Measures for the Administration of the Equity Incentives of Listed Companies (Trial Implementation)

(Issued by the China Securities Regulatory Commission on December 31 2005 and effective as of January 1 2006.)

Zheng Jian Gong Si Zi [2005] No.151

PART ONE: GENERAL PROVISIONS

Article 1: These Measures have been formulated pursuant to the PRC Company Law, the PRC Securities Law and other relevant laws and administrative regulations in order to promote the establishment and improvement of incentive and constraint mechanisms by listed companies.

Article 2: For the purposes of these Measures, the term 'equity incentive' means the use by a listed company of its own shares as the subject matter of long-term incentives offered to its directors, supervisors, senior management personnel and other staff and workers.

These Measures shall govern the equity incentive schemes implemented by listed companies using restricted shares, stock options or other methods permitted under laws and administrative regulations.

Article 3: The equity incentive scheme implemented by a listed company shall comply with laws, administrative regulations, these Measures and the company's articles of association, be beneficial to the sustained growth of the listed company and may not harm the interests of the listed company.

In the course of implementing an equity incentive scheme, the listed company's directors, supervisors and senior management personnel shall act in good faith and with due diligence and safeguard the interests of the company and of the shareholders as a whole.

Article 4: A listed company wishing to implement an equity incentive scheme shall perform its information disclosure obligations in strict accordance with the requirements of relevant provisions and these Measures.

Article 5: Professional organizations that issue opinions on the equity incentive schemes of listed companies shall act in good faith and with due diligence so as to ensure that the documents that they issue are true, accurate and complete.

Article 6: No one may use an equity incentive scheme to engage in insider trading, manipulate securities prices or engage in securities fraud.

PART TWO: COMMON PROVISIONS

Article 7: A listed company may not implement an equity incentive scheme if:

(1) a certified public accountant issued an audit report with an adverse opinion or a disclaimer of opinion with respect to its most recent annual financial accounting report;

(2) in the last year the China Securities Regulatory Commission (CSRC) imposed administrative penalties due to its commission of a major violation of laws or regulations; or

(3) another circumstance determined by the CSRC arises.

Article 8: The targets of an equity incentive scheme may include the listed company's directors, supervisors, senior management personnel, key technical (business) personnel and other staff and workers that the company believes should be offered incentives, but shall not include independent directors.

The following persons may not be incentive targets:

(1) persons who have been publicly censured or declared inappropriate candidates by the CSRC during the most recent three years;

(2) persons who have been subjected to administrative penalties by the CSRC for a major violation of laws or regulations during the most recent three years; and

(3) persons not fit to serve as company directors, supervisors or senior management personnel as specified in the PRC Company Law.

Once an equity incentive scheme has been considered and adopted by the board of directors, the supervisory board of the listed company shall verify the list of incentive targets and explain the outcome of its verification at a shareholders' general meeting.

Article 9: If the incentive targets are directors, supervisors or senior management personnel, the listed company shall establish a performance assessment system and assessment method, and set the performance assessment targets as the conditions for eligibility for the equity incentive scheme.

Article 10: A listed company may not provide loans or any other form of financial assistance, including the provision of security to loans, to the incentive targets to enable them to obtain the relevant rights pursuant to the equity incentive scheme.

Article 11: A listed company that intends to implement an equity incentive scheme may, depending on the actual circumstances of the company, resolve the issue of the provenance of the subject shares by the following methods:

(1) issuing shares to the incentive targets;

(2) buying back the company's shares; or

(3) another method permitted by laws or administrative regulations.

Article 12: The total number of subject shares involved in all the valid equity incentive schemes may not exceed, in the aggregate, 10% of the listed company's total share capital.

Without the approval of the shareholders' general meeting in the form of a special resolution, the number of shares of the company granted through all the valid incentive schemes of any single incentive target may not exceed in the aggregate 1% of the company's total share capital.

For the purposes of the first and second paragraphs of this article, the term 'total share capital' means the total share capital already issued by the company at the time the shareholders' general meeting approved the most recent equity incentive scheme.

