DFZQ — Capital/Financing Update 2020

Jun 17, 2020

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(A joint stock company incorporated in the People’s Republic of China with limited liability under the Chinese corporate name “ 東方證券股份有限公司 ” and carrying on business in Hong Kong as “ 東方證券 ” (in Chinese) and “DFZQ” (in English))

(Stock Code: 03958)

PROPOSED ADOPTION OF THE EMPLOYEE STOCK OWNERSHIP PLAN

THE EMPLOYEE STOCK OWNERSHIP PLAN

In order to establish and improve the benefit sharing mechanism between employees and the Company, enhance the cohesion among employees and competitiveness of the Company, and attract and retain talents, so as to promote the long-term, sustainable and healthy development of the Company and maximize the benefits of the Company, its shareholders and employees as a whole, the relevant resolutions regarding the Employee Stock Ownership Plan were considered and approved at the 20th meeting of the fourth session of the Board held on June 17, 2020.

The ESOP is proposed to be financed by the employees of the Company on a voluntary basis. The total number of H Shares to be purchased under the ESOP shall not exceed 2% of the total share capital of the Company and the total number of Shares entitled under each unit of the ESOP held by an individual employee shall not exceed 0.1% of the total share capital of the Company. The final size shall be subject to the actual capital contribution by the employees and the purchase price of H Shares of the Company. The Shares of the ESOP shall be the H Shares of the Company directly purchased in the secondary market by the Entrusted Management Agency as instructed by the Management Committee through SH-HK Stock Connect and/or SZ-HK Stock Connect and other methods as permitted under the laws and regulations. The personnel qualified to participate in the ESOP include directors, supervisors, senior management and other employees who have entered into formal labor contracts with the Company or its holding subsidiaries. The qualified personnel shall participate the ESOP under the principles of compliance with laws and regulations, voluntary participation and risk taking.

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

The Employee Stock Ownership Plan does not constitute a share option scheme under the Chapter 17 of the Hong Kong Listing Rules.

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As some Core Connected Persons of the Company may subscribe for the H Shares of the Company through the ESOP, the H Shares of the Company held by the public under the Rule of 8.08 of the Hong Kong Listing Rules may be slightly reduced by a limited extent. As at the date of this announcement, based on the information available to the public and the knowledge of the Directors, approximately 14.7% H Shares are held by the public. Whereas the following provisions in the ESOP, (i) the total number of H shares to be purchased shall not exceed 2% of the total share capital of the Company; and (ii) the units held by Core Connected Persons under the ESOP shall not exceed 20% of the total number of units. The total number of H Shares to be subscribed for by Core Connected Persons under the ESOP will not exceed 0.4% of the total issued Shares of the Company. The Company will keep records of numbers of Shares purchased under the ESOP and each participant’s rights and interests under such shares in order to monitor the percentage of H Share public float that changed as a result of implementation of the ESOP.

THE EXTRAORDINARY GENERAL MEETING

Pursuant to the relevant PRC laws and regulations, the draft Employee Stock Ownership Plan proposed by the board of directors of a listed company shall be approved at a general meeting. An extraordinary general meeting of the Company will be convened to consider and approve, if thought fit, the Employee Stock Ownership Plan and authorize the Board to fully handle matters related to the Employee Stock Ownership Plan.

In order to establish and improve the benefit sharing mechanism between employees and the Company, enhance the cohesion among employees and competitiveness of the Company, and attract and retain talents, so as to promote the long-term, sustainable and healthy development of the Company and maximize the benefits of the Company, its shareholders and employees as a whole, the relevant resolutions regarding the Employee Stock Ownership Plan were considered and approved at the 20th meeting of the fourth session of the Board held on June 17, 2020.

The ESOP is proposed to be financed by the employees of the Company on a voluntary basis. The total number of H Shares to be purchased under the ESOP shall not exceed 2% of the total share capital of the Company and the total number of Shares entitled under each unit of the ESOP held by an individual employee shall not exceed 0.1% of the total share capital of the Company. The final size shall be subject to the actual capital contribution by the employees and the purchase price of H Shares of the Company. The Shares of the ESOP shall be the H Shares of the Company directly purchased in the secondary market by the Entrusted Management Agency as instructed by the Management Committee through SH-HK Stock Connect and/or SZ-HK Stock Connect and other methods as permitted under the laws and regulations. The personnel qualified to participate in the ESOP include directors, supervisors, senior management and other employees who have entered into formal labor contracts with the Company or its holding subsidiaries. The qualified personnel shall participate the ESOP under the principles of compliance with laws and regulations, voluntary participation and risk taking.

