other factors prohibited by law;

• Placing or posting work-related information on any personal web pages or in any Internet communication;

• Downloading, saving, or transmitting China HGS data to any non-company-owned device or media;

• Engaging in any illegal activity; or

• Sending messages that adversely affect the reputation of China HGS or its customer, vendors or competitors.

 

Protection of Company Assets

China HGS assets, such as information, materials, supplies, time, intellectual property, software, hardware and facilities, among other property, are valuable resources owned, licensed, or otherwise belonging to the Company. Safeguarding company assets is the responsibility of all employees, officers and directors. All company assets should be used for legitimate business purposes only and the personal use of company assets without permission is prohibited.

Employee Innovations

China HGS owns any and all the intellectual property created by employees and officers of the Company during their term of employment and relating in any way to the employee’s or officer’s work or the businesses of China HGS. Employees and officers are expected to execute all documents necessary to assist China HGS in securing rights to any and all intellectual property.

Embezzlement, Theft and Misapplication of Funds

China HGS holds each employee, officer and director responsible for maintaining accurate records. Anyone who embezzles steals, or willfully misappropriates any funds, credits or real property of China HGS will be subject to disciplinary action by the Company and legal action.

Corporate Behavior

The basic principles of China HGS’ corporate conduct can be simply stated:

•  China HGS does not cause or tolerate any violation of law or regulation in the conduct of its business or related activities.

•  China HGS provides pertinent information to authorized auditors or regulatory agencies, and discloses, on a timely basis, information required for judging the soundness of its condition and its merits as an investment.

•  China HGS maintains and upholds standards and procedures that are designed to safeguard the legitimate confidentiality of information pertaining to employees and customers.

•  China HGS endeavors to deal fairly and in good faith with its customers, suppliers, competitors, employees and regulators.

Employee, Officer and Director Behavior

Confidential Information

Employees, officers and directors of China HGS must maintain the confidentiality of information to which they are entrusted by the Company, its business partners, suppliers, customers or others related to the Company’s business. This obligation survives the termination of an employee’s, officer’s or director’s relationship with the Company. Such information must be disclosed to others, except when disclosure is authorized by China HGS or legally mandated.

Examples of confidential information include, but are not limited to:

• Current or prospective customer’s or employees’ business relationships;

• Company policies, objectives, goals, or strategies;

• Lists of clients, customers or vendors;

• Employee records;

• Training materials, bulletins, and similar documents;

• Contracts to which the Company is a part; and

• Any other non-public information that might be of use to competitors or harmful to the Company, its business partners, suppliers or customers, if disclosed.

 

Any work assignment completed for China HGS at any location is also confidential information and is the property of China HGS unless other contractual arrangement has been made.

Employee Privacy

The Company restricts access to employee records. This includes personnel records, payroll records, benefit plans and medical records. Access to these records is limited to those who have a legal or business need to know. Care should be taken by all persons who have access to the personnel, payroll or medical information of other employees to keep that information confidential.

Conflict of Interest

As an employee, officer or director of China HGS, you have a duty of loyalty to the Company and must, therefore, avoid any actual or apparent conflict of interest with the Company. Employees, officers and directors must not use their position for private gain, to advance personal interests, or to obtain favors or benefits for themselves, members of their families, or any other individuals, corporations or business entities. A conflict situation can arise when an employee, officer or director takes an action or has an interest that may make it difficult for him or her to perform his or her work objectively and effectively.

Conflicts of interest also arise when an employee, officer or director or a member of his or her family receives improper personal benefits as a result of such employee’s officer’s or director’s position with the Company. If such a situation arises, an employee or officer should immediately report the circumstances to their supervisor. Executive officers and directors should report any such circumstances to the Board of Directors of the Company.

In addition, all related-party transactions need to be reviewed and approved by the Audit Committee of the board of directors in accordance with its charter.

Corporate Opportunities

Employees, officers and directors of China HGS may not:

• Take for himself or herself personally opportunities that are discovered through the use of company property, information or position;

• Use company property, information or position for personal gain; or

• Compete with the Company.

Employees, officers and directors owe a duty to China HGS to advance its legitimate interests when the opportunity to do so arises.

