DUE DILIGENCE REPORT on Aker Yards Design Ukraine Limited Liability Company

Kyiv 2008

TABLE OF CONTENTS Summary p. 4

I. Incorporation and Statutory Matters: Historical Overview, Formation, p. 6 Legal Status, Participant of the Company, Company Minutes, Lease Agreements A B C D E Historical Overview and Formation Legal Status Participant of the Company Minutes of the General Meeting of Participants of the Company The Company Charter and its Compliance with the Requirements of Ukrainian Legislation Lease Agreements p. 6 p. 7 p. 9 p. 10 p. 13

p. 14 p. 16 p. 28 p. 28 p. 30 p. 31 p. 33 p. 34 p. 34 p. 35 p. 36 p. 37 p. 39 p. 41 p. 44

II. Business Matters and Material Agreements III. Governing Bodies, including Directors and Management A B C D Authority of the General Meeting of Participants of the Company Authority of the Chairman of the Company The Director and its Authority The Auditing Commission and its Authority

IV. Employment Matters A B C D E Working Collective Employees Employee Bonuses and Benefits Labor Contract with the Companys Director Collective Agreement

V. Intellectual Property VI. Real Property and Tangible Assets

VII. Environmental Matters VIII. Financial and Security Matters IX. Insurance A B Mandatory Insurance Voluntary Insurance

p. 44 p. 45 p. 47 p. 47 p. 50 p. 51 p. 52

X. Litigation XI. Qualifications

Summary The following text sets forth the results of our review of the status of the Aker Yards Ukraine Design, a limited liability company duly organized and existing under the laws of Ukraine (hereinafter referred to as the Company). Our due diligence investigation with respect to the Company was based entirely upon documentation (copies of which were located in the Data Room located at the premises of the law firm Wikborg Rein & Co, Kronprinsesse Mrthas plass 1, Oslo, 2nd Floor) provided to us by the Company and, in limited cases, information supplied to us by the Companys officers. The information was provided pursuant to a general request to the Company. For purposes of preparing our due diligence exercise with respect to the Company, we were provided with a due diligence report performed by the law firm of Shevchenko Didkovsky & Partners dated April 26, 2006 (hereinafter referred to as the SDP DDR). To the extent possible, we have verified the information contained in the SDP DDR and, where applicable, we highlight those issues mentioned in the SDP DDR which were not taken into consideration and remain outstanding or unresolved. Otherwise, for purposes of highlighting issues pertinent to the transaction in question, we shall not repeat those issues which are currently in compliance with Ukrainian legislation and pose no risks to the transaction in question. Our review of the document provided by the Company revealed the following: 1. In general, the documents reflecting the process of formation of the Company comply with the requirement of the effective Ukrainian law. Under the law, the Company was formed and duly registered as a limited liability company with a certain place of business and the required corporate requisites and certificates. In general, the Companys constituent documents (i.e., the Charter and relevant Minutes of the founding participants meeting) comply with the requirements of the effective law. The minutes of the GMP must be drafted as recommended, ex post. The Participant of the Company appears to be the real owner of the corporate rights, as confirmed by the constituent documents. The Company does not possess any ownership or use rights with respect to land. The Company appears to own its long-term assets; however, we were not provided with copies of the relevant sale-purchase agreements. With the exception of the Companys automobiles, these assets appear to have been properly insured as required by law. The Company is a party to three lease agreements. The lease agreements appear in general to be in compliance with the effective legislation with the exception of the language issue discussed below.

2.

3. 4. 5.

6.

7. 8.

The Company appears to hold a number of software licenses and has concluded certain license agreements to use software. It appears that the employment practices of the Company are in compliance with the requirements of the effective employment and labor related legislation. It appears that the Company has not been in arrears with salary payments to the employees. The Company does not maintain any special pension or medical insurance plans with respect to their employees. The Company provides special incentive and bonuses programs for its employees. The Company has concluded a collective agreement with its worker collective. The Company employs a foreign citizen as the Chairman of the Company; however, such labor relation should properly documented as described below. The Company is a party to insurance policies with respect to its long-term assets and one automobile. However, the Company may need to conclude the required mandatory insurance with respect to its automobiles as described below. The Company is also compliant with the mandatory social insurance requirements. The Company is a party to two credit agreements. The Company, in its capacity of a design company, is a party to several field engineering agreements. It appears that the Company's agreements contain certain inconsistencies with the requirements of the effective Ukrainian legislation and, therefore, should be restated to bring them into compliance with the legislation. At the moment, the Company does not seem to be a party to any businessrelated or employment-related lawsuit or dispute.

9.

10. 11.

12.

I.

Incorporation and Statutory Matters: Historical Overview, Formation, Legal Status, Participant of the Company, Company Minutes, Lease Agreements

Under Ukrainian law, 1 a limited liability company means a company, which has an authorized fund divided into shares 2 whose size is defined in its foundation documents. Participants of the company are liable to the extent of their contributions. A. Historical Overview and Formation

According to SDP DDR, the Company was registered with the Executive Committee of the Mykolaiv City Council under the name of Ship Design and Engineering Ukraine Limited Liability Company (hereinafter referred to as SDEU) on March 6, 2003 and entered into the state register under registration code 32391218. The SDP DDR further states that this information was confirmed by the Certificate on State Registration and Letter No. 21-10/39/808-2 of the Main Interregional Statistics Administration in Kyiv City of the State Statistics Committee of Ukraine, dated November 28, 2005. We were unable to examine copies of these documents. According to the copy of Minutes No. 27-07-2006, of the extraordinary Meeting of the Participants of SDEU which was held in Kyiv, Ukraine on July 27, 2006, Juliet SDEU B.V., a legal entity under the laws of the Netherlands, became a new and sole participant of the Company, owning 100% of the authorized capital of the Company on the basis of a sale-purchase agreement or agreements, entered into between the Company and Scheepswerf Damen Vrachtschepen B.V. and B.V. Scheepswerf Damen Hoogezand, dated July 21, 2006. During the Meeting it was resolved to approve Juliet SDEU B.V. as the sole participant of the Company owning 100% of the authorized capital of the Company and authorize the representatives of Juliet SDEU B.V. to register all necessary amendments to the Charter. We were not provided with a copy or copies of the said sale-purchase agreement(s) evidencing the purchase of 100% of participation interest of the Company by Juliet SDEU B.V.. However, based on the continued activity of the Company, we may assume that the transaction took place and the Company was able to make the relevant amendments to its Charter. Pursuant to the procedure established by Ukrainian legislation, the company must register the restated version of the Charter with the relevant state authority and notify the necessary state authorities with respect to all amendments and/or additions to the Companys Charter. We were provided with the restated version of the Companys Charter, dated July 28, 2006, evidencing that the necessary registration of the amended version of Charter had been performed and all relevant state authorities were notified.
1

Article 50 of the Law of Ukraine No. 1576-XII On Economic Associations, dated September 19, 1992 (as amended) (hereinafter the EA Law.)

Please note, in cases of limited liability companies, shares does not mean actual shares of stock (certificates), rather shares represents the percentage of contributions (ownership) each participant makes into the authorized capital of the limited liability company. We will refer to it as participation interest.

According to the copies of Minutes of the Session 6-01 of Meeting of Participants of the Company, dated September, 4, 2006, and Minutes No. 4 of the General Meeting of the Participants of the Company, dated October 10, 2006, the participant decided to change the name of the Company. Pursuant to Minutes No. 4, mentioned above, the General Participants Meeting duly resolved to change the Companys name from Ship Design and Engineering Ukraine to Aker Yards Design Ukraine. The signatures of the Chairman and the Secretary of the General Participants Meeting, as well as the participants and translators, were certified before the notary. During the above-mentioned Meeting, the participants also resolved to introduce the amendments to the Charter related to the change of the Companys name and authorized Mr. Zhukov, the Director of the Company, to perform acts related to the registration of the restated version of the Charter with all necessary state authorities and institutions. As mentioned above, all amendments to the Charter must be duly registered with the relevant state authorities. We also were provided with the restated version of the Companys Charter, dated October 19, 2006, evidencing its re-registration with respect to change of the Companys name. B. Legal Status

The above-mention change of the Companys name is also confirmed by the Certificate on State Registration, issued by the Executive Committee of Mykolaiv City Council on October 31, 2006, which evidences that the name of the Company was changed to the limited liability company Aker Yards Design Ukraine. Such change of the Companys name leads to the change of the Companys previous certificates and obtaining new relevant certificates by the Company, which must be issued by Ukrainian state authorities, including new certificates from the social insurance funds, the Ministry of Statistics of Ukraine and the local tax authority. Accordingly, the Company provided for our review copies of the new certificates, issued by the Ukrainian state authorities in connection with the change of the Companys name and evidencing its corporate existence. Specifically, we reviewed copies of the following: 1. Certificate No. 13[last digit not legible]/11-3976 from the Unified State Register of Enterprises and Organizations of Ukraine (USREOU), dated October 16, 2007 and issued by the Main Department of Statistics in the Mykolaiv Region. This certificate evidences that the Companys director is Yuriy Danilovych Zhukov, it was assigned the identification code No. 32391218, and it has a legal address at 54001, Mykolaiv, Central District, Spasska Street, Building 1. The Company is registered as a limited liability company and has the following activities: (i) research and development in the sphere of technical sciences; (ii) construction and repair of vessels; and (iii) construction and repair of sport and recreational vessels;

2.

Notice on entry into the register of the Central Inter-District Executive Directorate of the Mykolaiv Regional Department of the Social Insurance Fund in case of Temporary Disability, dated November 1, 2006; Insurance certificate No. 1402003628 from the Social Insurance against Accidents at Work and Professional Illnesses, dated October 26, 2006 and issued by the Department of the Executive Directorate of the Fund in the Central District of the city of Mykolaiv; Notice on entry into the register of insurance contribution payers of the Central Regional State Social Insurance Fund in case of Unemployment in the city of Mykolaiv, dated October 26, 2006; Notice on entry into the register of legal entities of the Pension Fund of Ukraine in the Central District of the city of Mykolaiv, dated October 26, 2006; Certificate No. 2036/29 on entry into the taxpayer register, dated October 25, 2006 and issued by the State Tax Inspection of the Central District of the city of Mikolaiv. The Company is currently registered under No. 14035876; Certificate No. 19776941 on registration of a payer of value added tax, dated November 3, 2006 and issued by the State Tax Inspection of the Central District of the city of Mykolaiv.

3.

4.

5.

6.

7.

The Companys current location is at 54001, Mykolaiv, Central District, Spasska Street, Building 1, Ukraine, which is confirmed by a lease agreement concluded with the Open Joint Stock Company Proyektno-Vyshukuvalniy Institute (Design and Research Institute) Mykolaivagroproject on December 25, 2006. Please note that we were not provided with copies of the documents, evidencing the initial formation of the Companys authorized capital. However, based on the documents provided by the Company, the current shareholding and capitalization of the Company can be described as set forth below. For the purpose of this report, we were provided with a copy of the latest restated version of the Companys Charter, dated May 15, 2007 (hereinafter the Charter). According to the Charter, the General Participants Meeting approved the amended version of the Charter on April 10, 2007. The Charter was duly notarized on April 12, 2007 in the city of Mykolaiv; however, it was only registered on May 15, 2007 with the Executive Committee of the Mykolaiv City Council. According to Article 17.3 of the Charter and Article 7 of the EA Law, amendments to the Charter of the Company must be registered within a five-day term with the authority that registered the Company. Nevertheless, we do not believe that this violation of the formal rules has a significant impact on the transaction in question, as the Company has continued its operations without any claims or penalties imposed by the local authorities.

Thus, the new version of the Companys Charter, as registered by the Executive Committee of the Mykolaiv City Council on May 15, 2007, was registered under number 15221050004006189. C. Participant of the Company

According to the Charter, the sole participant of the Company is Aker Yards Design Ukraine B.V. (hereinafter the Participant), a legal entity under the laws of The Netherlands, located at Houtsingel 5, 2719EA Zoetermeer, The Netherlands. The Charter sets the authorized capital of the Company at UAH 571,890.30 (five hundred seventy one thousand eight hundred ninety Ukrainian Hryvnias and thirty kopecks). At the time of the registration of the Charter, the authorized capital was equivalent to EUR 100,000 (one hundred thousand euros) at the then effective exchange rate of the National Bank of Ukraine. Accordingly, the Participant owns 100% of the participation interests in the Company which is equivalent to UAH 571,890.30 (five hundred seventy one thousand eight hundred ninety Ukrainian Hryvnias and thirty kopecks). Please note that from the date of the registration of the Company the authorized capital of the Company was not subject to an increase or a decrease. However, we were not provided with any documents confirming payment of the authorized capital by the previous participants (Damen Vrachtschepen and Damen Hoogezand). Further, at the time of this report, we were not provided with any documents confirming the present status of the payment of the authorized capital in full. We assume that the authorized capital is paid in full, as the previous founders could not have alienated their participation interests in the Company to the Participant if the authorized capital was not paid in full at the time of the said alienation. The Companys principal business activities, among others, include (i) research and development in the sphere of technical sciences; (ii) construction and repair of vessels; and (iii) construction and repair of sport and recreational vessels, etc. By virtue of law as well as according to the Companys Charter, the Company is entitled to carry out foreign trade. Further, the Companys Charter provides that the Company is a legal entity under the effective legislation of Ukraine. It possesses its assets, corporate seal with its name thereon, and maintains an independent balance sheet and bank accounts with authorized banks. It is also entitled to possess trademarks, and, at its own discretion, to enter into agreements, assume property and personal non-proprietary rights, perform duties, and act as a plaintiff and defendant in courts of law, arbitration and ad hoc tribunals. The Company may not be held liable for the obligations of its participants. The participants of the Company may be held liable for the obligations of the Company only to the extent of their capital contributions to the authorized capital. By virtue of law, the participants of the Company enjoy the following rights: 3
3

Article 11 of the EA Law.