Article 13: A listed company shall expressly specify or explain the following matters in its equity incentive scheme:

(1) the objectives of the equity incentive scheme;

(2) the basis for determining the incentive targets and the scope thereof;

(3) the proposed quantity of rights to be granted under the equity incentive scheme, the class of shares involved, their provenance, quantity and the percentage of the listed company's total share capital for which they account; if the scheme is to be implemented in stages, the proposed quantity of rights to be granted under the equity incentive scheme at each stage, the class of shares involved, their provenance, quantity and the percentage of the listed company's total share capital for which they account;

(4) if the incentive targets are directors, supervisors and senior management personnel, the quantity of rights to which each is entitled and the percentage accounted for by it in the total proposed quantity of rights to be granted by the equity incentive scheme; the quantity of rights to which other incentive targets (either individually or by appropriate category) are entitled and the percentage accounted for by it in the total proposed quantity of rights to be granted by the equity incentive scheme;

(5) the equity incentive scheme's term, grant date, exercise date and the lock-up period for the subject shares;

(6) the grant price or the method of determining the grant price for restricted shares, or the exercise price or the method of determining the exercise price for stock options;

(7) the conditions for the receipt and exercise of rights by the incentive targets, e.g. the performance assessment system and assessment method, and the performance assessment targets that are the conditions for eligibility for the equity incentive scheme;

(8) the method and procedures for revising the quantity of rights and quantity of shares involved in the equity incentive scheme and the grant price or exercise price;

(9) the procedures for the granting of rights by the company and the exercise thereof by the incentive targets;

(10) the rights and obligations of the company and the incentive targets;

(11) how the equity incentive scheme is to be implemented in the event of a change in control, the merger or division of the company, or a change in the position, departure, death, etc. of an incentive target;

(12) the amendment and termination of the equity incentive scheme; and

(13) other important matters.

Article 14: If any of the circumstances specified in
Article 7 hereof arises, a listed company shall terminate the implementation of its equity incentive scheme and may not continue granting new rights to the incentive targets. The exercise of the rights received by the incentive targets under an equity incentive scheme but not yet exercised shall be halted.

If in the course of the implementation of an equity incentive scheme any of the circumstances making an incentive target ineligible as an incentive target as specified in Article 8 hereof arises, the listed company may not continue granting him/her rights and the exercise of the rights that he/she has received but not yet exercised shall be halted.

Article 15: The transfer by an incentive target of the shares that he/she received under an equity incentive scheme shall comply with laws, administrative regulations and these Measures.

PART THREE: RESTRICTED SHARES

Article 16: For the purposes of these Measures, the term 'restricted shares' means the company's shares in a set quantity received by an incentive target from the listed company in accordance with the conditions specified in the equity incentive scheme.

Article 17: When a listed company grants restricted shares to incentive targets, it shall specify in the equity incentive scheme the conditions of performance of the incentive targets to receive the shares and the lock-up period.

Article 18: If a listed company determines the grant price of restricted shares based on the market price of the shares, it may not grant shares to the incentive targets at the following periods:

(1) during the 30 days prior to the publication of a periodic report;

(2) during the process of reaching a decision on a material transaction or material event until two trading days after the announcement of such matter; or

(3) from the date another material event that could affect the share price occurs until two trading days after the announcement thereof.

PART FOUR: STOCK OPTIONS

Article 19: For the purposes of these Measures, the term 'stock option' means the right granted by a listed company to incentive targets to purchase a certain quantity of the company's shares within a certain period in the future at a predetermined price and under predetermined conditions.

An incentive target may use the stock options he/she has been granted to purchase a certain quantity of the listed company's shares during the prescribed period at the predetermined price and under the predetermined conditions, or he/she may waive such right.

Article 20: The stock options granted to an incentive target may not be transferred, or be used as security for, or to discharge, a debt.

Article 21: The board of directors of a listed company may decide to grant the stock options on a single occasion or in stages, depending on the stock option plan considered and adopted by the shareholders' general meeting, provided that the total quantity of subject shares underlying the granted stock options may not, in the aggregate, exceed the total number of subject shares under the stock option plan.

Article 22: The interval between a stock option grant date and the first exercise date for granted stock options may not be less than one year.

The term of validity of stock options may not be greater than 10 years, counting from the grant date.