The Company drafted the Plan in accordance with the requirements of the Company Law, the Securities Law, the Guidance, the Guidelines on Information Disclosure of Employee Stock Ownership Plan of Listed Companies (《上市公司員工持股計劃信息披露工作指引》), the Hong Kong Listing Rules and other relevant laws, administrative regulations, rules, normative documents and the Articles of Association.

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PRINCIPAL TERMS OF THE EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT)

Participants (I) Scope of Participants of the ESOP

The personnel qualified to participate in the ESOP include directors, supervisors, senior management and other employees who have entered into formal labor contracts with the Company or its holding subsidiaries as of April 30, 2020.

Employees who intend to participate in the Plan shall comply with the ESOP subscription rules formulated by the Company.

(II) Limitation on Participants

The employee shall not participate in the ESOP if any of the following circumstances applies:

1. the employee has been publicly condemned or declared unfit by a stock exchange in the last three years;

2. the employee has been subject to administrative penalty by the CSRC for serious violation of laws or regulations in the last three years;

3. the employee has caused material damage to the interest, reputation and corporate image of the Company due to non-compliance with the laws and regulations of the PRC, such as divulgence of national secrets or confidential information of the Company, corruption, theft, conversions, accepting or giving bribe, neglect of duty, dereliction of duty, or due to acts in violation of public order and good practice, professional ethics and conduct in the last three years;

4. the circumstance under which the board of directors determines that the employee is not qualified to be the Holder under the Plan;

5. other circumstance as stipulated by relevant laws, regulations or normative documents under which the employee is not qualified to be the Holder under the Plan.

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(III) Proposed Subscription by the Participants under the ESOP

Based on the above principles, the total number of participants of the Plan is expected not to exceed 4,000 (the specific number of participants will be determined according to the actual payment of employees), and the total amount for subscription of units under the ESOP shall not exceed RMB400 million (inclusive). In particular, the portion to be subscribed by the Directors, Supervisors and senior management of the Company (being Pan Xinjun, Jin Wenzhong, Du Weihua, Shu Hong, Zhang Jianhui, Yang Bin, Xu Haining, Lu Weiming, Wang Rufu, Chen Xiaobo, Zhou Wenwu and Yao Yuan) shall be no less than 7% of the total number of units under the ESOP, and the portion to be subscribed by other employees shall be no more than 93% of the total number of units under the ESOP. In addition, the units held by directors, supervisors and chief executives of the Company and its subsidiaries and other Core Connected Persons under the ESOP shall not exceed 20% of the total number of units under the Plan.

The units subscribed by the participants under the ESOP and the amounts of corresponding units shall be subject to actual implementation.

• Subscription quantity and amount

• Lock-up period

• Term

• The maximum amount of funds of the ESOP is RMB400 million (inclusive) which shall be divided into a maximum of 400 million units to be subscribed at RMB1.00 each. The minimum number of units to be subscribed by an employee shall be 30,000 units (i.e. the minimum subscription amount shall be RMB30,000), and the portion exceeding such minimum amount shall be subscribed in whole units of 1,000 each. The specific number of units held by a Holder of the ESOP is subject to the amount of his/her actual payment.

• The lock-up period of the Subject Shares purchased under ESOP shall be 12 months with effect from the date on which the Company announces that the latest purchased Subject Shares are transferred and registered. For Shares derived from circumstances such as capitalization of capital reserves, bonus issue and the Plan involved in matters related to refinancing by the Company, the above lock-up arrangement shall also apply. However, cash bonus attributable to Shares of the Company are not subject to the aforesaid lock-up period.

• The term of the ESOP shall be 5 years with effect from the date on which the Plan is considered and approved at the Shareholders’ general meeting of the Company. The term of the Plan can be extended upon approval at a Holders’ Meeting and consideration and approval by the Board of Directors of the Company. The ESOP shall be automatically terminated if the term of the ESOP is not effectively extended upon expiration.