(1)

to participate in managing the business of the Company in the manner set forth in the constituent documents (i.e., the Charter, etc.), except in such instances as set forth in the EA Law; to participate in the distribution of the Companys profits and to receive a share thereof (dividends). Each person, who is a participant of the Company at the date of the payment of dividends, has the right to receive a portion of the profit (dividends) in proportion to the participation interest of each participant; to withdraw from the Company in the prescribed manner; to receive information regarding the activity of the Company. The Company must provide annual balance sheets, reports of the Company concerning its activity, and the minutes of any meetings to a participant upon its demand; and, to carry out disposal of participation interests in the authorized capital of the Company, according to procedure set forth by law.

(2)

(3) (4)

(5)

The participants may also have such other rights as provided by law and in the constituent documents of the Company. Under the law, the participant of the Company shall have the following duties: 4 (a) to comply with the constituent documents of the Company and implement the resolutions of the GMP and other governing bodies of the Company; to fulfill their duties towards the Company, including those which are connected with investment in the Company, and to make contributions in such amount and manner and by such method as provided in the constituent documents; to refrain from disclosing commercial secrets and confidential information regarding the Company's activity; and, to bear other duties if so provided in the EA Law, other laws of Ukraine or the constituent documents.

(b)

(c) (d)

According to the Charter of the Company, its Certificate of State Registration and the other above-mentioned documents, the Companys participant is the true owner of the corporate rights in the Company. D. Minutes of the General Meeting of Participants of the Company

Article 11 of EA Law.

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Upon our review of the Minutes of the General Participants Meeting, we have revealed that the Minutes since April 21, 2004 till March 16, 2006, as well as Minutes of the Session 6-01, dated September 4, 2006, were executed only in English which is a violation of the requirements of Ukrainian legislation related to execution of documents in two languages. Specifically, Article 11 of the Law of Ukraine No. 8312-XI On Languages in the Ukrainian SSR, dated October 28, 1989, as amended, obliges Ukrainian companies to maintain their documentation at least in the Ukrainian language. Theoretically, a court of law may render the above-mentioned Minutes invalid due to their non-compliance with the requirements of Ukrainian legislation. We recommend preparing a translation of the said Minutes into the Ukrainian language for sake of maintaining the Companys documentation in Ukrainian in case of any inquiries by the local authorities in the future. Pursuant to the Agenda of Minutes of SDEU Board Meeting No. 2.2, which were held on June 25, 2004, the Minutes of Board Meeting No. 2.1, dated May 14, 2004, were signed by the Chairman. Please note that we were not provided with the said Minutes No. 2.1 or the documents evidencing the convocation of the SDEU Board Meeting No. 2.2, including the relevant notices to the participants with the agenda of the Board Meeting. This document should be maintained by the Company in its records in the Ukrainian language. In general, the above-mentioned Minutes, as well as Minutes of the 4th and 5th Session of Meeting of Participants of SDEU were held in compliance with the requirements of Ukrainian legislation. With respect to Minutes of the 6th Session of Meeting of Participants, dated November 12, 2004, we were provided only with the unfinished draft Minutes, and therefore, we are not able to confirm its compliance with the procedural requirements of Ukrainian legislation, as well as to confirm whether the Meeting took place and the issues stated in agenda were discussed during the said Meeting. Upon our review of the Companys Minutes of the 7th Session of Meeting of Participants, dated December 11, 2004, Minutes of the Session 1 (8) of Meeting of Participants, dated February 4, 2005, Minutes of the Session 2 (9), dated March 5, 2005, and Minutes No. 3 of Minutes of Participants, dated March 16, 2006, we did not reveal any non-compliances of the above-mentioned Minutes with Ukrainian legislation except for the violation of rule obliging Ukrainian companies to maintain their documentation in at least the Ukrainian language. According to the copy of Minutes No. 27-07-2006, of the extraordinary Meeting of the Participants of SDEU which was held in Kyiv, Ukraine on July 27, 2006, Juliet SDEU B.V., a legal entity under the laws of the Netherlands, became the new and sole participant of the Company, owning 100% of the authorized capital. During this meeting it was resolved to approve Juliet SDEU B.V. as the sole participant of the Company owning 100% of the authorized capital of the Company and authorize the representatives of Juliet SDEU B.V. to register all necessary amendments to the Charter.

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According to the copies of Minutes of the Session 6-01 of Meeting of Participants of the Company, dated September, 4, 2006, and Minutes No. 4 of the General Meeting of the Participants of the Company, dated October 10, 2006, the participant decided to change the name of the Company. Pursuant to Minutes No. 4, mentioned above, the General Participants Meeting duly resolved to change the Companys name from Ship Design and Engineering Ukraine to Aker Yards Design Ukraine. The signatures of the Chairman and the Secretary of the General Participants Meeting, as well as the participants and translators, were certified before the notary. During the meeting, the participants also resolved to introduce the amendments to the Charter related to the change of the Companys name. According to the copy of Minutes of the Session 6-02 of 2006 Meeting of Participants of Ship Design and Engineering Ukraine held on October 11, 2006 in the office of SDEU in Mykolaiv, Ukraine, the sole Participant (Juliet-SDEU B.V.) resolved to hold the sessions of the Meeting of Participants once per quarter during every second week of the month after the last month of each quarter. Please note that the copy of these Minutes was not signed by the Participant or the Director of the Company and shows no evidence of an official character. According to Minutes No. 1 of the General Meeting of Participants, dated December 20, 2006, the General Meeting of the Participants resolved to authorize the Companys Director to conclude a lease agreement of the office premises between the Company and PLC Design and Research Institute Mykolaivagroproject in total amount from 160 up to 200 square meters for the term of two years. Our comments to the said lease agreement are provided below. The next Meeting of Participants was held on January 11, 2007 in the Companys office in Mykolaiv, Ukraine. According to a copy of the corresponding Minutes of Session 7-01, the sole Participant discussed budgetary matters and internal issues, including the conclusion of Contract Floro BN-151-154. Please note that the copy provided for our review was not signed by the Participant or Director, and shows no evidence of an official character. According to Minutes No. 4 of the General Meeting of the Participants, dated April 10, 2007, the General Meeting of the Participants resolved to introduce the amendments to the Charter by restatement thereof, and authorize the Director of the Company, Mr. Zhukov, to perform actions related to the registration of the Charter with the relevant state authorities. These Minutes do not refer to the reason for making the above-mentioned amendments. We were provided with unsigned and undated copies of Minutes of the General Meeting of the Participants Nos. 2 and 3. We can only assume that such Meetings actually took place due to the fact that pursuant to the Minutes of the Session 6-01 of Meeting of Participants, dated September 4, 2006, it was taken a decision to have sessions of the Meeting once per month. In general, the Company should keep detailed records of the Minutes of the General Meeting of Participants in the future, including signed and dated copies of the said Minutes. The past Minutes should be translated into Ukrainian and the future

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Minutes should be recorded in Ukrainian and, if necessary, any other language for sake of good record keeping. E. The Company Charter and its Compliance with the Requirements of Ukrainian Legislation

As required by EA Law, the Companys Charter includes information regarding the type of the Company, the object and purposes of its activity, the composition of its founders and participants, its name and location, the amount of the authorized capital and the procedure for its formation, the procedure for distributing profits and losses, the composition and competence of the Companys governing bodies and the procedure pursuant to which they approve their resolutions, including a list of issues which require a qualified majority of votes, the procedure for amending the constituent documents and the procedure for the liquidation and reorganization of the Company. Also, the Charter provides for the information on the size of the participation interest of each participant, the amount and composition of their contributions and the manner in which such contributions are made. This is all in compliance with the requirements of Ukrainian law. Our due diligence exercise revealed that Article 16.7 of the Charter does not fully comply with the latest changes to the Civil Code of Ukraine and the EA Law with respect to the liquidation commission of the Company. In order to avoid any questions regarding the validity of the Charter, we recommend bringing Article 16.7 into compliance with Article 105 of the Civil Code of Ukraine and Article 20 of the EA Law. Specifically, we recommend amending Article 16.7 to read as follows: 16.7 The liquidation commission shall: 16.7.1 within a three-day term of its appointment publish a notice on the Companys liquidation in the official mass media publications in which the information on the state registration of the Company is published with the procedure and term for creditor claims against the Company; 16.7.2 ensure the determination of the value of the Companys property pursuant to the procedure established by the legislation on the appraisal of property and property rights and professional appraisal activity; 16.7.3 identify the Companys debtors and creditors and make settlements with them; 16.7.4 take measures for the payment of the Companys debts to third parties and its Participants; 16.7.5 make settlements with the Companys creditors on the basis of the intermediary liquidation balance sheet and in compliance with the legislatively established priorities and terms; 16.7.6 in case of insufficiency of the monetary funds of the Company to satisfy the creditors claims, sell the Companys property;

13

16.7.7 prepare a liquidation balance sheet and submit it for approval to either the Meeting of Participants or the body that appointed the liquidation commission. In general, the latest version of the Charter was registered after the latest amendments to the EA Law. Based on our review of the Charter, with the exception of our specific comment above, we believe that the Charter in its present version fully complies with the requirements of Ukrainian legislation. F. Lease Agreements

According to the information provided to us, the Company is not currently a party to a lease agreement where the Company is a lessor. We were provided with three lease agreements under which the Company acts as the lessee. These agreements are described below. 1. On December 25, 2006, a lease agreement was concluded between the Open Joint Stock Company Proyektno-Vyshukuvalniy Institute (Design and Research Institute) Mykolaivagroproject, as the Lessor, and the Company, as the Lessee. The Director of the Company was authorized to sign the lease agreement by the General Meeting of Participants on December 20, 2006. According to the copy of this agreement provided for our review, the Company agreed to lease a non-residential structure as an office with a total area of 163.4 (one hundred sixty three and four tenths) square meters which is made up of three full rooms (Nos. 1-123, 1-124, 1-125) and part of a fourth room (No. 1-126). The leased premises are located on the fourth floor at 1/1 Spaska Street in the city of Mykolaiv, which is presumably the legal address of the Company. The monthly lease payments under the agreement are equal to UAH 10,560 (ten thousand five hundred sixty Ukrainian Hryvnias), including VAT. However, during the entire term of the agreement, the lease payment for one square meter of leased area must be equivalent to EUR 10 (ten euros). The amount of the monthly lease payment is determined in Ukrainian Hryvnias pursuant to the official exchange rate of the National Bank of Ukraine on the last day of the month and is reflected in an act of performed work. Importantly, under the agreement, the lessee has the right to transfer the premises for sub-lease upon the written consent of the lessor. This lease agreement was concluded for the period up to December 31, 2008. According to the Ukrainian law effective at the time of signing, the lease agreement was subject to notarization due to the fact that it was concluded for a term exceeding 12 months. The copy of the lease agreement provided for review reveals that the agreement was duly notarized on December 25, 2006 in the State Register of Transactions by the private notary of the city of Mykolaiv, N. P. Yakovleva under transaction number 1831550. This lease agreement may be terminated in accordance with Ukrainian law. The agreement may be unilaterally terminated by the Lessor upon written notice to the

14

Lessee thirty calendar days before the date of termination should the Lessee systematically fail to fulfill or improperly fulfill the terms and conditions of the agreement. The Lessee has the right to unilaterally terminate the agreement upon a one-month prior written notice to the Lessor. 2. Lease Agreement No. 07/04 was concluded in the city of Mykolaiv on July 1, 2007 between the limited liability company Tekhnopark Spasskiy, as the Lessor, and the Company, as the Lessee. According to the copy of this agreement provided for our review, the Company agreed to lease non-residential premises as an office with a total area of 514 (five hundred fourteen) square meters. The leased premises are located on the sixth floor at 1 Spaska Street in the city of Mykolaiv. The monthly lease payments under the agreement are equal to UAH 68 (sixty eight Ukrainian Hryvnias) per square meter, including VAT. However, during the entire term of the agreement, the lease payment for one square meter of leased area must be equivalent to EUR 10 (ten euros). The amount of the monthly lease payment is determined in Ukrainian Hryvnias pursuant to the official exchange rate of the National Bank of Ukraine on the first working day of the month and is reflected in an act of performed work. Importantly, under the agreement, the Lessee has the right to transfer the premises for sub-lease upon the written consent of the Lessor. This lease agreement was concluded for the period up to May 31, 2010. Lease Agreement No. 07/04 may be terminated in accordance with Ukrainian law. The agreement may be unilaterally terminated by the Lessor upon written notice to the Lessee should the lessee fail to fulfill or improperly fulfill the terms and conditions of the agreement. The Lessor also has the right to prematurely and unilaterally terminate the agreement should the Lessee fail to make a lease payment within 10 (ten) days after the 5th (fifth) day of each month. We were also provided with a copy of Annex No. 1 to Lease Agreement No. 07/04 (Act No. 1 of the transfer-acceptance of property for lease dated July 1, 2007), which states that the leased premises were transferred in a satisfactory matter by the Lessor to the Lessee. Although the copy of Agreement No. 07/04 shows that the agreement is executed in the Russian language only, we believe that this does not entail any significant risk, as such agreements in practice are quite often executed in Russian only. Nevertheless, we believe that the Company may request the re-conclusion of the agreement with the Lessor in the Ukrainian language. 3. On December 1, 2007, Lease Agreement No. 24/ap was concluded between the Open Joint Stock Company Proyektno-Vyshkuvalniy Institute (Design and Research Institute) Mykolaivagroproject, as the Lessor, and the Company, as the Lessee. According to the copy of this agreement provided for our review, the Company agreed to lease a non-residential structure as an office with a total area of 64 (sixty four) square meters which is made up of two areas. The leased premises are located on the fourth floor at 1/1 Spaska Street in the city of Mykolaiv.