Article 23: During the term of validity of stock options, a listed company shall specify that the incentive targets are required to exercise their options in stages.

Stock options that have been granted but not yet exercised by the time their term of validity has expired may not be exercised.

Article 24: When granting stock options to incentive targets, a listed company shall determine the exercise price or the method of determining the exercise price. The exercise price shall not be less than the higher of the two following prices:

(1) the closing price of the company's subject shares on the trading day preceding the announcement of the abstract of the draft equity incentive scheme; or

(2) the average closing price of the company's subject shares during the 30 trading days preceding the announcement of the abstract of the draft equity incentive scheme.

Article 25: If a listed company is required to revise the exercise price or the quantity of stock options due to the fact that the subject shares are ex-rights, ex-dividend or otherwise, it may make the revision based on the principles and in line with the method specified in the equity incentive scheme.

A revision of the exercise price or quantity of stock options by the listed company pursuant to the preceding paragraph shall require a resolution by the board of directors and the consideration and approval of the shareholders' general meeting, or a decision made by the board of directors with authorization given by the shareholders' general meeting.

A lawyer shall be required to issue a professional opinion to the board of directors on whether the aforementioned revision complies with these Measures, the company's articles of association and the equity incentive scheme.

Article 26: A listed company may not grant stock options to incentive targets at the following periods:

(1) during the 30 days prior to the publication of a periodic report;

(2) during the process of reaching a decision on a material transaction or material event until two trading days after the announcement of such matter; or

(3) from the date another material event that could affect the share price occurs until two trading days after the announcement thereof.

Article 27: An incentive target shall exercise his/her options during the period between the second trading day after the announcement of the listed company's periodic report and the tenth trading day prior to the publication of the subsequent periodic report. However, he/she may not exercise his/her options at the following periods:

(1) during the process of reaching a decision on a material transaction or material event until two trading days after the announcement of such matter; or

(2) from the date another material event that could affect the share price occurs until two trading days after the announcement thereof.

PART FIVE: IMPLEMENTING PROCEDURE AND INFORMATION DISCLOSURE

Article 28: The remuneration and assessment committee under the board of directors of a listed company shall be responsible for drafting the equity incentive scheme. The remuneration and assessment committee shall establish sound rules of procedure, and the equity incentive scheme that it drafts shall be submitted to the board of directors for consideration.

Article 29: The independent directors shall express their independent opinions on whether the equity incentive scheme is beneficial to the sustained growth of the listed company and whether it would manifestly harm the interests of the listed company or of the shareholders as a whole.

Article 30: The listed company shall announce the resolution of the board of directors, an abstract of the draft equity incentive scheme and the opinions of the independent directors within two trading days after the draft equity incentive scheme has been considered and adopted by the board of directors.

The abstract of a draft equity incentive scheme shall at minimum contain the information specified in Items (1) to (8) and Item (12) of Article 13 hereof.

Article 31: A listed company shall engage a lawyer to issue a legal opinion on its equity incentive scheme, who shall, at minimum, express his/her professional opinion on the following matters:

(1) whether the equity incentive scheme complies with these Measures;

(2) whether the statutory procedures for the equity incentive scheme have been carried out;

(3) whether the listed company has performed its information disclosure obligations;

(4) whether the equity incentive scheme would manifestly harm the interests of the listed company or of the shareholders as a whole or would violate relevant laws or administrative regulations; and

(5) other matters that require explanation.

Article 32: If it deems it necessary, the remuneration and assessment committee under the board of directors of a listed company may request that the listed company engage an independent financial advisor to express his/her professional opinion on the feasibility of the equity incentive scheme, whether it would be beneficial to the sustained growth of the listed company and whether it would harm the interests of the listed company or of the shareholders as a whole.