Regulatory Compliance

Being factual and truthful is important in all communications with others. If an employee, officer or director interacts with any government agency or auditor, he or she should deal strictly with factual information. US Federal law provides for severe penalties for anyone who endeavors to influence, obstruct, or impede federal auditors or investigators in the performance of their official duties with the intent to deceive or defraud.

Fraud

Employees, officers and directors of China HGS must not engage in fraudulent conduct. Fraud includes deliberately practiced deception, whether by words, conduct, false or misleading allegations, or by concealment, to secure unfair or unlawful gain. Fraud covers both express and implied representations of fact, and may be written or oral.

 

Security Practices

To help ensure a safe and secure environment, the Company reserves the right to take certain actions to protect employees, customers, suppliers and the Company, including property and premises. These actions, in accordance with applicable law, include routinely recording, monitoring, conducting surveillance, inspecting and/or reviewing Internet, e-mail and intranet usage. These actions are recognized as essential elements of good security practices for customers and employees. Authorized company personnel, including Security, Human Resources, Compliance, Legal and Internal Audit, may use these practices to uncover any activity that may jeopardize the security or integrity of the Company’s information or information systems, and any activity that is illegal, impermissible or inappropriate. These polices apply whether employees are accessing tools available while in the workplace, or when working from home or other remote locations.

Screening and Background Checks

In addition to pre-employment background checks that include past employment, criminal, drug, credit, and driving records, the Company reserves the right to use its discretion to periodically run background and screening checks during the course of employment. These actions are considered reasonable efforts necessary to ensure the safety and security of employees and customers, by ensuring that China HGS does not permit employment of individuals who have engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.

Drug Free Workplace and Alcohol Use

China HGS strives to provide a safe productive environment for its employees. This includes a workplace free of the problems associated with the use of illegal drugs and unauthorized alcohol. Substance abuse subjects the Company to unacceptable risks for workplace accidents, errors or other failures that would undermine the Company’s ability to operative effectively and efficiently. Therefore, to maintain a drug-free workplace, the presence or use of illegal drugs or use of unauthorized alcohol on company premises is not tolerated.

Employment of Relatives or Persons Having Close Personal Relationships

China HGS restricts the employment of relatives or other persons with whom a current employee, officer or director has a close personal relationship. To minimize security risks and avoid conflicts, family members or others with close personal relationships should not work in the same China HGS business unit or physical location, or in positions where one may supervise another, have influence over performance and/or compensation of another, that involve a chain of custody or approval authority with respect to another and/or that involve a workplace relationship that would create a conflict of interest or the appearance of a conflict of interest with another Managers should not have personal relationships with subordinates or anyone in their reporting chain. In addition, generally the Company will not employ the relatives of Human Resources staff, senior officers, or members of the corporate board of directors, in any capacity. Management has the discretion to determine whether a personal relationship may interfere with the performance of a current employee, the operation of China HGS, and/or would result in a conflict of interest.

Gifts And Gratuities

Generally, employees, officers and directors should not accept things of value from third parties in connection with company business. Employees, officers and directors may accept from a third party meals, refreshments, travel arrangements or accommodations or entertainment, all of reasonable value, in the course of a meeting or similar function the purpose of which is to hold bona fide business discussions or to foster better business relations. Employees, officers and directors of the Company may also accept from a third party advertising or promotional material or nominal value, such as office supplies, discounts or rebates on merchandise or services that do not exceed those available to other customers of the third party, and gifts of modest value that are related to commonly recognized events or occasions. Gifts of cash in any amount are expressly prohibited. Employees, officers and directors may not, on behalf of China HGS, directly or indirectly give, offer, or promise anything of value to any individual, business entity, organization or any other person for the purpose of influencing the actions of the recipient. This standard of conduct is not intended to prohibit normal business practices such as providing meals, entertainment, tickets for cultural or sporting events, promotional gifts, discounts, price concessions, gifts given as tokens of friendship or special occasions so long as they are of nominal and reasonable value under the circumstances and promote China HGS’ legitimate business interests.

Harassment and Discrimination

China HGS is committed to maintaining a workplace free of unlawful harassment and discrimination. The company considers such behavior unacceptable and will not tolerate any violation of this policy.

