Ministry of Finance and Ministry of Science and Technology, Implementing Stock Option Incentive Pilot Programmes in State-owned High and New Technology Enterprises Guiding Opinion

Issued: September 17 2002
Applicability: For the purposes of this Opinion, "State-owned high and new technology enterprises" refers to wholly State-owned companies or State-controlled limited liability companies or companies limited by shares (other than listed companies) that have been established pursuant to the PRC Company Law and certified as high and new technology enterprises by provincial- or higher-level authorities in charge of science and technology (Section Two).

Main contents: Subject to the approval of its shareholders' general meeting or board of directors, a State-owned high and new technology enterprise may apply to relevant departments in charge of finance and science and technology for implementation of a stock option incentive pilot programme (Section 10). Such enterprise shall have satisfied certain conditions, which include, among other things, a clear ownership structure, research and development expenditures in the last three years amounting to at least 5% of its annual sales and R&D personnel accounting for at least 10% of its total employees (Section Three). Persons whom such stock options shall motivate are technicians and managerial personnel who have made outstanding contributions to the development of the enterprise, as determined by the shareholders' general meeting or the board of directors (Section Four). Stock option incentive pilot programmes may take the forms of bonus stocks/interests, stock/interest sales and technology-converted stocks (Section Five). The amount of stocks/interests to be so used is subject to certain caps (Section Six). Such stocks/interests shall be locked up for a period normally no shorter than the term of office of the holders of such stocks/interests (Section Nine). Asset valuation is mandatory prior to the implementation of such a programme (Section 10).
Related legislation: Central Committee of the Communist Party of China and State Council, The Decision on Strengthening Technological Innovations, Developing Advanced Science and Technology and Realizing Industrialization, 1999; PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21; Requirements and Procedures for Recognition of High and New Technology Enterprises in State High and New Technology Industry Development Zones (Revised), Jul 23 2000, CLP 2000 No.8 p8 and Requirements and Procedures for Recognition of High and New Technology Enterprises Outside State High and New Technology Industry Development Zones, 1996