The independent financial advisor shall issue an independent financial advisor report and, at minimum, express his/her professional opinion on the following matters:

(1) whether the equity incentive scheme complies with these Measures;

(2) the feasibility of the company implementing the equity incentive scheme;

(3) the verification of the scope and qualifications of the incentive targets;

(4) the verification of the quantity of rights to be granted under the equity incentive scheme;

(5) the company's financial estimate for the implementation of the equity incentive scheme;

(6) the effect of the implementation of the equity incentive scheme by the company on the listed company as a going concern and on the rights and interests of the shareholders;

(7) the verification of whether the listed company is providing any form of financial assistance to the incentive targets;

(8) whether the equity incentive scheme would manifestly harm the interests of the listed company or of the shareholders as a whole;

(9) the reasonableness of the listed company's performance assessment system and assessment method; and

(10) other matters that require explanation.

Article 33: After its board of directors has considered and adopted the equity incentive scheme, the listed company shall submit the relevant materials to the CSRC for the record, with copies sent to the stock exchange and to the securities regulatory bureau of the place where the company is located.

The materials relating to the listed company's equity incentive scheme submitted to the CSRC for the record shall include the following documents:

(1) the resolution of the board of directors;

(2) the equity incentive scheme;

(3) the legal opinion;

(4) if an independent financial advisor was engaged, the independent financial advisor report;

(5) if the approval of relevant departments is required in accordance with provisions for the implementation of an equity incentive scheme by the listed company, the relevant official reply documents; and

(6) other documents required by the CSRC.

Article 34: If the CSRC does not raise any objections within 20 days of the date of receipt of the complete materials for the record filing of the equity incentive scheme, the listed company may issue the notice to convene the shareholders' general meeting to consider and implement the equity incentive scheme. If the CSRC raises an objection during the aforementioned period of time, the listed company may not issue the notice to convene a shareholders' general meeting to consider and implement the scheme.

Article 35: When a listed company issues a notice to convene a shareholders' general meeting, it shall announce the legal opinion at the same time; if an independent financial advisor was engaged, it shall also announce the independent financial advisor report at the same time.

Article 36: The independent directors shall solicit proxy voting rights on the equity incentive scheme from all of the shareholders.

Article 37: Votes on the following contents of the equity incentive scheme shall be taken at the shareholders' general meeting:

(1) the quantity of rights involved in the equity incentive scheme, the class of subject shares, their provenance and quantity;

(2) the basis for determining and the scope of the incentive targets;

(3) the quantity of rights or the method of determining the quantity of rights granted to each director and/or supervisor under the equity incentive scheme; the quantity of rights or the method of determining the quantity of rights granted to the senior management personnel and other incentive targets (either individually or by appropriate category);

(4) the term of the equity incentive scheme and the lock-up period for the subject shares;

(5) the conditions for incentive targets to receive the rights or exercise the options;

(6) the grant price or the method of determining the grant price for the restricted shares, or the exercise price or the method of determining the exercise price for the stock options;

(7) the method and procedure for revising the quantity of rights or quantity of subject shares involved in the equity incentive scheme and the grant price or exercise price;

(8) the amendment and termination of the equity incentive scheme;

(9) the authorization given to the board of directors to handle matters relating to the equity incentive scheme; and

(10) other matters that require a vote of the shareholders' general meeting.

Resolutions on the foregoing matters by the shareholders' general meeting shall require two-thirds or more of the voting rights of the shareholders in attendance for adoption.

Article 38: Once the equity incentive scheme has been considered and adopted by the shareholders' general meeting, the listed company shall handle the matters relating to the information disclosure with the stock exchange on the strength of the relevant documents and the relevant depository and clearing matters with the securities depository and clearing institution.

Article 39: The listed company shall, in accordance with the securities depository and clearing institution's operating rules, open a securities account with such institution that will be used to implement the equity incentive scheme.

Stock options that have not yet been exercised and subject shares that may not be transferred shall be locked.

Article 40: With respect to the applications by incentive targets to exercise their stock options and the locking and unlocking of restricted shares, the listed company shall, after confirmation of the board of directors or the organization authorized by the board of directors, submit an exercise application to the stock exchange. After confirmation by the stock exchange, the depository and clearing matters shall be carried out by the securities depository and clearing institution.

Stock options that have been exercised shall be cancelled in a timely manner.

Article 41: Unless expressly authorized by the shareholders' general meeting, if the listed company wishes to amend the matters in the equity incentive scheme that are specified in Article 37 hereof, it shall submit the same to the shareholders' general meeting for consideration and approval.