Inside Information

It is the Company’s goal and policy to protect shareholder investments through strict enforcement of the prohibition against insider trading set forth in federal securities laws and regulations. No director, officer or employee may buy or sell, or tip others to buy or sell, company securities or the publicly-traded securities of a competitor, customer or supplier when in possession of a competitor, such customer or such supplier, as the case may be. Insider trading is both unethical and illegal and will be dealt with firmly as the case may be. Insider trading is both unethical and illegal and will be dealt with firmly.

 

“Material non-public information” includes, but is not limited to, information about China HGS or its business that is not available to the public at large which would be important to an investor in making a decision to buy, sell or retain a stock Common examples of this type of information includes, but is not limited to: projections of future earnings or losses, news of a pending or proposed merger or acquisition, news of a significant sale of assets or the disposition of a subsidiary, news regarding an significant current or prospective customer, the declaration of a stock split or the offering of additional stock, significant changes in management, significant new products and impending financial liquidity problems. It should be noted that either positive or negative information might be material.

This statement is just an overview of our policy on Inside Information. Officers, directors and employees should refer to the “China HGS Real Estate Inc. Statement of Policy on Insider Trading” for the complete policy surrounding this issue.

Internal Controls

Periodic assessments of China HGS’ internal controls will be made by management, the internal auditors, external auditors and other internal review functions and/or regulatory agencies. All China HGS employees are expected to provide timely and accurate information during any such assessments of the control environment.

Outside Activities

Activities outside of the employment activities of an employee or officer should not compete or conflict with the activities of China HGS. These activities should not involve any use of company equipment, supplies or facilities, imply China HGS’ sponsorship or support or adversely affect the Company’s reputation. Employees and officers are encouraged to participate in worthwhile civic, educational and charitable organizations and activities; however, every effort should be made to perform those activities during non-work hours. When schedule conflicts occur, advance arrangements must be made and approval obtained from one’s immediate supervisor. As private citizens, employees, officers and directors of China HGS are free to petition or otherwise contact the government on any issue. However, unless authorized, employees, officers and directors may not purport to represent the Company when contacting any branch of government at any level.

Non Work-Related Activities in the Workplace

Staying focused on providing the best service to our customers is our top priority. The following guidelines help preserve the nature of our workforce:

•           Distribution of literature by employees is not allowed on company premises during work time or in the work area.

•           Solicitation the practice of petitioning or pleading for a cause by employees is not allowed during business hours time.

•           Solicitation and distribution by third parties is not allowed on company premises at any time.

•           Literature, notices or other material of any kind may not be posted on bulletin boards, other than materials submitted to and approved by the China HGS Human Resource Department.

•           These guidelines do not apply to company sponsored charitable events and efforts.

Relationship With The Media

Employees should refer all questions or requests for information from reporters or other media representatives to China HGS’ President to ensure consistency and accuracy of information.

Use of Corporate Name and Letterhead

China HGS’ or any of its affiliates’ names, logos, trademarks, copyrights or corporate letterheads may not be used for any purpose other than in the normal course of official company business, unless Solicitation approved by the President of China HGS employee, officer or director may use the Company name in the Internet address (URL) of a personal web page.

Workplace Violence / Statement of Respect

China HGS’ strives to provide a safe work environment that is conducive to quality customer service, good morale and a high level of productivity. Employees, officers and directors are expected to treat fellow employees, officers, directors, customers and vendors with courtesy and to resolve any difference in a professional, non-abusive and non-threatening manner. Employee, officers and directors are responsible for their behavior and for understanding how others may perceive their conduct in the workplace. Disruptive, unruly or abusive behavior by employees, officers and directors in the workplace or at company sponsored events will not be tolerated. Inappropriate conduct includes verbal or physical threats, fights, obscene or intimidating language and behavior, as well as any other abusive conduct. The possession of firearms or other weapons on or in all premises or property owned, operated managed or controlled by China HGS is prohibited. Employees are to report any threats or incidence of violence to their managers or to Human Resources. Employees are to report any directors who witness or are involved in a situation where danger is imminent should call the appropriate authorities and then contact internal resources as appropriate.

Compliance with Laws, Rules and Regulations

The company’s employees, officers and directors are subject to numerous laws, rules and regulations, only some of which are specifically address in this code. China HGS employees, officers and directors are encouraged to become reasonably informed and to comply with the laws, rules and regulations applicable to you, whether or not they are addressed in this code.