15

The monthly lease payments under the agreement are equal to UAH 4,600 (four thousand six hundred Ukrainian Hryvnias), including VAT. However, during the entire term of the agreement, the lease payment for one square meter of leased area must be equivalent to EUR 10 (ten euros). The amount of the monthly lease payment is determined in Ukrainian Hryvnias pursuant to the official exchange rate of the National Bank of Ukraine on the last day of the month and is reflected in an act of performed work. Importantly, under the agreement, the Lessee has the right to transfer the premises for sub-lease upon the written consent of the Lessor. This lease agreement was concluded for the period up to November 25, 2010. The lease agreement may be terminated in accordance with Ukrainian law. The agreement may be unilaterally terminated by the Lessor upon written notice to the Lessee 30 (thirty) calendar days before the date of termination should the Lessee systematically fail to fulfill or improperly fulfill the terms and conditions of the agreement. The Lessee has the right to unilaterally terminate the agreement upon a one-month prior written notice to the Lessor. Please note that the copy of this lease agreement provided for our review does not reflect the signature of the Lessor. Therefore, we are unable to definitively confirm whether the agreement was signed by the Lessor and executed by the parties thereto. In general, the above-described lease agreements contain all of the material terms and conditions required by Ukrainian law and, with the exception of the above-described minor inconsistencies, comply with the requirements of Ukrainian law. All of the lease agreements are signed by the Director of the Company, Y. D. Zhukov, as required by Ukrainian law and the Charter of the Company.

II.

Business Matters and Material Agreements

According to the documents provided for our review, the Company, being a design and field engineering company, is a party to several agreements (contracts) involving design and field engineering. Our review of these agreements (contracts) revealed that, although the agreements contain certain inconsistencies with Ukrainian law as described below on a case-by-case basis, they do not contain provisions which may represent a substantial risk to the Company. Pursuant to the information provided by the Company, the Companys largest customers ranked by revenue for each of the last three full years (2004, 2005 and 2006) and the first nine months of 2007 are as follows: No. 1 2 Customer Damen Hoogezand Location Year Shipyards Scheepswervenweg 13, 9607 PX 2004 Foxhol/P.O. Box 79, 9600AB Hoogezand, The Netherlands Damen Shipyards Scheepswervenweg 13, 9607 PX 2004 Cargo Vessels Foxhol/P.O. Box 79, 9600AB Hoogezand, The Netherlands 16

3 4 5

6 7 8

10 11 12 13

Shipyards 4 Damsingel, 9262 NC SUAMEER The Netherlands Shipyards 4 Damsingel, 9262 NC SUAMEER The Netherlands Shipyards Damen Shipyards Gorinchem Avelingen West 20, 4202 MS Gorinchem / P.O. Box 1, 4200 AA Gorinchem, The Netherlands Damen Shipyards Scheepswervenweg 13, 9607 PX Cargo Vessels Foxhol/P.O. Box 79, 9600AB Hoogezand, The Netherlands Damen Shipyards 54050, 1, Zavodskaya Sq., Mykolaiv, Okean Ukraine Damen Shipyards Damen Shipyards Gorinchem Gorinchem Avelingen West 20, 4202 MS Gorinchem / P.O. Box 1, 4200 AA Gorinchem, The Netherlands Damen Shipyards Avelingen West 20, 4202 MS Cargo Vessels Gorinchem / P.O. Box 1, 4200 AA Gorinchem, The Netherlands Aker Yards Design P.O. Box 334, NO-6902 Floro, Floro Norway Aker MTW GmbH Wendorfer Weg 5, D-23966 Wismar, Germany Aker Yards Design P.O. Box 334, NO-6902 Floro, Floro Norway Damen Shipyards 54050 1, Zavodskaya Sq., Mykolaiv, Okean Ukraine

Damen Bergum Damen Bergum Damen Gorinchem

2004 2005 2005

2005 2005 2006

2006

2006 2007 2007 2007

Further, the Company also provided the following information regarding its largest suppliers and service providers ranked by total annual cost for each of the last three years.
Supplier Name AVEVA AB 2004 2005 KUAH KUAH 990 Drottninggatan 1081 18 P.O. Box 50555 S-202 15 MALMO Sweden No. 5 Busnika 284 178 Str. 54000, Nikolaev Ukraine Address 2006 2007 Goods/Services KUAH KUAH 734 539 AVEVA Software

IksNikolaev LLC

335

608

Hardware

Technopark No.

109 17

330

326

Rent of premises

Spasskiy, LLC

Spasskaya Str. 54030 Nikolaev Ukraine Incom No. 31-33, JSC Smolenskaya Str. 03005, Kiev Ukraine Nikolaevagro- No. 1, 159 Project JSC Spasskaya Str. 54030, Nikolaev Ukraine Kievstar No. 24, 15 J.S.M. JSC Vosstaniya Str. 01010, Kiev Ukraine Datagroup No. 31a, JSC Pushkinskaya Str. 54029, Nikolaev Ukraine

328

Hardware

109

11

100

Rent of premises

20

26

24

Telecommunication

19

Internet

Pursuant to the Company, the Company completed the following project in May of 2007: NB 149/150 (Contract 001-AYDF/AYDU dtd 05/09/2006 between Aker Yards Design Floro and Aker Yards Design Ukraine), Detail Engineering of Foreship for Tanker for Chemical and Oil Products. Under this Contract, the price was EUR 151,290 (one hundred fifty one thousand two hundred ninety euros) and the scope of work involved 10,805 man-hours. Please note that we were not provided with a copy of Contract001-AYDF/AYDU. However, we were provided with the Delivery and Acceptance Protocol No. NB149 dated May 30, 2007 under Contract No. 001-Aker/SDEU dated September 5, 2006. This Protocol states that 100% of the engineering work was performed by the Company and accepted by the Customer (Aker Yards Design Floro) and that the total scope of work included additional work according to Change Order Request No. 1NB149 dated April 19, 2007. Please note that we were not provided with a copy of this Change Order Request for our review. Further, the Protocol states that the cost of performed works was EUR 151,290 (one hundred fifty one thousand two hundred ninety euros). An advance payment was made in the amount of EUR 126,900 (one hundred twenty six thousand nine hundred euros) and, upon signing of the Protocol, EUR 24,390 (twenty four thousand three hundred ninety euros) was to be paid. Thus, we believe that the Protocol evidences

18

that the Contract was performed in satisfaction of the parties expectations and demands. According to the Company, it has secured the following projects for 2007 through 2010: 1. NB 151/154 (Contract 003-AYDF/AYDU dtd 09/01/2007 between Aker Yards Design Floro and the Company) for Detail Engineering of Fore ship, Aft ship and Superstructure for Chemical and Oil Tanker. BN 159, Engineering for ROPAX 5500 (Contract 005-AYG/AYDU dtd 09/01/2007 between Aker Yards MTW GmbH and the Company). BN 159, Engineering for ROPAX 5500 (Contract B 025/07 No. 008WD/AYDU dtd 01/11/2007 between Warnow Design and the Company). Field engineering for Damen Shipyards Okean (Contract No. 02/07 dtd March 19, 2007; Contract No. 03/07 dtd November 01, 2007).

2. 3.

4.

We describe the details of the above-listed contracts in more detail below. 1. NB 151/154 (Contract 003-AYDF/AYDU) was concluded by and between Aker Yards Design Floro AS, a company established and incorporated under the law of Norway, as the Customer, and the Company, as the Seller on January 9, 2007 (hereinafter referred to as Contract 003- AYDF/AYDU).

Contract 003- AYDF/AYDU involves Project AYDF-TCOPss 43000, project number NB151/154, which calls for the provision of engineering services by the Company for Fore ship, Aft ship and Superstructure parts of AYDF Tanker for Chemical and Oil Products. According to the Company, the contract price was EUR 323,000 (three hundred twenty three thousand euros), which included a price adjustment due to the man-hours spent on the project. According to the Company, the contract should have been completed in December of 2007. As the governing law chosen by the parties is the law of Norway, we not in a position to comment on the aspects of Norwegian law which govern Contract 003AYDF/AYDU. According to Contract 003- AYDF/AYDU, the initial purchase price agreed upon by the parties was EUR 306,000 (three hundred six thousand euros), subject to possible adjustment in case the Seller reports to Customer spent and agreed man-hours in scope less/more than 18.000 man-hours. The adjusted price is based on rate of EUR 17 (seventeen euros) per hour. The purchase price is to be paid in installments with the last installment of EUR 46,000 (forty six thousand euros) to be paid within 30 (thirty) calendar days after acceptance and delivery of the complete scope of work. Please note that we were not provided with the Exhibits referred to in the contract (including the Protocol on the

19

Acceptance of Work) and, therefore, we are unable to confirm the actual delivery of the work performed and the date thereof. The Customer is entitled to (partially) cancel at any time the contract by means of a written statement for reasons other than force majeure. In the event of cancellation of the contract, the parties must discuss a reasonable financial settlement for those activities actually performed and completed to the Customers satisfaction. Contract 003- AYDF/AYDU or any of the rights and obligations thereunder cannot be assigned or transferred by any of the parties without the prior consent in writing of the other party. Please note that our review of Contract 003- AYDF/AYDU revealed the following inconsistencies with Ukrainian law: (i) the agreement was not executed in the Ukrainian language as required by the provision of Article 24 of the Law of Ukraine No. 8312-XI On Languages in the Ukrainian SSR, dated October 28, 1989, as amended, obligating Ukrainian companies to make the foreign economic contracts with non-residents both in Ukrainian and the language of the other party to the contract and (ii) the agreement does not provide the bank requisites of the parties, the parties addresses for notices, and a dispute resolution clause as required by Order No. 201 of the Ministry of Economy and European Integration Issues On Approving the Regulations on the Form of Foreign Economic Agreements (Contracts), dated September 6, 2001 (hereinafter referred to as Order No. 201). Therefore, we recommend bringing this contract into compliance with Ukrainian legislation by introducing the relevant amendments, including a translation into Ukrainian. Finally, we were not provided with a copy of the corporate approval necessary for the Director to execute the contract in accordance with Article 10.5.9 of the Charter. 2. BN 159, Engineering for ROPAX 5500 (Contract 005-AYG/AYDU) was entered into by and between Aker Yards Germany (AYG), a company established and incorporated under the law of Germany, as the Customer, and the Company, as the Seller on January 9, 2007 (hereinafter referred to as Contract 005-AYG/AYDU). Please note that the face of the document itself reflects the date of March 21, 2007.

Contract 005-AYG/AYDU involves engineering services provided by the Company for the vessel BN159, Ropax Ferry for a contract price of EUR 540,000 (five hundred forty thousand euros) and a scope of work of 20000 man-hours. According to the information provided by the Company, this contract was to have been completed in February, 2008. Contract 005-AYG/AYDU was initially concluded for the term from April 15, 2007 until December 21, 2007. Any extra work outside the agreed scope of the work ordered by the Customer shall be invoiced with the hourly rate of EUR 27 (twenty seven euros) per hour. The customer is obliged to pay the purchase price to the Seller in several installments as follows: (i) EUR 35,000 (thirty five thousand euros) upon signing the contract and (ii) remaining payments upon calculating the purchase price within 30 (thirty) calendar days after signing of Acceptance Protocol on monthly progress.