Article 42: A listed company shall disclose in its periodic reports the details of the implementation of its equity incentive scheme during the reporting period, including the following:

(1) the scope of the incentive targets during the reporting period;

(2) the total amount of rights granted, exercised and voided during the reporting period;

(3) the total aggregate amount of rights granted but not exercised as at the end of the reporting period;

(4) the various revisions made to the grant price or exercise price during the reporting period and the most recent revised grant price or exercise price;

(5) the names and positions of each director, supervisor and member of the senior management personnel and details of their receipt and exercise of rights;

(6) details of the change in share capital caused by the incentive targets exercising their rights; and

(7) the accounting treatment method for the equity incentives.

Article 43: A listed company shall disclose the accounting treatment of its equity incentives in its financial reports in accordance with relevant provisions.

Article 44: A stock exchange shall specify in its operating rules the requirements in respect of information disclosure for equity incentive schemes.

Article 45: A securities depository and clearing institution shall specify in its operating rules the requirements for handling depository and clearing matters relating to equity incentive schemes.

PART SIX: REGULATION AND PENALTIES

Article 46: If a listed company's financial accounting documents contain fraudulent statements, all of the benefits derived from the equity incentive scheme by the responsible incentive target for 12 months from the date of announcement of the financial accounting documents shall be returned to the company.

Article 47: If a listed company fails to implement an equity incentive scheme in accordance with the provisions of these Measures, the CSRC shall order it to rectify the matter and penalize the company and the relevant persons responsible in accordance with the law. During the period of rectification, the CSRC will not accept application documents from the company.

Article 48: If a listed company fails to disclose information relating to its equity incentive scheme in accordance with these Measures and other relevant provisions or if the disclosed information contains fraudulent or misleading statements or material omissions, the CSRC shall order it to rectify the matter and penalize the company and the relevant persons responsible in accordance with the law.

Article 49: If an equity incentive scheme is utilized to falsify results, manipulate the market or engage in insider trading, and thereby obtain improper gains, the CSRC shall confiscate the illegal income in accordance with the law and take such measures as barring access to the market, etc. against the relevant persons responsible; if a criminal offence is established, it shall transfer the case to the judicial authorities for investigation and handling in accordance with the law.

Article 50: If a relevant professional organization that issues opinions in respect of listed companies' equity incentive schemes fails to perform its obligation of due diligence, resulting in a professional opinion containing fraudulent or misleading statements or material omissions, the CSRC shall take such measures against the relevant professional organization and the signatory as the giving of a regulatory discussion, issuance of a warning letter, ordering rectification, etc. and hand the matter over to the department in charge of the professional organization for handling. If the circumstances are serious, such penalties as a warning, fine, etc. shall be imposed. If a violation of securities laws is established, legal liability shall be pursued in accordance with the law.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 51: The following terms in these Measures shall have the meanings assigned to them below:

'Senior management personnel' means the manager, deputy manager(s), financial officer, and board secretary of a listed company as well as other persons specified in the company's articles of association.

'Subject shares' means the listed company's shares that the incentive targets are entitled to receive or purchase pursuant to an equity incentive scheme.

'Rights' means the listed company's shares or stock options that incentive targets receive pursuant to an equity incentive scheme.

'Grant date' means the date on which a listed company grants stock options to incentive targets. The grant date must be a trading day.

'Exercise' means the act whereby an incentive target, pursuant to a stock option incentive scheme, purchases shares of the listed company within the specified period of time, at the pre-determined price and under the pre-determined conditions.

'Exercise date' means the date on which incentive targets may commence exercising their options. The exercise date must be a trading day.

'Exercise price' means the price determined by the listed company at the time that it grants stock options to incentive targets and at which they will purchase the listed company's shares.

'Grant price' means the price determined by the listed company at the time that it grants restricted shares to incentive targets and at which they obtain the listed company's shares.

For the purposes of these Measures, the expressions 'exceeding' and 'less than' do not include the number.

Article 52: These Measures shall apply to companies whose shares are listed on the Shanghai and Shenzhen Stock Exchanges.

Article 53: These Measures shall be effective as of
January 1 2006.