Disclosure in Documents Filed with the Securities and Exchange Commission and Other Public Communications of the Company

As officers and directors of a publicly traded company, China HGS officers and directors are responsible for establishing, maintaining and periodically evaluating disclosure controls and procedures designed to reasonably ensure full, fair, accurate, timely and understandable disclosure in reports and documents filed with or submitted to the Securities and Exchange Commission or otherwise disclosed to the public. Officers and directors of the Company must promptly bring to the attention of the Audit Committee and the Company’s Counsel, Mark E. Crone of The Crone Law Group, any information they may have concerning significant deficiencies in, or violations of, such disclosure controls and procedures.

 

Discipline

Discipline will be promptly and consistently applied to serve as notice that there are serious consequences for intentional wrongdoing and to demonstrate that China HGS is committed to integrity as an integral part of our culture. China HGS believes that application of discipline for a violation of our ethics standards should be prompt and must be appropriate. Therefore, the Company will weigh all mitigating and aggravating circumstances, including whether the violation was intentional or inadvertent, the extent of the likely damage to the Company and its shareholders resulting from the violation and whether the offending person has committed previous violations of this code or other company policy concerning ethical behavior.

Application and Waiver

Executive officers may waive this code for non-officer employees of the Company. Any waiver of this code for officers or directors of the Company may be made only by the board of directors or a committee of the board of directors of China HGS to which such authority has been delegated. Any waiver of this code for officers of the Company must promptly report to the Audit Committee and the Company’s Counsel any waiver of this code for any other officer, whether explicitly or implicitly granted by the Company, and any violation of this code by any officer.

Communication with Audit Committee

The company encourages its officers to engage in an active and open dialogue with Audit Committee and to discuss with the Audit Committee any concerns or suggestions that officers may have regarding the Company’s disclosure controls and reporting procedures.

 

ACKNOWLEDGEMENT OF RECEIPT OF THE CHINA HGS REAL ESTATE INC.

CODE OF CONDUCT

I have received and read the China HGS Code of Conduct. I understand the standards and policies contained in this China HGS Code of Conduct and understand that there may be additional policies or laws specified to my job. I agree to comply with the China HGS Code of Conduct and any such additional specific policies or laws.

If I have questions concerning the meaning or application of the China HGS Code of Conduct, any policies of China HGS, or the legal and regulatory requirements applicable to China HGS or my position within the Company, I will consult my supervisor and /or an appropriate representative of the Company, knowing that my questions or reports to these sources will be maintained in confidence. I understand and acknowledge that I may report violations of the Code of Conduct to the President and the Company’s Counsel.

 

 
 

 

 
 

 

 7

 

Exhibit 99.5

 

CHINA HGS REAL ESTATE INC.

STATEMENT OF POLICY ON

INSIDER TRADING

Adopted January 22, 2010

Introduction

It is the policy of China HGS Real Estate Inc. and its subsidiaries (“Home System”) that all employees comply fully with the insider trading securities laws and regulations of the United States, of the several states, and of foreign jurisdictions, wherever they apply.

All personnel must maintain a basic familiarity with the principles and purposes of these laws as they may be applied to Home System, and avoid any activity that might violate these laws or give any appearance either of a violation.

This policy statement has been designed to prevent the violation of securities laws and to ensure that you do not engage in any activity that violates the spirit of the insider trading restrictions of those laws, is unfair to Home System’s public stockholders, or creates an appearance of a violation.

Compliance with this Statement of Policy is part of your job responsibility. Any failure to comply with this policy will subject you to appropriate disciplinary action, which may include suspension or termination.

This Statement of Policy also applies to your spouse, any immediate family member living in your household, any trust of which you or your spouse serves as trustee or any entity in which you or a member of your immediate family has an ownership interest. You are responsible for their compliance with this Statement of Policy.

References in this Statement of Policy to “Home System,” “the Company,” “our” or “we” refer to China HGS Real Estate Inc. and all of its subsidiaries.

Insider Trading

It is generally illegal for any person, either personally or on behalf of others, to trade in securities on the basis of material, nonpublic information. It is also generally illegal to communicate (to “tip”) material, nonpublic information to others who may trade in securities on the basis of that information. These illegal activities are commonly referred to as “insider trading”. Penalties for insider trading violations include civil fines of up to three times the profit gained or loss avoided by the trading, criminal fines of up to $1 million, and imprisonment for up to 10 years. There may also be liability to those damaged by the trading. A company whose employee violates the insider trading prohibitions may be liable for a civil of up to the greater of $1 million or three times the profit gained or loss avoided as a result of the insider trading violation. Additionally, a conviction for “securities fraud” or other violations of the Sarbanes-Oxley Act of 2002 can result in severe fines and be punishable for violators by terms of imprisonment of up to 20 years.