20

Please note that we were provided with copies of the following monthly Acceptance Protocols: 1. Delivery and Acceptance Protocol No. 1-BN159 dtd June 07, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR 64,000 (sixty four thousand euros) based on the actual man-hours spent by the Company in April-May 2007. Delivery and Acceptance Protocol No. 2-BN159 dtd July 20, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR 61,000 (sixty one thousand euros) based on the actual man-hours spent by the Company in June 2007. Delivery and Acceptance Protocol No. 3-BN159 dtd August 03, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR 76,600 (seventy six thousand six hundred euros) based on the actual man-hours spent by the Company in July 2007. Delivery and Acceptance Protocol No. 4-BN159 dtd September 06, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR 76,100 (seventy six thousand one hundred euros) based on the actual man-hours spent by the Company in August 2007. Delivery and Acceptance Protocol No. 5-BN159 dtd October 8, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR 72,700 (seventy two thousand seven hundred euros) based on the actual man-hours spent by the Company in September 2007. Delivery and Acceptance Protocol No. 6-BN159 dtd November 15, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR 66,400 (sixty six thousand four hundred euros) based on the actual man-hours spent by the Company in October 2007. Delivery and Acceptance Protocol No. 7-BN159 dtd December 06, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR 64,500 (sixty four thousand five hundred euros) based on the actual man-hours spent by the Company in November 2007. Delivery and Acceptance Protocol No. 8-BN159 dtd December 24, 2007 under Contract No. 005-AYG/AYDU dated March 21, 2007. According to this Protocol, the cost of performed works was EUR

2.

3.

4.

5.

6.

7.

8.

21

29,300 (twenty nine thousand three hundred euros) based on the actual man-hours spent by the Company in December 2007. Please note that we are unable to verify whether the contract was completed and the final work was accepted by the Customer as satisfactory, as we were not provided with a copy of the final Delivery and Acceptance Protocol signed by the parties and stipulating that the work was performed in satisfaction of the Customers demands and there are no claims by either party with respect to the performed work. As the governing law chosen by the parties is the law of Germany, we not in a position to comment on the aspects of German law which govern Contract 005AYG/AYDU. The contract or any of the rights and obligations under the contract cannot be assigned or transferred by any of the parties without the prior consent in writing of the other party. Please note that our review of Contract 005- AYDF/AYDU revealed the following inconsistencies with Ukrainian law: (i) the agreement was not executed in the Ukrainian language as required by the provision of Article 24 of the Law of Ukraine No. 8312-XI On Languages in the Ukrainian SSR, dated October 28, 1989, as amended, obligating Ukrainian companies to make the foreign economic contracts with non-residents both in Ukrainian and the language of the other party to the contract and (ii) the agreement does not provide the bank requisites of the parties, the parties addresses for notices, and a dispute resolution clause as required by Order No. 201 of the Ministry of Economy and European Integration Issues On Approving the Regulations on the Form of Foreign Economic Agreements (Contracts), dated September 6, 2001 (hereinafter referred to as Order No. 201). Therefore, we recommend bringing this contract into compliance with Ukrainian legislation by introducing the relevant amendments, including a translation into Ukrainian. Finally, we were not provided with a copy of the corporate approval necessary for the Director to execute the contract in accordance with Article 10.5.9 of the Charter. 3. BN 159, Engineering for ROPAX 5500 (Contract B 025/07 No. 008WD/AYDU) was entered into by and between Warnow Design GmbH, a company established and incorporated under the law of the Federal Republic of Germany, as the Purchaser, and the Company, as the Seller on November 1, 2007 (hereinafter referred to as Contract B 025/07 No. 008-WD/AYDU).

Contract B 025/07 No. 008-WD/AYDU was concluded for the engineering activities as described in Exhibit I thereto for Ropax 5500. However, we were not provided with a copy of the said Exhibit I and, therefore, we are unable to comment on the actual engineering activities under the contract. According to the information provided by the Company, Contract B 025/07 No. 008-WD/AYDU should be completed in December of 2008. Contract B 025/07 No. 008-WD/AYDU was concluded for a price of EUR 360,000 (three hundred sixty thousand euros), which shall be paid in monthly rates as follows: (i) the first installment will be paid with 10% of the contractual price (36.000 Euro) in advance. The installment for the second month will be paid 10 (ten) calendar days after receiving of the invoice. The remaining installments will be paid 30 (thirty)

22

calendar after receiving of the invoice. The monthly rate will be paid according to the progress of the project in percentage of the total purchase price. As the governing law chosen by the parties is the law of Germany, we not in a position to comment on the aspects of German law which govern Contract B 025/07 No. 008-WD/AYDU. The contract or any of the rights and obligations under the contract cannot be assigned or transferred by any of the parties without the prior consent in writing of the other party. Please note that we were not provided with the Exhibits referred to in the contract (including the Delivery and Acceptance Protocol) and, therefore, we are unable to confirm the actual delivery of the work performed and the date thereof up until the present date. Please note that our review of Contract B 025/07 No. 008-WD/AYDU revealed the following inconsistencies with Ukrainian law: (i) the agreement was not executed in the Ukrainian language as required by the provision of Article 24 of the Law of Ukraine No. 8312-XI On Languages in the Ukrainian SSR, dated October 28, 1989, as amended, obligating Ukrainian companies to make the foreign economic contracts with non-residents both in Ukrainian and the language of the other party to the contract and (ii) the agreement does not provide the bank requisites of the parties, the parties addresses for notices, the date of the contract, and the place of conclusion as required by Order No. 201 of the Ministry of Economy and European Integration Issues On Approving the Regulations on the Form of Foreign Economic Agreements (Contracts), dated September 6, 2001 (hereinafter referred to as Order No. 201). Therefore, we recommend bringing this contract into compliance with Ukrainian legislation by introducing the relevant amendments, including a translation into Ukrainian. Therefore, we recommend bringing this contract into compliance with Ukrainian legislation by introducing the relevant amendments, including a translation into Ukrainian. Finally, we were not provided with a copy of the corporate approval necessary for the Director to execute the contract in accordance with Article 10.5.9 of the Charter. 4. Field engineering for Damen Shipyards Okean (Contract No. 02/07) was signed in the city of Mykolaiv by and between the Company, as the Executor, and JSC Damen Shipyards Okean (hereinafter referred to as DSO), as the Customer on March 19, 2007 (hereinafter referred to as Contract No. 02/07).

According to the terms and conditions of Contract No. 02/07, the Executor shall provide 2 (two) engineers to perform on-site field engineering in the Technical Department of DSO for a period of up to 3 (three) months. The term for performance of the contract is as follows: Start of work March 19, 2007 and completion of work June, 2007 (completion term may be corrected by the Customer). Contract No. 02/07 provides that the estimated contract price is UAH 867,000 (eight hundred sixty seven thousand Ukrainian Hryvnias) and the scope of work is set according to actual spent man-hours. According to the statement made by the Company, this contract should be completed in February of 2008.

23

Contract No. 02/07 further provides that the actual contract price is to be determined monthly based on the quantity of man-hours actually spent by the Executor and calculated according to the tariff amounting to UAH 137 (one hundred thirty seven Ukrainian Hryvnias) per man-hour, including VAT. The price is to be stated in Delivery and Acceptance Protocols. We were provided with copies of the following Delivery and Acceptance Protocols: 1. Delivery and Acceptance Protocol No. 1-02/07 dated May 03, 2007. According to this Protocol, the cost of performed work was UAH 70,692 (seventy thousand six hundred ninety two Ukrainian Hryvnias), including VAT of UAH 11,782.00 for engineering work for design and technical support of shipbuilding in the scope of 516 man-hours during the period from March 19, 2007 till April 28, 2007. Delivery and Acceptance Protocol No. 2-02/07 dated June 5, 2007. According to this Protocol, the cost of performed work was UAH 69,870 (sixty nine thousand eight hundred seventy Ukrainian Hryvnias), including VAT of UAH 11,645.00 for engineering work for design and technical support of shipbuilding in the scope of 510 manhours during the period from May 1, 2007 till May 31, 2007. Delivery and Acceptance Protocol No. 3-02/07 dated July 03, 2007. According to this Protocol, the cost of performed work was UAH 40,415 (forty thousand four hundred fifteen Ukrainian Hryvnias), including VAT of UAH 6,735.83 for engineering work for design and technical support of shipbuilding in the scope of 295 man-hours during the period from June 1, 2007 till June 30, 2007. Delivery and Acceptance Protocol No. 4-02/07 dated August 03, 2007. According to this Protocol, the cost of performed work was UAH 10,960 (ten thousand nine hundred sixty Ukrainian Hryvnias), including VAT of UAH 1,826.67 for engineering work for design and technical support of shipbuilding in the scope of 80 man-hours during the period from July 1, 2007 till July 31, 2007. Delivery and Acceptance Protocol No. 5-02/07 dated September 05, 2007. According to this Protocol, the cost of performed work was UAH 87,810 (eighty seven thousand eight hundred ten Ukrainian Hryvnias), including VAT of UAH 14,635.00 for engineering work for design and technical support of shipbuilding in the scope of 641 manhours during the period from August 1, 2007 till August 31, 2007. Delivery and Acceptance Protocol No. 6-02/07 dated October 08, 2007. According to this Protocol, the cost of performed work was UAH 109,600 (one hundred nine thousand six hundred Ukrainian Hryvnias), including VAT of UAH 18,266.67 for engineering work for design and technical support of shipbuilding in the scope of 800 manhours during the period from September 1, 2007 till September 30, 2007.

2.

3.

4.

5.

6.

24

7.

Delivery and Acceptance Protocol No. 7-02/07 dated November 20, 2007. According to this Protocol, the cost of performed work was UAH 150,150 (one hundred fifty thousand one hundred fifty Ukrainian Hrvynias), including VAT of UAH 25,025.00 for engineering work for design and technical support of shipbuilding in the scope of 1,096 manhours during the period from October 1, 2007 till October 31, 2007. Delivery and Acceptance Protocol No. 8-02/07 dated December 14, 2007. According to this Protocol, the cost of performed work was UAH 105,078 (one hundred five thousand seventy eight Ukrainian Hryvnias), including VAT of UAH 17,513.00 for engineering work for design and technical support of shipbuilding in the scope of 767 manhours during the period from November 1, 2007 till November 30, 2007.

8.

Please note that we are unable to verify whether the contract was completed and the work was accepted by the Customer as satisfactory, as we were not provided with a copy of the final Delivery and Acceptance Protocol signed by the parties and stipulating that the work was performed in satisfaction of the Customers demands and there are no claims by either party with respect to the performed work. Contract No. 02/07 is governed by the law of Ukraine and is concluded from moment of its signing until complete fulfillment by the parties of their contractual obligations. Please note that our review of Contract 02/07 revealed the following inconsistencies with Ukrainian law: (i) the agreement was not executed in the Ukrainian language as required by the provision of Article 24 of the Law of Ukraine No. 8312-XI On Languages in the Ukrainian SSR, dated October 28, 1989, as amended, obligating Ukrainian companies to make the foreign economic contracts with non-residents both in Ukrainian and the language of the other party to the contract. In addition to the above-mentioned contracts, the Company also provided information regarding the following field engineering contracts: 1. Field engineering for DSO (Contract No. 03/07), which was signed in the city of Nikolayev by and between the Company, as the Executor, and DSO, as the Customer on October 1, 2007 (hereinafter referred to as Contract No. 03/07).

According to the copy of Contract No. 03/07 we reviewed, the estimated contract price was UAH 867,000 (eight hundred sixty seven thousand Ukrainian Hryvnias) and the scope of work was set according to actual spent man-hours. According to the information provided by the Company, the contract should be completed in December of 2007. Pursuant to Contract No. 03/07, the Executor shall provide 5 (five) engineers to perform on-site field engineering at in Hull Design and As-built Departments of DSO and 6 (six) engineers at in the Mechanical Department of DSO for a period of up to 3 (three) months. The term for performance of the contract is as follows: Start of work

25

 November 1, 2007 and completion of work December, 2007 (completion term may be corrected by the Customer). Contract No. 03/07 states that the contract price is to be determined monthly based on the quantity of man-hours actually spent by the Executor and calculated according to the tariff amounting to UAH 84 (eighty four Ukrainian Hryvnias) per man-hour, including VAT of UAH 14 per man-hour. The price is to be stated in Delivery and Acceptance Protocols. Contract No. 03/07 is governed by the law of Ukraine and is concluded from moment of its signing until complete fulfillment by the parties of their contractual obligations. Please note that our review of Contract 03/07 revealed the following inconsistencies with Ukrainian law: (i) the agreement was not executed in the Ukrainian language as required by the provision of Article 24 of the Law of Ukraine No. 8312-XI On Languages in the Ukrainian SSR, dated October 28, 1989, as amended, obligating Ukrainian companies to make the foreign economic contracts with non-residents both in Ukrainian and the language of the other party to the contract. We were also provided with the following Delivery and Acceptance Protocol in relation to Contract No. 03/07, dated October 1, 2007: 1. Act No. 1-03/07, dated December 14, 2007, regarding the transfer and acceptance of works under Contract No. 03/07 dated October 01, 2007. According to this Protocol, the cost of performed work was UAH 143,136 (one hundred forty three thousand one hundred thirty six Ukrainian Hryvnias), including VAT of UAH 23,856 for engineering works for design and technical support of shipbuilding in the scope of 1704 man-hours during the period from November 1, 2007 till November 30, 2007.