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Disposal of Equity Interests of the ESOP

During the term of the Plan, except in the event that the disposal is otherwise stipulated in relevant laws, administrative regulations, the Plan or required by effective judicial adjudication, the Holders shall neither pledge or secure, create guarantee over, settle debt with, nor transfer or otherwise dispose the units held by them under the ESOP. At the expiration of the lock-up period, the Management Committee may, according to the actual needs, formulate the regulations on the transfer of Shares in the Employee Stock Ownership Plan.

MANAGEMENT OF THE EMPLOYEE STOCK OWNERSHIP PLAN

Management Mode

Employees participate in the Plan by subscribing the ESOP units, and the ESOP is governed by the Holders’ Meeting; the Management Committee established for the ESOP is responsible for the daily management of the ESOP and exercises the rights of Shareholders on behalf of the Holders; the Board of Directors of the Company is responsible for formulation of the Plan and handling other related matters of the ESOP within the scope authorized by the Shareholders’ general meeting.

The ESOP entrusts the Asset Management Agency to set up the Asset Management Scheme for investment, operation and daily management.

The ESOP can use the Company’s self-built OTC system to complete the operational procedures such as contract signing, fund-raising, share registration, and withdraw and transfer so as to realize centralized online management and archive electronically.

Asset Management Agency

The Asset Management Agency shall carry out shares trading, dividend and interest payment, taxes and fees payment and other related work according to the asset management contract of the ESOP. When purchasing or selling the Subject Shares, the Asset Management Agency must strictly abide by the market trading rules and the provisions of the CSRC, the SFC and the stock exchanges at the places where the securities of the Company are listed concerning the prohibition of shares trading during the sensitive period of information, and is strictly prohibited from using any insider information for trading.

ASSET MANAGEMENT CONTRACT

To manage the assets under the Plan, the Company (on behalf of the ESOP and as the asset trustor), China Universal (as the asset manager) and Industrial and Commercial Bank of China Limited Shanghai Branch (as the asset custodian) has entered into the asset management contract (the “ Asset Management Contract ”). Pursuant to the Asset Management Contract, the asset manager will set up and manage the Asset Management Scheme. In addition, for convenience of calculating the public float of H Shares of the Company, two Asset Management Schemes are set up, of which Asset Management Scheme No.1 shall apply to holding of Shares by directors, supervisors and chief executives of the Company and its subsidiaries or other Core Connected Persons, and Asset Management Scheme No.2 shall apply to holding of Shares by persons other than the Core Connected Persons above.

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PRINCIPAL TERMS OF THE ASSET MANAGEMENT CONTRACT

Investment objective

Under the premise of strict control of risks, the Asset Manager shall hold the Subject Shares within the investment period based on the requirements of the asset entrustment, share the return on investment from the development of the listed company, and strive to achieve stable appreciation of the entrusted properties for the Asset Trustor.

Parties

the Company (on behalf of the Employee Stock Ownership Plan) (as asset trustor) (the “ Asset Trustor ”); China Universal Asset Management Co., Ltd. (asset manager) (the “ Asset Manager ”); and Industrial and Commercial Bank of China Limited Shanghai branch (as asset custodian) (the “ Asset Custodian ”).

Investment direction Mainly to invest in the H Shares issued by the Company, DFZQ (03958.hk), and idle capital can be invested in liquidity management tools such as bank deposits, sovereign debts, central bank notes, policy-based financial debts, local government bonds, money market funds and reverse-purchase agreements.

Investment proportion Upon the completion of position building for the Plan, the proportion of investment in equity assets shall be no less than 80% of the total assets.

Expenses

Types of asset management fees:

• 1 Management fee of the Asset Manager;

• 2 Custodial fee of the Asset Custodian;

• 3 Bank charges for the transfer of entrusted property and bank charges for funds accounts, etc.;

• 4 Securities, futures transaction fees and account opening fees for entrusted property;

• 5 Information disclosure fees for Asset Management Scheme after the establishment of the Asset Management Scheme;

• 6 Accountant fees, audit fees, attorney’s fees, arbitration fees, litigation fees, etc. related to the Asset Management Scheme after the establishment of the Asset Management Scheme;

• 7 Other expenses that may be charged for the entrusted assets in accordance with the laws and regulations and the terms of the asset management contract.