This memorandum sets forth the Company’s policy against insider trading. All Company personnel must comply with this policy.

 

General Statement

You are prohibited from trading, and tipping others to trade, when you know material, nonpublic information.

What information is material? All information that a reasonable investor would consider important in deciding whether to buy, sell or hold securities is considered material. Examples of some types of material information are:

•      financial results for the quarter or the year

•      financial forecasts or information

•      possible mergers, acquisitions, joint ventures and other purchases and sales of companies and investments in companies

•      obtaining or losing important contracts

•      information about vendor relationships

•      information about geographic market expansion

•      major financing developments

•      major personnel changes

•      major litigation developments

•      major events regarding the Company’s securities

•      changes in dividends

Information that is likely to affect the price of securities is almost always material.

What is nonpublic information? Information is considered to be nonpublic unless it has been effectively disclosed to the public. Examples of effective disclosure include public filings with the Securities and Exchange Commission, Company press releases, and Company meetings with members of the press and the public. The information must not only be publicly disclosed, there must also be adequate time for the market as a whole to digest the information. At least two full business days of general availability may be required for information to be considered public.

Prohibited transactions. When you know material information about China HGSthat has not been made public (i.e., nonpublic information), you are prohibited from three activities:

•           trading in the Company’s securities

Neither you nor anyone acting on your behalf nor anyone who learns the information from you can trade. This prohibition continues whenever and for as long as you know the material, nonpublic information.

Although it is most likely that any material, nonpublic information you might learn would be about the Company, these Company prohibitions apply to trading in the securities of any company about which you have material, nonpublic information that you obtained through or in connection with your employment.

 

Unauthorized Disclosure

As discussed above, disclosing material, nonpublic information to others can lead to significant legal difficulties. If you acquire any nonpublic information about the Company or any other company while performing duties for the Company, you must keep that information confidential. You must not disclose that information to any person or entity outside of the Company, except as required for a legitimate business purpose of the Company. In order to safeguard the Company’s confidential information, and to minimize the possibility that you will violate the law, the following policies have been adopted:

•           All confidential information relating to the Company or any other company should be handled on a “need to know” basis. Such information should not be discussed with any person who does not need to know such information to conduct the Company’s business. Confidential information should never be discussed with friends or relatives.

•           Confidential information should not be posted in Internet chat rooms, discussed in hallways, elevators, or other public places (such as airplanes or restaurants) where conversations may be overheard, and inadvertent disclosure should not be made through speaker phone discussions that can be overheard.

•           To prevent access by unauthorized persons, confidential documents should be stored appropriately when not being used, and other appropriate precautions should be taken. These may include using sealed envelopes, marking documents “Confidential”, shredding documents and using secret access codes and other appropriate computer security measures.

•           If you have any doubt about whether you possess material nonpublic information regarding the Company or any other company, you should treat it as such.

•           If you become aware of a leak-deliberate or otherwise – of nonpublic information relating to the Company or any other company, please report the leak immediately to the Company’s Counsel, Mark E. Crone, Esq. of The Crone Law Group at (415) 955-8900. A “leak” is any unauthorized disclosure of nonpublic information to person or entity outside of the Company

•           All inquires involving the Company from persons outside the Company, including the news media, arbitrageurs, financial analysts and the general public must be referred without comment to the President, the Chief Financial Officer, of the Company’s Counsel.

Prior Notice of Any Transaction by Covered Persons

All Covered Persons (as defined below) are required to (i) provide the Company written notice of any proposed transaction in China HGS securities and (ii) receive written clearance from the General Counsel prior to entering into that proposed transaction.

Certain persons routinely possess material nonpublic information. These persons include the Company’s executive officers, members of the Legal, Finance or Executive Departments, as well as Home System’s Board of Directors and any other individual who may from time to time be designated as a Covered Person by the President or Chief Financial Officer of the Company. A current list of these employees and members of the Board of Directors is set forth on Schedule B hereto (the “Cover Persons”). Additionally, any person who, after the enactment of this policy, is named to any of the positions listed on Schedule B shall be a “Covered Person” for the purposes of this Statement of Policy.