Taking into consideration the similarity of Contract No. 03/07 to Contract No. 02/07, we presume that there have been other Delivery and Acceptance Protocols signed in accordance with Contract No. 03/07. However, we were not provided with such Protocols for our review. Thus, we are unable to verify whether the contract was completed and the work was accepted by the Customer as satisfactory, as we were not provided with a copy of the final Delivery and Acceptance Protocol signed by the parties and stipulating that the work was performed in satisfaction of the Customers demands and there are no claims by either party with respect to the performed work. As mentioned above, according to the information provided by the Company, the Contract should have been completed in December of 2007. 2. While we were not provided with a copy of Agreement No. 01/9123 and the additional agreement No. 1 thereto, according to the information provided by the Company, this Agreement has been completed and there are no open claims by the parties with respect to their performance and obligations. In this connection, we were provided with the following Acts on the transfer-acceptance of works under Agreement No. 01/9123 of July 11, 2005:

26

(i)

Act No. 1-01/9123, dated September 29, 2005, regarding the acceptance of works under Agreement No. 01/9123. This Act evidences that the parties, which were the Company and DSO, confirmed that the Executor performed work under the agreement in the amount of UAH 76,700 (seventy six thousand seven hundred Ukrainian Hryvnias), including UAH 12,783.33 in VAT. Act No. 2-01/9123, dated October 26, 2005, regarding the acceptance of works under Agreement No. 01/9123. This Act evidences that the parties, which were the Company and DSO, confirmed that the Executor performed work under the agreement in the amount of UAH 149,400 (one hundred forty nine thousand four hundred Ukrainian Hryvnias), including UAH 24,900 in VAT. Act No. 3-01/9123, dated February 16, 2006, regarding the acceptance of works under Agreement No. 01/9123 of July 11, 2005 and additional agreement No. 1 of November 24, 2005 to Agreement No. 01/9123. This Act evidences that the parties, which were the Company and DSO, confirmed that the Executor performed the full volume of work in the total amount of UAH 241,000 (two hundred forty one thousand Ukrainian Hryvnias), including UAH 41,166.67 in VAT.

(ii)

(iii)

3. While we were not provided with a copy of Agreement No. 02/9123 of July 11, 2005 and the additional agreement No. 1 thereto, according to the information provided by the Company, this Agreement has been completed and there are no open claims by the parties with respect to their performance and obligations. In this connection, we were provided with the following Acts on the transfer-acceptance of works under Agreement No. 02/9123 of July 11, 2005: (i) Act No. 1-02/9123, dated October 6, 2005, regarding the acceptance of works under Agreement No. 02/9123. This Act evidences that the parties, which were the Company and DSO, confirmed that the Executor performed work under the agreement in the amount of UAH 72,000 (seventy two thousand Ukrainian Hryvnias), including UAH 12,000 UAH in VAT. Act No. 2-02/9123, dated October 25, 2005, regarding the acceptance of works under Agreement No. 02/9123. This Act evidences the parties, which were the Company and DSO, confirmed that the Executor performed work under the agreement in the amount of UAH 36,000 (thirty six thousand Ukrainian Hryvnias), including UAH 6,000 in VAT. Act No. 3-02/9123, dated November 3, 2005, regarding the acceptance of works under Agreement No. 02/9123 of July 11, 2005. This Act evidences that the parties, which were the Company and DSO, confirmed that the Executor performed the full volume of work in the total amount of UAH 122,400 (one hundred twenty two thousand four hundred Ukrainian Hryvnias), including UAH 20,400 in VAT.

(ii)

(iii)

27

(iv)

Act No. 4-02/9123, dated January 17, 2006, regarding the acceptance of works under Agreement No. 02/9123 of July 11, 2005. This Act evidences that the parties, which were the Company and DSO, confirmed that the Executor performed the full volume of work in the total amount of UAH 216,000 (two hundred sixteen thousand Ukrainian Hryvnias), including UAH 36,000 in VAT.

Finally, according to the information available from the Company, the following is a list of the Companys major competitors on the Ukrainian market. EDRPOU Code Company name Address, tel., fax 14308782 Chernomorsudoproject Nikolaev, Buznika Str., 5 38 0512 34 10 60 01373890 Shipyard Liman Nikolaev, Portovaya Str. 2 38 0512 50 75 25 30083484 Torola, LLC Nikolaev, Bolshaya Morskaya Str. 63 38 0512 35 98 49 Izumrud Kherson Korall Sevastopol Cheromorets Sevastopol Goods/Services Engineering Engineering Engineering Engineering Engineering Engineering

III.

Governing Bodies, including Directors and Management

The Company's Charter provides for the following governing bodies thereof: (a) (b) (c) (d) A. the general meeting of participants (hereinafter referred to as the GMP) as the highest governing body; the Chairman of the Company; the Director as its executive body; and the Auditing Commission as its controlling body. Authority of the General Meeting of Participants of the Company

According to the Company's Charter, the GMP is the highest governing body of the Company. According to the law, 5 the GMP consists of the Companys participants or proxies appointed thereby. A proxy may be permanent or appointed for a certain period. A participant may at any time replace his proxy in the GMP by giving notice thereof to the other participants. A participant of the Company has the right to transfer its powers at the GMP to another participant or to the proxy of another
5

Article 58 of the EA Law.

28

participant of the Company. A participant shall have the number of votes in proportion to the size of his participation interest in the authorized capital. Further the Companys Charter provides that the GMP is entitled to decide on any matter of the Companys business. A GMP is deemed valid (competent) if attended by participants who in total hold more than sixty percent (60%) of the votes. Please note that the EA Law provides that a limited liability company should hold its GMP at least twice a year, unless otherwise provided by its constituent documents. 6 According to the EA Law, the GMP has the following exclusive authority: (1) (2) (3) (4) (5) (6) (7) to determine the principal directions of activity of the Company and to approve its plans and reports on their implementation; to establish, reorganize and liquidate subsidiaries, branches and representative offices, and to approve their charters or by-laws; to expel a participant from the Company; to establish the amount and form of additional contributions of participants and the manner in which they are to be made; to amend the Charter of the Company, and to change the size of its authorized capital; to form and recall the executive body of the Company; to establish the forms of control over the activities of the executive body, and to establish and determine the scope of authority of the corresponding controlling bodies; to approve the annual reports and accounting balance sheets, to distribute profit losses of the Company; to decide on the acquisition of the participation interest of a participant by the Company; to adopt a resolution on the termination of the Company, to appoint a liquidation commission and to approve the liquidation balance sheet.

(8) (9) (10)

According to the EA Law 7 and the Charter, a participant of the Company may sell or otherwise transfer its participation interest (a portion thereof) in the Authorized Capital to one (1) or more participants of the Company. The sale (transfer) by a participant of its participation interest (a portion thereof) to third parties is allowed
6 7

Article 61 of the EA Law. Article 53 of the EA Law.

29

only upon consent of the other participants of the Company. Further, the participants of the Company enjoy the right of first refusal with respect to the participation interest (a portion thereof) in proportion to the size of their participation interest unless the Charter or agreement between the participants provides otherwise. The purchase is carried out at the price and according to other conditions set forth for the sale of the participation interest in question to third parties. Should the participants of the Company fail to exercise their right of first refusal within a month following the date of notification of the intent of a participant to sell its participation interest (a portion thereof), or during another period set forth by the Charter or the agreement between the participants, the participation interest (a portion thereof) in question can be sold (transferred) to a third party. The Charter provides that the resolutions regarding the issues set forth in points (1) and (5) above and regarding the expulsion of a participant from the company shall be deemed adopted if participants, which aggregately hold more than 50% of the total number of votes, vote for such resolutions. Resolutions on other issues shall be adopted by a simple majority of votes. B. Authority of the Chairman of the Company

The Charter of the Company provides for the position of Chairman of the Company, who is elected by the General Meeting of Participants and is vested with powers determined by the Charter and Ukrainian legislation. According to the Charter, the Chairman of the Company may be hired on the basis of labor relations (employment agreement or other type of labor contract). The Chairman of the Company has the authority to convene ordinary and extraordinary General Meetings of Participants. His authorities also include the ability to (i) confirm the procedural rules and other internal documents of the Company and to determine the organizational structure of the Company; (ii) determine the working conditions of officials of the Company, its subsidiaries, branches and representative offices; and (iii) grant authorization to the Director in the cases described below related to the limitations established on the Directors activity. The aforementioned points (i) (iii) also fall within the competence of the General Meeting of Participants. Should there be any disputes between the General Meeting of Participants and the Chairman of the Company with respect to the aforementioned points (i) and (iii), the decision of the General Meeting of Participants shall prevail over the decision of the Chairman of the Company. According to Minutes No. 4 of the General Meeting of Participants of the Company of October 10, 2006, Mr. Michael Hake, a citizen of the Federal Republic of Germany, was elected as the Chairman of the Company. As evidenced by Minutes No. 4 of the General Meeting of Participants of the Company of April 10, 2007, which were the latest Minutes provided for our review, Mr. Hake remains the Chairman of the Company. Please note that we were not provided with a copy of the current employment agreement or other type of labor contract with the Chairman of the Company. As Mr. Hake is not a citizen of Ukraine, he also requires a work permit to be employed by the Company. However, we did not review a copy of Mr. Hakes work permit and,

30

therefore, we are unable to comment on whether his employment by the Company is in compliance with the effective labor and other legislation of Ukraine. In general, as far as limited liability companies are concerned, the EA Law grants the right to convene an extraordinary GMP to participants who own in total more than twenty percent (20%) of the votes. Also such participants may demand convocation of the extraordinary GMP at any time and for any reason relating to the activity of the Company. However, as the Company has only one participant, this provision of the Charter remains as a statutory requirement. Please also note that according to the EA Law, members of executive body who are not participants of the Company may participate in the GMP with the right to cast an advisory vote. The participants of the GMP who participate in a GMP shall register with the indication of the number of votes of each participant. This list shall be signed by the Chairman of the Company and the secretary of the GMP. Any participant of the limited liability company may demand the consideration of an issue at a GMP if he/she submits such issue no later than 25 days prior to the beginning of the GMP. 8 C. The Director and its Authority

The executive body of the Company is comprised of a single director (the Director), who resolves all issues concerning the day-to-day activities of the Company and is subordinate to the General Meeting of Participants. The Director also organized the performance of the decisions of the General Meeting of Participants and may not take decisions which are binding as mandatory for the General Meeting of Participants. Pursuant to Article 11.11 of the Charter, in the event of the Directors expected or present extended absence, which renders him unable to perform his duties, the Chairman of the Company may appoint an interim director at his discretion. In such case, the Chairman of the Company must execute a corresponding order indicating the term of the interim directors appointment which may not exceed the period between such appointment and the next General Meeting of Participants. The interim director enjoys all of the rights and bears all of the obligations of the Director provided by the Charter and the decisions of the governing and other bodies of the Company within the limits of their competence and Ukrainian legislation. Conversely, the governing and other bodies of the Company enjoy all of the rights and bear all of the obligations with respect to the interim director provided by the Charter and their respective decisions within the limits of their competence and Ukrainian legislation. According to Ukrainian legislation, the Director has the following authority: (1) (2) to form the Companys administration and chair it; to bear responsibility before the GMP for the activities of the Directorate regarding the achievement of the Companys goals and the level of its business administration;

Article 60 of the EA Law.

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(3) (4) (5) (6) (7)

to represent the Company in its relations with Ukrainian and foreign legal entities and natural persons; to issue orders and instructions, other acts within the scope of its authority with respect to the Companys business; to enter into contracts and other agreements; to open bank account with banks; to approve employment schedule of the Company, its structural subunits, to establish salaries for the employees (workers), to appoint to positions within the Company, and to transfer and dismiss the Company's employees according to the effective legislation; to determine the procedure and sizes of monetary and in-kind rewards for quick and quality performance of work by the Company employees; to carry out other responsibilities within the scope of his authority according to the constituent documents, the Contract (if concluded) and decisions of the GMP of the Company; to resolve all financial and business matters of the Company other than those within the scope of authority of the GMP. The GMP may make a decision to delegate a portion of its authority to Director; and to act on behalf of the Company without a power of attorney.

(8)

(9)

(10)

Article 10.5.9 of the Charter sets certain limitations on the authority of the Director of the Company. Among other limitations, the Director must receive authorization from the General Meeting of the Participants: (i) to conclude an agreement or make other arrangement, expenditure of funds or alienation of assets in connection with the provision of services or performance of work by the Company, including designs, drawing and the like, for an amount (value) that is equal to, or exceeds, the equivalent of 100,000 (one hundred thousand) Euros in Ukrainian Hryvnias (in one or a series of related transactions) at the official exchange of the National Bank of Ukraine as of the date of such authorization; to conclude an agreement or make other arrangement, expenditure of funds or alienation of assets in connection with the acquisition of equipment and other goods, works or services, payment of wages and the like by the Company for an amount (value) that is equal to, or exceeds, the equivalent of 25,000 (twenty five thousand) Euros in Ukrainian Hryvnias (in one single or a series of related transactions) at the official exchange rate of the National Bank of Ukraine as of the date of such authorization;

(ii)

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(iii)

to conclude any agreement between the Company on the one side and the Chairman of the Company or the Director or any entity or person affiliated or connected with the Chairman of the Company or the Director on the other side, including without limitation the family or business partners of the Chairman of the Company or the Director and any companies where any of the aforesaid entities or persons have ownership interests, positions, employment or carries out work (paid or unpaid) on behalf of; to conclude any agreement or arrangement not demonstrably on market based terms (arms length principle).