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In particular, (1) the management fee of the Asset Manager is calculated as follows:

The management fee of the Plan shall be determined based on the net value of entrusted property of the previous day and the annual rate of management fee.

The annual rate of management fee of the Plan is 0.10%;

H = E × annual rate of management fee ÷ number of days in relevant year

H represents the daily management fee of entrusted property, E represents the net value of entrusted property of the previous day, and in case of the first day, it shall be calculated based on the amount as at the date of establishment of the Plan;

(2) The custodial fee of the Asset Custodian is calculated as follows:

The custodial fee of the Plan shall be determined based on the net value of entrusted property of the previous day and the annual rate of custodial fee.

The annual rate of custodial fee of the Plan is 0.02%;

H = E × annual rate of custodial fee ÷ number of days in relevant year

H represents the daily custodial fee of entrusted property, E represents the net value of entrusted property of the previous day, and in case of the first day, it shall be calculated based on the amount as at the date of establishment of the Plan.

Term

Minimum asset requirement of the Asset Management Scheme

Duties of the Asset Custodian

5 years from the date of establishment of the Plan. The Plan may be early terminated or extended for events of early termination or extension as agreed in the Asset Management Contract.

The initial contribution to the Asset Management Scheme shall be no less than RMB10 million.

The Asset Custodian shall supervise the investment scope, investment proportion and investment limit of the entrusted property according to the terms of the Asset Management Contract.

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Effect of the Asset Management Contract

The Asset Management Contract shall become effective on the date on which the ESOP is approved at the general meeting of the Company and the entrusted funds under the ESOP are transferred to the account of the Plan. The Asset Management Contract shall be legally binding on the Asset Trustor, the Asset Manager and the Asset Custodian from the effective date.

GENERAL INFORMATION OF THE PARTIES TO THE ASSET MANAGEMENT CONTRACT

The Company is a joint stock company incorporated in the PRC with limited liability, the A Shares and the H Shares of which are listed on the Shanghai Stock Exchange and main board of the Hong Kong Stock Exchange, respectively.

China Universal is a company incorporated in the PRC with limited liability, whose principal businesses are fund raising, fund sales, asset management and other businesses permitted by the CSRC. It is an independent third party of the Company.

BOARD CONFIRMATION

The Board is of the view that the terms of the Employee Stock Ownership Plan and the Asset Management Contract are on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Mr. Pan Xinjun, Mr. Jin Wenzhong and Mr. Chen Xiaobo, being the Directors who can participate in the Scheme, have abstained from voting on the relevant Board resolutions. Save as disclosed above, none of the Directors have a material interest in the Employee Stock Ownership Plan. The relevant resolutions regarding the Employee Stock Ownership Plan have been voted and approved at the 20th meeting of the fourth session of the Board by Directors who are not connected thereto.

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

The Employee Stock Ownership Plan does not constitute a share option scheme under the Chapter 17 of the Hong Kong Listing Rules.

As some Core Connected Persons of the Company may subscribe for the H Shares of the Company through the ESOP, the H Shares of the Company held by the public under the Rule of 8.08 of the Hong Kong Listing Rules may be slightly reduced by a limited extent. As at the date of this announcement, based on the information available to the public and the knowledge of the Directors, approximately 14.7% H Shares are held by the public. Whereas the following provisions in the ESOP, (i) the total number of H shares to be purchased shall not exceed 2% of the total share capital of the Company; and (ii) the units held by Core Connected Persons under the ESOP shall not exceed 20% of the total number of units. The total number of H Shares to be subscribed for by Core Connected Persons under the ESOP will not exceed 0.4% of the total issued Shares of the Company. The Company will keep records of numbers of Shares purchased under the ESOP and each participant’s rights and interests under such shares in order to monitor the percentage of H Share public float that changed as a result of implementation of the ESOP.

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THE EXTRAORDINARY GENERAL MEETING

Pursuant to the relevant PRC laws and regulations, the draft Employee Stock Ownership Plan proposed by the board of directors of a listed company shall be approved at a general meeting. An extraordinary general meeting of the Company will be convened to consider and approve, if thought fit, the Employee Stock Ownership Plan and authorize the Board to fully handle the matters related to the Employee Stock Ownership Plan.