To provide assistance in preventing inadvertent violations and avoiding even the appearance of an improper transaction (which could result, for example, where a Covered Person engages in a transaction while unaware of a pending major development), the procedure set forth below must be followed by all Covered Persons:

•           Any Covered Person who wants to enter into a transaction in China HGS securities (purchase, sale or other disposition for value) must provide written notice of his or her intent to enter into the transaction at least 48 hours prior to lacing an order or before other wise becoming bound to complete the transaction. The form of that notice is attached as Schedule A hereto and must be delivered by e-mail to the Company’s Counsel, Mark E. Crone, Esq. of The Crone Law Group at (415) 955-8900 at mcrone@cronelaw.com .

•           Once the appropriate notice has been delivered, all transactions must be pre-cleared by the Company’s Counsel (or, in his absence, the President Officer).

•           If the transaction is allowed, the Covered Person will receive written clearance to enter into the transaction from the Company’s Counsel, which may be in the form of an email. This clearance will only be made following compliance with pre-clearance notice procedures set forth above. Any clearance should not be regarded as investment advice or as a guarantee that no liability will arise.

 

Trading Blackout Period for Covered Persons

Covered Persons are prohibited from engaging in transactions involving China HGS securities during certain Blackout Periods

In addition to the prohibition of trading on nonpublic information at any time and to providing the written notice required above, Covered Persons cannot engage in any transactions in China HGS securities during any Blackout Period. The following are Blackout Periods for this Statement of Policy:

•           The period beginning on 12:01am of the fifteenth day before the end of any calendar quarter and ending 48 hours after the Company’s earnings release has been made to the public for that quarter.

•           The period of 48 hours following the publication of any material press release or the filing of any SEC report by the Company.

•           A pension fund blackout period. A pension fund blackout period exists whenever 50% or more of the plan participants are unable to conduct transactions in their accounts for more than three consecutive days. These blackout periods typically occur when there is a change in a retirement plan’s trustee, record keeper, or investment manager.

This prohibition does not apply to the exercise of stock options for cash granted under the Company’s existing stock plans. However, the use of any form of “cashless exercise” of option or disposing of any securities acquired through the exercise of options is prohibited during a Blackout Period.

1.           Under the rule, if you enter into a binding contract, an instruction, or a written plan that specifies the amount, price and date on which securities are to be purchased or sold and these arrangements are established at a time

 

 Post-Trade Reporting for covered Person

Covered Persons must report all transactions in Company securities by the end of the day on which the transaction occurs.

All Covered Persons are required to report to the Company’s Counsel any transaction in the Company’s securities by the Covered Person, his or her spouse or any immediate family member or person sharing the Covered Person’s household not later than the end of the day on which the transaction occurs. Each report you make to the Company’s Counsel must be in writing and include the date of the transaction, quantity, price and broker through which the transaction was effected.

Section 16(b) Liability and Reporting

Short-Swing Liability

The “short-swing profit” provisions of Section 16(b) of the Securities Exchange Act of 1934 require a director or officer of the Company or beneficial owner of more than 10% of any class of the Company’s equity securities listed or registered under that Act to pay over to the Company any profit realized by such person from any purchase and sale, or sale and purchase, of any Company equity security (whether or not listed or registered) within any period of less than six months.

Section 16(b) requires no showing of wrongdoing on the part of the director, officer or 10% shareholder. It is an arbitrary statute. If the purchase and sale, or sale and purchase, occur within a six-month period, and a profit results, the person is absolutely liable to the Company, and any shareholder can sue on the Company’s behalf to recover the profit.

The restrictions apply to certain officers and to all directors and more than 10% shareholders. The officers subject to the restrictions are an issuer’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller) any vice-president of the issuer in chare of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, and any other person who performs such policy making functions for Home System. Officers of China HGS subsidiaries are covered if they perform policy making functions for Home System.

A comprehensive analysis of fact situations giving rise to possible Section 16(b) liability literally requires a book. Perhaps the best general advice that can be given is this: neither you, any member of your family, nor any corporation, trust, partnership or other entity which you or your family control or in which you have a significant interest should engage in any transaction in Company securities which takes place within six months of any other transaction in Company securities by you or any such person, without first checking the Section 16(b) implications with the Company’s Counsel or your own counsel.