(iv)

Importantly, should the Director fail to receive the authorization of the General Meeting of Participants or, in certain permissible cases, the Chairman of the Company before concluding any of the above-listed transactions, then such transactions shall be deemed null and void from the moment of making, expenditure, alienation, etc. As previously mentioned, we have not been provided with copies of any authorizations issued by the GMP with respect to any agreements that exceed the above-mentioned thresholds and, therefore, we are unable to verify whether proper authorization was granted for the conclusion of the Companys significant agreements. Moreover, we were not provided with any copies of the Directors orders or instructions issued within the limits of his authorities in accordance with Article 11.9 of the Charter. In general, the scope of authority of the Companys Director is in compliance with the provisions of the effective legislation. D. The Auditing Commission and its Authority

The Company also has an Auditing Commission or an Auditor, which exercises control over the activity of the Director. In case of the creation of an Auditing Commission, such Commission must be comprised of at least 3 members elected from among the participants. Otherwise, the Auditor is elected from among the participants (the Participant) by the General Meeting of Participants. Please note that the Auditing Commission is a mandatory governing body of the Company according to Ukrainian legislation and the Companys Charter. Significantly, we were not provided with any documents evidencing the creation of an Auditing Commission or appointment of an Auditor within the Company. Accordingly, we were unable to find any documents describing or confirming the activity of an Audit Commission or Auditor of the Company. While such body is mandatory pursuant to Ukrainian law, there are currently no legal penalties prescribed by law for the failure to create or appoint an Audit Commission or Auditor. Further, the EA Law provides as follows: (1) the Auditing Commission (AC) is appointed by the GMP;

33

(2) (3)

AC carries out control over the financial and business activities of the Company; AC demands that the officers of the Company provide it with all necessary materials, accounting and other documents, as well as personal explanations; AC furnishes the findings of the carried out examinations to the highest body of the Company; AC prepares its findings regarding annual reports and balance sheets.

(4) (5)

The Charter also provides that the annual report and the balance sheet shall be furnished to the GMP upon its request not later than one (1) month following the deadline set for their preparation. Please note that under the law, the GMP of a company may not approve any balance sheet without a statement from the auditing commission.

IV.

Employment Matters A. Working Collective

According to Article 13 of the Charter, the Company must have a Working Collective which shall be comprised of all citizens who participate by their labor in the activities of the Company on the basis of a labor agreement (contract, arrangement) or other instruments which govern labor relations between the Company and its employees. The Working Collective is governed by a Collective Agreement which must be considered and approved by the Working Collective. The highest governing body of the Working Collective that exercises its powers is the Meeting of the Collective. The Council of the Collective represents the interests of the Working Collective before the governing bodies of the Company in the intervals between the Meetings of the Collective. The members of the Council of the Collective are elected from among the employees of the Company in the number and composition determined by the Meeting of the Collective. Article 13.7 of the Charter states that the Meeting of the Collective shall be deemed duly convened if more than 60% (sixty percent) of the employees of the Company participate therein. However, the Regulation on the Procedure for the Formation and Approval of the Demands of Employees or the Trade Union, approved by Order No. 192 of the National Office of Mediation and Reconciliation, states that the Meeting of the Collective shall be deemed duly convened should more than 50% (fifty percent) of the employees of the Company participate therein. Thus, we recommend introducing the relevant amendment into the Charter of the Company in order to bring it into compliance with the effective Ukrainian legislation. According to information provided by the Company, the representative of AYDUs working collective is Mr. Viktor Prykhodko, the Project Manager, who was elected by the working collective meeting in March, 2003. Moreover, the Company stated that an employment agreement is only concluded with the Director of the Company.

34

Regarding the Companys hiring procedure, we assume that the employment agreements with the Employees are normally concluded in so-called verbal form, 9 which is confirmed and evidenced by (i) an employment application submitted by a potential Employee, and (ii) respective order on employment issued by the Head (Chairman) of the Executive Body. We also assume that the relevant entries are made into the Employees labor books. Such hiring procedure is common practice under the effective legislation of Ukraine and is widely used by companies in Ukraine. Please see our comments below with respect to the validity of the Collective Agreement of the Company as well as the employment agreement with the Director of the Company. B. Employees

According to the information provided by the Company, the number of employees in the Company as of December 31, 2007 is as follows: (i) Management and Administrative Staff 10 persons (ii) Productive engineers 62 persons _____________________________________________________________________ Total 72 persons The Company lists of its key employees as follows: 1 2 3 4 5 6 7 8 9 10 Name Zhukov Yuriy Kamenetskyy Yuriy Prykhodko Viktor Romanyuk Roman Fedorenko Olga Sologubova Yekaterina Yemelina Tatiana Samorezov Andriy Zherebetskiy Andriy Babadzhan Tatiana Function Director Deputy Director Production Project Manager Project Manager Financial Manager Chief Accountant HR & Office Manager IT Manager Manager of Hull Department Manager of Pipe & Systems Department Age 56 72 61 31 30 31 22 45 31 52 Seniority 32 49 43 8 7 13 1 22 8 35

The information provided by the Company included a chart of the organization structure of the Company. The chart was not approved by the Chairman of the Company; however, it provides a general overview of the companys internal structuring. The highest level is the Chairman of the Company and the next level is the Director. Under the Director, there are 4 positions: (i) Deputy Director Production; (ii) HR & Office Manager; (iii) Labour Protection & Safety Engineer; (iv) Financial Manager. The Chief Accountant answers directly to the Financial Manager. The Deputy Director Production is in charge of the following positions: (i) Manager of Hull Department; (ii) Manager of Pipe & Systems; (iii) Manager of Field
9

Article 24 of the Labor Code.

35

Engineering Group; (iv) Manager of IT Department; and (v) Project Managers. The Manager of Hull Department is in charge of the Steel Hull Group and the Outfitting Group. The table below provided by the Company describes the salary rates within the Company: Scale of Wages Position Project Manager Dpt. Manager Senior Engineer 1st category engineer 2nd category engineer 3rd category engineer Draftsman Salary in UAH Min 5600 5050 3400 3400 2700 2250 1550 Salary in UAH Max 8500 7000 5000 4800 3700 3000 2700

The Company also provided a description of wage and salary adjustments since 2004 as follows: Percentage average increase 2005/2004 of 16% salary 2006/2005 9% 2007/2006 13%

The Company also adheres to the following requirements of Ukrainian labor law: Celebrations 10 calendar days Vacation 24 calendar days Compensation of travel expenses, Premium to jubilee date, Other additions to salary according to the Collective Agreement. C. Employee Bonuses and Benefits

The Company provided us with the following information regarding its bonuses, incentives and benefits to employees: AKER YARDS DESIGN UKRAINE PERFRMANCE REVIEW PROCESS (PRR) 1-6 months Mastering AY Full review standards and requirements, presentation skills Discuss Mastering Full review production D&E best efficiency/quality skills, annual / new assignment presentation Established into long term position, junior team member First salary increment

Annually (November December)

Possible salary increment or/and

36

3 years Fully effective Time and self employment team member management 5 years Senior employment member 10 years Company employment veteran Optional/personal Any timescale member team Time and self management Time and self management team Personal training educational program
3rd Category Engineer Min Max 2250 3000 Run 750 UAH 0 A1 50 A2 100 A3 50 150 50 1 year 100 3 years 0 5 years 50 200 50 100 50 100

promotion Full review Regular salary increment Full review Regular salary increment Full review Regular salary increment Mainstream Possible PRR or fast salary track increment program and / or promotion
1st Category Engineer Min Max 3400 4800 Run 1400 UAH 0 A1 100 A2 200 A3 100 300 50 1 year 100 3 years 150 5 years 150 400 50 150 50 200 Senior Engineer Min Max 3400 5000 Run 1600 UAH 0 A1 100 A2 200 A3 100 300 50 1 year 100 3 years 200 5 years 200 400 50 200 50 - 300

Bonuses

Draftsman Min Max 1550 2700 Run 1150 UAH 50 A1 100 A2 150 A3 50 -200 & in 50 1 year 100 3 years 50 300 50 200 50 150

English Additional Software CAD Seniority Company

2nd Category Engineer Min Max 2700 3700 Run 1000 UAH 0 A1 50 A2 100 A3 100 200 50 1 year 100 3 years 150 5 years 100 300 50 100 50 150

Effectiveness + Quality of Work Diligence Extra Duty

AKER YARDS DESIGN UKRAINE PERSONAL INCENTIVES Non-Financial Incentive Extra Duty Best engineer nomination (by categories) Project sub-teams coordination Including in personnel reserve (category growth) Participation in extra complex and Training support important works Completing the project Participation in corporative parties Medical insurance Free-time (extra day-off) Loan guarantee Sports/competitions support D. Labor Contract with the Companys Director Financial Incentive

We were provided with the Employment Agreement entered into by and between the Company, as the Employer, and Prof. Zhukov Yuriy, as the Employee, dated August 37

1, 2006. In general, the Agreement is for a fixed term in accordance with Section 3 of Article 23 of the Labor Code of Ukraine. The term of validity of the agreement is 2 years and it may be prolonged by the parties 6 (six) months before the date of expiration. Please note that the agreement did not provide for a probation period for the Employee and the agreement may be terminated by law or pursuant to the agreement. The agreement contains the standard provisions with respect to the rights and obligations of the parties. According to the agreement, the Employees work hours and overtime are set in accordance with Ukrainian law. While the agreement refers to Internal Rules for breaks, we were not provided with a copy of such Internal Rules for review. The Employee is entitled to the standard vacation of 24 calendar days plus 6 days in compensation for extended work hours. Once again, the agreement refers to Internal Rules for scheduling dates of vacation; however, we were not provided with such Internal Rules for review. According to the agreement, the Employees salary is UAH 25,000 (twenty five thousand Ukrainian Hryvnias) gross per month, paid in two installments each month. Re-assessment of the Employees salary shall take place on January 1st of each year. The Director is provided with an automobile Toyota Camry, which is on the balance of the Company (Company Car). We were provided with a copy of the voluntary insurance for the Company Car (see Insurance below); however, we were not provided with a copy of the documents, evidencing procurement of mandatory insurance for the car (sticker, mandatory insurance policy, payment receipt for insurance, etc.). Pursuant to the agreement, the Employee must notify Employer if he acquires shares or holds office in the governing body of organizations competing with the Employer, and the same rule applies in case the Employees relatives acquire same. The Employee shall not accept or receive, without the prior written approval of the Chairman of the Company any gifts (including services) from clients, suppliers or other business partners of the Employer (including potential business partners), with the exception of the gifts which are generally accepted in the business community, or which may not affect his business decisions. The agreement contains the standard provisions with respect to confidentiality and intellectual property. The Employee can be suspended by decision of the GMP in accordance with the Charter; however, he continues to receive full salary for the entire period of suspension. The agreement shall terminate: (a) when the term of employment expires; (b) by mutual agreement of the Parties; or (c) at the request of one of the Parties and in other cases provided by applicable Ukrainian law. Finally, the agreement is executed in bilingual English and Ukrainian language texts. Both texts are equally authentic. Please note that we were not provided with

38

the Ukrainian version of the Employment Agreement. Under Ukrainian labor laws, an employment agreement executed for labor in Ukraine must be concluded in the Ukrainian language. The agreement was signed by the Parties on November 1, 2007, while the date on the face of the Agreement is August 1, 2006. We believe that these minor inconsistencies should be removed or remedied in order to bring the agreement into full compliance with Ukrainian legislation. E. Collective Agreement

The copy of the Collective Agreement provided by the Company was approved on March 24, 2003 at the general meeting of the working collective and registered with on August 30, 2004. However, the stamp of the registration authority is not legible on the copy of the Collective Agreement provided for our review. The Collective Agreement and any amendments thereto must be registered with local authorities according to The Procedure for Registration of Industry and Regional Agreements and Collective Agreements, approved by Resolution No. 225 of CMU, dated April 5, 1994, as amended. Registration authenticates the collective agreements counterparts and secures the possibility to take the collective agreements terms and conditions into account during consideration of labor disputes, both individual and collective. The Collective Agreement was concluded by and between Mr. Yuriy Zhukov, as the Director and representative of the Company, and Mr. Viktor Prikhodko, as the elected and authorized representative of the working collective. It was concluded in accordance with the Law of Ukraine On Collective Agreements and Covenants and on the basis of the obligations accepted by the Parties. The Collective Agreement determines the mutual production, labor and social-economic relations between the administration and the employees of the Company. According to the Collective Agreement, the Agreement was approved by the general meeting of the working collective in Protocol No. 1 of March 24, 2003 and entered into force from the same date. Please note, however, that we were not provided with a copy of Protocol No. 1 for our review and, therefore, we cannot comment on its validity. The term of the Collective Agreement runs until the conclusion of a new Collective Agreement. As of the date of this report, we were not provided with a copy of or informed regarding the conclusion of a new Collective Agreement. The system of salary and bonus payments is reflected in the Collective Agreement in Annex No. 1. The Staff Schedule is approved annually on the 1st of January and is valid for the duration of the relevant year. Please note that we were not provided with the Staff Schedule approved for 2008. The Collective Agreement provides the employees with guarantees, compensations and benefits on business trips, upon transfer to another workplace and in other cases established by Ukrainian legislation. In addition, the Collective Agreement provides that the Company may provide additional guarantees, compensations and benefits as follows: 1. Compensation for the use of privately-owned means of transportation;

39

2. 3.