DEFINITIONS

In this announcement, the following expressions shall have the following meanings unless the context otherwise requires:

“A Share(s)” the domestic share(s) of the Company with a nominal value of RMB1 each, which are listed for trading on the SSE “Articles of Association” the articles of association of 東方證券股份有限公司 , as amended from time to time “Asset Management Agency” the qualified asset management agency appointed by the Board or “Entrusted Management of Directors or authorized personnel to implement the ESOP Agency” or “Asset Manager”

“Asset Management Scheme” the asset management scheme established and managed by the Asset Management Agency or Manager in respect of the ESOP “Board of Directors” the board of directors of the Company

“China Universal” China Universal Asset Management Company Limited ( 匯添 富基金管理股份有限公司 ), an Independent Third Party of the Company

“Company” 東方證券股份有限公司 , a joint stock company incorporated in the PRC with limited liability, the H Shares of which are listed on the Hong Kong Stock Exchange under the stock code of 03958 and the A Shares of which are listed on the SSE under the stock code of 600958

“Company Law” the Company Law of the People’s Republic of China (《中華 人民共和國公司法》)

• “Core connected person(s)” has the meaning ascribed thereto under the Listing Rules “CSRC” the China Securities Regulatory Commission “Director(s)” the director(s) of the Company

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“Employee Stock Ownership the employee stock ownership plan of the Company Plan”, “ESOP” or “the Plan” “ESOP Subscription the subscription agreement of the ESOP of H Shares of the Agreement” or Company “Subscription Agreement” “ESOP unit(s)” or “unit(s)” the subscription units under the ESOP of RMB1.00 each “Guidance” the Guidance on the Pilot Implementation of Employee Stock Ownership Plan by Listed Companies (CSRC Announcement [2014] No. 33)(《關於上市公司實施員工持股計劃試點 的指導意見》(中國證券監督管理委員會公告[2014] 33號)) published by the CSRC “H Share(s)” the ordinary share(s) of the Company with a nominal value of RMB1 each, which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars “H Share Registrar” Computershare Hong Kong Investor Services Limited “Holder(s)” the Company’s employees who participate in the ESOP according to its terms “Holders’ Meeting” meeting of Holders of the ESOP of the Company “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hong Kong dollars” the lawful currency of Hong Kong “Hong Kong Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited “Hong Kong Stock The Stock Exchange of Hong Kong Limited Exchange”

“Independent Third Party” any entity or person who is not a connected person of the Company within the meaning ascribed thereto under the Hong Kong Listing Rules “Management Committee” the management committee of the ESOP of the Company

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“Participation” the act of investors to apply for purchase of ESOP units “PRC” or “China” the People’s Republic of China, but for the purposes of this announcement only, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan “RMB” or “Renminbi” Renminbi, the lawful currency of the PRC “RMB”, “RMB’0,000”, Renminbi 1 Yuan, Renminbi 10,000 Yuan and Renminbi 100 “RMB100 million” million Yuan “Securities Law” the Securities Law of the People’s Republic of China (《中華 人民共和國證券法》) “SFC” Hong Kong Securities and Futures Commission “Shareholder(s)” the shareholder(s) of the Company, including holder(s) of H Shares and holder(s) of A Shares “SSE” Shanghai Stock Exchange “Supervisor(s)” the supervisor(s) of the Company “Supervisory Committee” the supervisory committee of the Company “Subject Shares” the H Shares of the Company “Withdrawal” the act of the Holders of the Plan to redeem all or part of the entrusted assets according to the conditions and requirements set out in the contract of the ESOP

Unless otherwise indicated, all the amount in this announcement were presented in Renminbi.

By order of the Board PAN Xinjun Chairman

Shanghai, PRC June 17, 2020

As at the date of this announcement, the Board of Directors comprises Mr. PAN Xinjun and Mr. JIN Wenzhong as executive Directors; Mr. LIU Wei, Mr. WU Junhao, Mr. ZHOU Donghui, Mr. LI Xiang, Ms. XIA Jinghan, Mr. XU Jianguo and Mr. CHEN Xiaobo as non-executive Directors; and Mr. XU Guoxiang, Mr. TAO Xiuming, Mr. WEI Anning, Mr. XU Zhiming and Mr. JIN Qinglu as independent non-executive Directors.

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