Reporting Obligations

Directors, officers and more than 10% shareholders of the Company have significant reporting obligations under the securities laws, including section 16. Under Section 16(a), directors, officers and 10% shareholders are required to report an initial statement of beneficial ownership on Form 3 and 10% shareholders are required to report an initial statement of beneficial ownership on Form 3 and changes in beneficial ownership on Form 4 and may be required to file an annual statement of beneficial ownership on Form 5 (for reporting transactions during the year not required on From 4).

Rule 16a-3(e) requires that officers and directors file copies of Form3, 4 and 5 with the SEC. Copies of each form must also be filed with the Company’s corporate secretary and NASDAQ at the same time that the form is forwarded to the SEC for filing.

The deadlines for filing these reports are extremely short – as little as two business days in the case of a Form 4 report.

The Company is required in its annual proxy statement and Form 10-K to report (i) officers and directors who have failed to comply timely with the filing requirements of Section 16 during the past year, (ii) the number of times each person was delinquent and (iii) any known failure by such person to file a required form.

Persons who own 5% or more of the Company’s equity securities are required to file a Schedule 13D or Schedule 13G with respect to such holdings. This reporting obligation is separate and in addition to the reporting obligations imposed by Section 16.

Compliance with the requirements of the federal securities laws, including the foregoing reporting obligations, is the personal obligation of each individual. The Company, however, will, as an accommodation, and if requested, assists you in the preparation of the Forms 3, 4 and 5 and Schedules 13D and 13G. You must timely notify the Company of any covered transaction in order to avail yourself of the Company’s assistance.

 

Short-Term or Speculative Transactions

Short-term or speculative transactions involving China HGS securities carry a greater degree of risk of liability for insider trading violations and also have an appearance of impropriety. For these reasons, they should be avoided. They include the following:

Buying or Selling Puts or Calls on China HGS Securities. This includes options trading on any stock exchange or futures exchange.

Short Sales of China HGS Securities. This involves selling securities you do not own in the expectation that the price of the securities will fall as part of an arbitrage transaction. Short selling of China HGS securities by officers and directors may also be illegal under certain circumstances.

Trading China HGS Securities on a Short-Term Basis. This involves buying and selling securities in the open market on a short-term basis (i.e. within six months). Please note that the SEC’s short-wing profit rules already penalize officers and directors who purchase and sell, or sell and purchase, any Company stock within a six month period.

Questions About This Policy

Compliance by all employees with this policy is of the utmost importance to you and to the Company. If you have any questions about the application of this policy to any particular case, please contact the Company’s Counsel, Mark E. Crone, Esq. of The Crone Law Group at (415) 955-8900 immediately.

Your failure to observe this policy could lead to significant legal problems, as well as having other serious consequences, including termination of your employment.

 

CERTIFICATION

I certify that I have read and carefully reviewed this Statement of Policy on Insider Trading. I understand that my failure to observe this policy could result in serious consequences to me and to the Company and is a basis for the termination of my employment relationship with the Company and could result in other sanctions being placed against me.

 

 

SCHEDULE A

NOTICE OF TRANSACTION(S) IN CHINA HGS REAL ESTATE INC.

SECURITIES FOR COVERED PERSONS

Name of Covered Person ：____________________

Title ：____________________

Type of proposed transaction (check box that applies):

□

purchase

□	other acquisition (describe)

□

sale

□	other disposition (describe)

□	other form of transaction (describe)

Expected Date of Transaction (date order to be entered)

_____________________

Type of Security (check box that applies):

□	Common stock

□	Other (describe)

If a disposition, date securities were acquired:

If a disposition, describe how securities were acquired (e.g. open market, employee stock purchase plan, option exercise, etc):

_____________________

I hereby certify that the information contained in this Certificate is true and correct.

_____________________

A sufficiently detailed email sent to an individual authorized to pre-clear transactions that requests clearance also suffices for purposes of the Insider Trading Policy in lieu of providing a copy of this Notice of Transaction(s).

By ：

Name ：

Date ：

 

 

SCHEDULE B

COVERED PERSON

As of_________________, _____

Name:                                                                                       Position:

 

l	Each person is also a reporting person under Section 16.

 

 

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