Compensation for increased business trip expenses in comparison with the amounts established by Ukrainian legislation; The granting to employees upon request of non-interest bearing loans in the amount and for the term agreed upon with the administration of the Company; Payment at the Companys expense of voluntary insurance payments in favor of an employee pursuant to agreements on long-term insurance and/or contributions for additional pension insurance of employees; For purposes of treatment of the employees of the Company partial payment of health and tourist vouchers in an amount not exceeding 60% of the value of such vouchers; Financial assistance in the amount of one monthly salary to employees of the Company upon leave for pension.

4.

5.

6.

The working collective of the Company has the following rights and obligations: 1. to protect the social guarantees of employees of the Company regarding issues of securing employment, dismissals, and the use of benefits and compensations in accordance with Ukrainian legislation and the Collective Agreement; to control the state of the work and safety conditions, the adherence by the administration of legislative and other labor safety acts, and the proper production conditions for employees; to verify the observance at the Company of labor legislation and work and safety conditions, the observance of the rules of internal procedure and labor discipline and, if necessary, to demand the removal of violations; to receive information on production and financial issues and the social and economic activity of the Company.

2.

3.

4.

The working collective shall not interfere in the production and commercial activity of the Company, provided that such activity does not contradict effective Ukrainian legislation and the Collective Agreement. Pursuant to the Collective Agreement, the administration of the Company recognizes that the Council of the working collective is the only representative of the interests of the working collective. The Council of the working collective reviews the observance of the Collective Agreement no less than twice per year and the general meeting of the working collective review such observance once per year. Please note that we were not provided with any documents, evidencing that such reviews were ever conducted by the Council of the working collective and the general meeting of the working collective.

40

The parties to the Collective Agreement bear administrative liability for violations of or the failure to perform the Collective Agreement pursuant to the Administrative Violation Code. The Collective Agreement is in Russian only, which is a violation of the Law of Ukraine On Languages in the Ukrainian SSR. In any case, we recommend signing a new Collective Agreement taking into consideration any and all changes in Ukrainian legislation since 2003.

V.

Intellectual Property

The Companys intellectual property includes only software licenses as mentioned in the list provided by the Company below. AVEVA Licenses 10001, Basic System 10512, Profile Nesting 10525, Splitting of Built Profiles 10513, Extended Bevel Handling 0112, Lines 0113, Surface 11501, Basic Design 10200, Drafting 10500, Hull 10600, Pipe 19600, Outfitting, All Modules 10605, Ventilation 10800, Structure 11701, Design Manage 11005, Assembly Planning Interactive 10607, Isogen 10514, Extended Clip Handling 10517, Dotori Total Other Software MDaemon Server Resource Kit Tools The Bat Visio Pro 2003 Win 32 English Visio Std 2003 Win 32 English Borland C++ Builder 6 Professional Full System ABBYY FineReader 7.0 Professional Edition Sun Java Desktop WinRar archiver Rhino 3.0 Exchange Ent CAL wo Svc 2007 English Number Site Site Site Site 1 1 1 8 30 13 4 1 8 8 1 Site Site Site 83 Number 1 1 7 1 1 1 1 1 1 1 80

41

Exchange Standart CAL 2007 English Exchange Svr Ent 2007 English SYMANTEC ANTIVIRUS CORPORATE EDITION 10.2

80 1 100

Please note that no official documentation was provided to verify the above information. In addition, the Company provided a copy of License Agreement No. D0790336 Concerning the Granting of Non-Exclusive Rights to Use AVEVA Software Products, which was concluded by and between AVEVA GmbH, a limited liability company established according to the legislation of the German Federal Republic, and the Company on November 23, 2007. According to License Agreement No. D0790336, the Company has the non-exclusive right to use certain software to which AVEVA GmbH holds the copyright. AVEVA GmbH, in turn, provides maintenance, upgrade and support services to the Company. License Agreement No. D0790336 states that no later than 3 (three) working days after each installation service, the Company must sign a Protocol of the Transfer of the Rights for Usage of the Software Products. A sample Protocol is provided in Attachment 4 to License Agreement No. D0790336; however, we were not provided with any signed Protocols evidencing the installment of software products by AVEVA GmbH. Please also note that Attachments 2 (Rules of the Maintenance, Support and Update of the Software Products) and 3 (Composition and technical parameters of the hardware and software of the Licensee (Authorised System)) were not provided for our review. License Agreement No. D0790336 became effective after its signature by the parties and will terminate on December 1, 2008 with regard to each copy of the software products. The agreement may be extended by the parties by means of a written supplemental agreement. The license fee consists of the initial fee and an annual fee which is broken down as follows: Initial Fee: Hull, prod. No. 10500, 14 licenses 205800 EUR Structure, prod. 10800, 4 licenses 62000 EUR Pipe, prod. 10600, 4 licenses 62000 EUR ISOGEN, prod. 10607, 2 licenses 18000 EUR Design Manager, prod. 11701, 4 licenses 5200 EUR Extended Clip Handling, prod. 10514, site license 17000 EUR Dotori (Variable Bevelling), prod. 10517, site license 80000 EUR

The total amount of the initial fee is EUR 450,000 (four hundred fifty thousand euros) and was due and payable upon signature of License Agreement No. D0790336. The annual fee under the agreement is EUR 81,000 (eighty one thousand euros). The annual fee is due and payable in accordance with the following payment plan: (i) 1st payment (20,250 euros) January 2008; (ii) 2nd payment (20,250 euros) April 2008; (iii) 3rd payment (20,250 euros) July 2008; (iv) 4th payment (20,250 euros) October 2008. 42

License Agreement No. D0790336 may be terminated according to the procedure and for the reasons provided by the applicable Ukrainian laws and the agreement. AVEVA GmbH has the right to terminate the agreement in the following cases: 1. The Company (i) fails to use the software product according to the terms and conditions of the agreement or (ii) permits use by third parties or (iii) uses the software product on a non-authorized system; The Company decompiles, copies or reproduces the software products in whole or in part, or performs an adaptation or alteration of the software product either itself or through a third party without the prior written consent of AVEVA GmbH; The Company transfers copies of the software products or a part thereof (including information about remote access) on data storage media, by data transfer or in any other way to third parties; The Company deletes or changes information about the exclusive rights of AVEVA GmbH to the software products that is contained in the software products and in the accompanying documentation; The Company or its representative register or deposit the software product as a computer program in the Companys interest or in the interest of a third party; The Company breaches its obligations under the agreements confidentiality provisions.

2.

3.

4.

5.

6.

License Agreement No. D0790336 provides that the agreement and the parties are governed by Ukrainian law. At the same time, the agreement is drafted in English and Russian. According to the Law of Ukraine No. 8312-XI, On Languages in the Ukrainian SSR, dated October 28, 1989, as amended, the agreement should be drafted in Ukrainian. Otherwise, the agreement appears to contain all of the material terms and conditions required by Ukrainian law. The Company also provided for our review Agreement No. -043/07, entered into by and between the limited liability company PSC PiK Biznes, as the Executor, and the Company, as the Customer, and dated October 25, 2007 (hereinafter referred to as Agreement -043/07). The subject of Agreement -043/07 is the registration of the Customer by the Executor as a licensed user of the software program BEST-ZVIT PLUS (hereinafter the Software) for 12 months. The Executor is also responsible for installation of the Software as well. According to the price list referred to in Act No. 43/361 of October 25, 2007, which is an integral part of Agreement -043/07, the total price of the agreement was UAH 1,250 (one thousand two hundred fifty Ukrainian Hryvnias) for the Software and additional insignificant values for software installation, updates and support.

43

Agreement -043/07 was concluded for an indefinite period and may be terminated upon mutual consent of the parties. Unilateral termination is permissible under the Agreement only in cases provided by Ukrainian law. In case one of the parties wishes to terminate the agreement, such party must send written notice to the other party no later than one month before the intended date of termination. In general, Agreement -043/07 appears to be in compliance with the requirements of Ukrainian legislation. The Company did not provide us with any information related to its status as an owner of any patents, trademarks or know-how, which does not seem to fit the profile of a design and engineering company.

VI.

Real Property and Tangible Assets

According to the information provided for our review by the Company, the Company does not currently own any real estate or use real estate under a hereditary building right. The Company also does not have any pending applications (including requests for cancellation) or other declarations to the real property register in Ukraine. As of the time of this report, we were not provided with any information regarding pending agreements on the purchase of real estate. The Company also provided the following information regarding its tangible assets: No. 1 2. 3. 4. 5. 6. 7. Total Fixed Assets Hardware, including office computers, work stations, servers Network fittings Furniture Telephone system Office equipment Car Renovation Balance cost as of 31.12.2007 KUAH 778 112 42 3 219 194 90 1438

This table was provided by the Company and was not confirmed by official documentation.

VII.

Environmental Matters

The Company did not provide for our review any documents related to environmental matters, including any permits, licenses or other official documents issued by the local environmental authorities. We presume by the nature of the Companys activity that it is not subject to environmental regulations in providing its field engineering services.

44

VIII. Financial and Security Matters The Company provided for our review two credit agreements under which the Company is the borrower, including: 1. Credit Agreement No. 01/2003 dated 27/05/2003, which was described in detail in the SDP DDR. As a brief review, the agreement contains the following information: Damen Shipyards Cargo Vessels EUR 649,000 (six hundred forty nine thousand euros) 3,2% 06/06/2011 Credit is guaranteed by all Borrowers property and funds that may be exposed to collection in the procedure stipulated by the current legislation of Ukraine.

Creditor Amount Annual Interest Rate Due Date of Repayment Credit providing conditions

The Company also provided for our review the following amendments to Credit Agreement No. 01/2003 dated 27/05/2003: 1. Amendment No. 1 dtd 12.12.2003 under which the credit facility was prolonged to June 6, 2006 with an amendment of the facility disbursement and repayment schedules; Amendment No. 2 dtd 06.05.2004 under which the credit facility was increased from EUR 450,000 (four hundred fifty thousand euros) to EUR 510,000 (five hundred ten thousand euros) with an amendment of the facility disbursement and repayment schedules; Amendment No. 3 dtd 31.05.2004 under which there was an amendment of the interest payment terms; Amendment No. 4 dtd 01.07.2004 under which the lenders name Damen Shipyards Cargo Vessels was further defined as Scheepswerf Damen Vrachtschepen and the credit facility amount was increased from EUR 510,000 (five hundred ten thousand euros) to EUR 564,000 (five hundred sixty four thousand euros). There was also the corresponding amendment of the facility disbursement and repayment schedules; Amendment No. 5 dtd 05.03.2005 under which the credit facility was prolonged to December 31, 2006 and the credit facility amount was increased from EUR 564,000 (five hundred sixty four thousand euros) to EUR 724,000 (seven hundred twenty four thousand euros). There was also the corresponding amendment of the facility disbursement and repayment schedules;

2.

3. 4.

5.

45

6.

Amendment No. 6 dtd 24.05.2006 under which the credit facility was prolonged to June 6, 2008 and the facility disbursement and repayment schedules were accordingly amended; Amendment No. 7 dtd 06.12.2006 under which the Creditor decided to forgive a part of the credit liability in the amount of EUR 75,000 (seventy five thousand euros) in accordance with Article 605 of the Civil Code of Ukraine. Accordingly, the credit facility amount was decreased to EUR 649,000 (six hundred forty nine thousand euros) and the credit facility was prolonged to June 6, 2011 with the corresponding amendment of the facility disbursement and repayment schedules.

7.

Please note that we were not provided with a copy of the corporate approval required for the Director to sign this agreement pursuant to Article 10.5.9 of the Charter. The Company did not provided a copy of the document evidencing registration of the credit agreement with the National Bank of Ukraine. However, the Company may have provided the registration certificate of Credit Agreement No. 01/2003 dated 27/05/2003 after we were unable to access the Data Room and we were not provided with any evidence that the servicing bank has refused to service the credit facility due to any violation of Ukrainian banking regulations. Finally, we were not provided with any separate pledge/mortgage agreement(s) and/or other document(s) providing for collateral securing the facility, if any. 2. Credit Agreement No. 02/2007 dtd 30/03/2007 by and between Aker Yards Design Ukraine B.V., as the Creditor, and the Company, as the Debtor. As a brief review, the agreement contains the following information: Creditor Amount Annual Interest Rate Initial Due Date of Full Repayment Credit providing conditions Aker Yards Design Ukraine B.V. EUR 1,175,000 (one million one hundred seventy five thousand euros) 3,2% No later than March 1, 2014 Credit is guaranteed by all Borrowers property and funds that may be exposed to collection in the procedure stipulated by the current legislation of Ukraine. 1,175,000 (one million one hundred seventy five thousand euros) April 2007 EUR 330,000.00 (three hundred thirty thousand euros); May 2007 EUR 150,000.00 (one hundred fifty thousand euros); June 2007 EUR 350,000.00 (three hundred fifty thousand euros); October 2007 EUR 150,000.00 (one hundred fifty thousand euros); 46

Liabilities as of 31/12/07 Initial credit facility schedule:

November 2007 EUR 195,000.00 (one hundred ninety five thousand euros). January 2010 EUR 235,000.00 (two hundred thirty five thousand euros); January 2011 EUR 235,000.00 (two hundred thirty five thousand euros); January 2012 EUR 235,000.00 (two hundred thirty five thousand euros); January 2013 EUR 235,000.00 (two hundred thirty five thousand euros); January 2014 EUR 235,000.00 (two hundred thirty five thousand euros).

Initial repayment schedule:

The Company also provided for our review Amendment No. 1 dated 05.12.2007 to Credit Agreement No. 02/2007 dated 30/03/2007. According to Amendment No. 1, the Creditor forgives a part of the credit liability in the amount of EUR 375,000 (three hundred seventy five thousand euros) based on Article 605 of the Civil Code of Ukraine. Thus, the credit facility repayment total was decreased to EUR 800,000 (eight hundred thousand euros) and the repayment schedule was amended as follows: IX. January 2010 EUR 160,000.00 (one hundred sixty thousand euros); January 2011 EUR 160,000.00 (one hundred sixty thousand euros); January 2012 EUR 160,000.00 (one hundred sixty thousand euros); January 2013 EUR 160,000.00 (one hundred sixty thousand euros); January 2014 EUR 160,000.00 (one hundred sixty thousand euros). Insurance

Pursuant to Ukrainian law, 10 objects, which may be insured are the property interests with regard to (i) life, health, working ability, and additional pension of an individual (personal insurance), (ii) possession, use and disposal of property (property insurance), (iii) compensation of damage caused by the insured person to other person, or its property (liability insurance). Insurance in Ukraine may be mandatory or voluntary. 11 A. Mandatory Insurance

Mandatory insurance may be divided into

10 11

Article 4 of the Law of Ukraine No. 85/96, dated March 7, 1996 (as amended). Article 5 of the Law of Ukraine No. 85/96, dated March 7, 1996 (as amended).

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(a) (b)

Mandatory State Social Insurance; and other Mandatory Insurance.

Mandatory State Social Insurance The Mandatory State Social Insurance is the employee insured by employer and comprises the following: (a) (b) (c) (d) state pension insurance; 12 state social insurance against accidents at work and occupational diseases; 13 state social insurance against temporary disability and expenses caused by birth and funeral; 14 and state social insurance in case of unemployment 15 .

The Company appears to be subject to all types of the Mandatory State Social Insurance, is registered with respective state funds and is a payer of respective social contributions to these funds. The most recent relevant rates are as follow:
Social Insurance Funds Rate (%) Employer's contribution (accrued by the employer on the amount of compensation paid) Temporary Disability Fund Unemployment Fund Pension Fund Professional Accident and Sickness Fund 2) Total
1)

Employee's contribution (withheld by the employer from the compensation paid) 0.5 1.01) 0.5 2

1.51) 1.31) 33.21) 0.66 13.6 (depends on level of risk at workplace) 36.66 - 49.6

Approx. 3 3.5

Special lower rates apply to handicapped employees and organizations employing a certain number of handicapped individuals.
Law of Ukraine No. 1058-IV "On Mandatory State Pension Insurance," dated July 9, 2003 (as amended).
13 14 15 12

Law of Ukraine No. 1105-XIV, dated September 23, 1999 (as amended). Law of Ukraine No. 2240-III, dated January 18, 2001 (as amended). Law of Ukraine No. 1533, dated March 2, 2000 (as amended).

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2)

Rates vary for enterprises with different classes of professional accident and sickness risk. According to the documents provided by the Company, the Company was duly registered and insures its employees with the relevant state authorities as evidenced by the following: 1. Notice on entry into the register of the Central Inter-District Executive Directorate of the Mykolaiv Regional Department of the Social Insurance Fund in case of Temporary Disability, dated November 1, 2006. The Company is registered under number 480040004157. Insurance certificate No. 1402003628 from the Social Insurance against Accidents at Work and Professional Illnesses, dated October 26, 2006 and issued by the Department of the Executive Directorate of the Fund in the Central District of the city of Mykolaiv. This certificate evidences that the Company was entered into the register of insurance contribution payers on March 7, 2003. Notice on entry into the register of insurance contribution payers of the Central Regional State Social Insurance Fund in case of Unemployment in the city of Mykolaiv, dated October 26, 2006. The Company is registered under number 140505082 since March 11, 2003. Notice on entry into the register of legal entities of the Pension Fund of Ukraine in the Central District of the city of Mykolaiv, dated October 26, 2006. The Company is registered under number 1402181438. The amount of pension contributions is currently 33.2% from the actual remuneration expenses for non-disabled employees and 4% for disabled employees. The Company also withholds 2% from monthly remuneration on behalf of its employees.

2.

3.

4.

We have not been provided with any documents evidencing any insurance-related claims to which the Company was or is a party. Moreover, we were not provided with any documents evidencing dispute resolution cases or litigation. Other Mandatory Insurance The other Mandatory Insurance types are stipulated by Ukrainian insurance law. 16 According to the documents and information made available to us, it appears that the Company is subject only to the civil legal liability (third party liability) insurance of vehicle owners. However, we were not provided with copies of the mandatory insurance policies in relation to the Companys automobiles. Unless done so earlier, the Company must purchase mandatory civil-legal liability insurance with respect to its automobiles, as such mandatory insurance has come into effect since January 1, 2008.
16

Article 7 of the Law of Ukraine No. 85/96, dated March 7, 1996 (as amended).

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B.

Voluntary Insurance

We have been provided with the copies of voluntary insurance policies regarding the following: 1. Agreement of Voluntary Insurance of a Transportation Means No. 938 dated May 24, 2007 entered into by and between the Open Joint Stock Company National Joint Stock Insurance Company ORANTA, as the Insurer, and AYDU LLC, as the Insured (hereinafter referred to as Insurance Agreement No. 938).

The subject of the agreement is a 2007 Toyota Camry, state registration number EE 1768 and body number JTNBE40K903095154, with a value of UAH 206,734.00 (two hundred six thousand seven hundred thirty four Ukrainian Hryvnias) (the Insured Amount). The said automobile is insured from the following risks: (i) accidents, (ii) unlawful actions of third parties; (iii) Acts of God and fire; (iv) theft. The deductible amount for risks (i) (iii) is 0.5% of the Insured Amount, while the deductible amount for risk (iv) is 7,0% of the Insured Amount. The one-time insurance payment is UAH 9,923.23 (nine thousand nine hundred twenty three Ukrainian Hryvnias and twenty three kopecks). The agreement is valid from May 26, 2007 until May 25, 2008 and is effective for the territory of Ukraine only. The agreement can be terminated by the parties upon mutual consent, upon complete performance by the Insurer of its obligations before the Insured, upon its expiration and on other grounds provided by Ukrainian legislation. Each of the parties has the right to prematurely terminate the agreement unilaterally without cause upon notice 15 days before the date of the intended termination. 2. Agreement of Voluntary Insurance of the Property of a Legal Entity No. 692 dated April 19, 2007 entered into by and between the Open Joint Stock Company National Joint Stock Insurance Company ORANTA, as the Insurer, and the Company, as the Insured (hereinafter referred to as Insurance Agreement No. 692).

The subject of the agreement is the property listed in Annex No. 1 to Insurance Agreement No. 692. The said list includes computers and various office equipment (the Property) with a total value of UAH 576,835.10 (five hundred seventy six thousand eight hundred thirty five Ukrainian Hryvnias and ten kopecks) (the Insured Amount). The Property is insured from the following risks: (i) fire, (ii) Acts of God, (iii) influence of liquid, (iv) theft, (v) unlawful acts of third parties. The deductible amount for the risks is 0.5% of the Insured Amount of each insured object for each insurance event. The one-time insurance payment is UAH 7,787.27 (seven thousand seven hundred eighty seven Ukrainian Hryvnias and twenty seven kopecks). The agreement is valid until from May 1, 2007 until April 30, 2008. Insurance Agreement No. 692 can be prematurely terminated by either party should the parties fail to reach an agreement on the introduction of changes and/or additions

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to the agreement. Insurance Agreement No. 692 can also be terminated by mutual consent of the parties as well as in case of the expiration of the validity term of the agreement, the complete performance by the Insurer of its obligations before the Insured, liquidation of the Insurer pursuant to the procedure established by Ukrainian legislation, a court decision on invalidity of the agreement (from the date of such decision) or other cases provided by Ukrainian legislation. Each of the parties has the right to terminate the agreement by written notice to the other party 30 days before the date of the intended termination. 3. Agreement of Voluntary Insurance of the Property of a Legal Entity No. 1169 dated June 27, 2007 entered into by and between the Open Joint Stock Company National Joint Stock Insurance Company ORANTA, as the Insurer, and the Company, as the Insured (hereinafter referred to as Insurance Agreement No. 1169).

The subject of the agreement is property listed in Annex No. 1 to Insurance Agreement No. 1169. The said list includes computers, office equipment, office appliances and furniture (the Property) with a total value of UAH 193,742.22 (one hundred ninety three thousand seven hundred forty two Ukrainian Hryvnias and twenty two kopecks) (the Insured Amount), which is 100% of the balance value of the insured Property. The Property is insured from the following risks: (i) fire, (ii) Acts of God, (iii) influence of liquid, (iv) theft, (v) unlawful acts of third parties. The deductible amount for the risks is 0.5% of the Insured Amount of each insured object for each insurance event. The one-time insurance payment is UAH 2,615.52 (two thousand six hundred fifteen Ukrainian Hryvnias and fifty two kopecks). Please note that Insurance Agreement No. 1169 does not contain a term of validity, although it is signed by both parties. Insurance Agreement No. 1169 can be prematurely terminated by either party should the parties fail to reach an agreement on the introduction of changes and/or additions to the agreement. The agreement can also be terminated by mutual consent of the parties as well as in case of the expiration of the validity term of the agreement, the complete performance by the Insurer of its obligations before the Insured, liquidation of the Insurer pursuant to the procedure established by Ukrainian legislation, a court decision on invalidity of the agreement (from the date of such decision), failure of the Insured to pay the regularly scheduled insurance payment under the agreement or other cases provided by Ukrainian legislation. Each of the parties has the right to terminate the agreement by written notice to the other party 30 days before the date of the intended termination. All the above Insurance Agreements with the insurance company Oranta are on the Insurers standard form which contains all of the required terms and conditions established by Ukrainian legislation. The agreements are signed by both parties and affixed with their corporate seals.

X.

Litigation

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According to the information made available by the Company, at the time of this report neither the Company, nor any of its assets are involved in any litigation with respect to the Companys business.

XI.

Qualifications

The qualifications to which this report is subject are as follows: This report is addressed to you on condition that it shall be treated as solely for your benefit and shall not be relied upon by anyone else and may not, without our prior consent, be: (1) disclosed by you to any other party other than persons who, in the ordinary course of your business, have access to your papers and records and to the parties to the documents we have reviewed (Relevant Documents) and their permitted assigns in connection with the transactions specified therein on the basis that they will similarly make no further disclosure; or, (2) filed with any governmental agency or authority or quoted in any public document. We have not, except as specifically identified herein, been retained or engaged to perform, nor have we performed, any independent review or investigation of any statutes, ordinances, laws, regulations, agreements, contracts, instruments, corporate records, orders, writs, judgments, rules or decrees to which each Company (Relevant Party) may be a party or to which the Relevant Party or its property may be subject, or by which the Relevant Party or any of its property may be bound, nor have we been retained or engaged to perform, or performed, any independent review or investigation as to the existence of any actions, suits, proceedings, orders, investigations or claims before any court, arbitrator, or governmental department, commission, board, bureau, agency or instrumentality pending or threatened against or relating to the Relevant Party or its property or in which the Relevant Party is a party. This report and all statements herein to the best of our knowledge or concerning matters of which we are made aware, is given in the context of the foregoing. This report is based, as to matters of law, solely on the law, legislative acts, rules and regulations of Ukraine, and we express no opinion as to any other laws, statutes, regulations or ordinances. We assume no obligation to advise you of any changes in the foregoing subsequent to the issuance of the provided documents and delivery of this report.

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