DFZQ - Proxy Solicitation & Information Statement 2020

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in 東方證券股份有限公司 , you should at once hand this circular together with the accompanying form of proxy to the purchaser(s) or the transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

(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 PROPOSED AUTHORIZATION TO THE BOARD TO FULLY HANDLE MATTERS RELATED TO THE EMPLOYEE STOCK OWNERSHIP PLAN AND NOTICE OF THE 2020 FIRST EXTRAORDINARY GENERAL MEETING

A notice convening the EGM of the Company to be held at Meeting Room, 15/F, No. 119 South Zhongshan Road, Shanghai, the PRC on Monday, July 13, 2020 at 2:00 p.m. is set out on pages EGM-1 to EGM-3 of this circular.

The form of proxy for the EGM have been distributed on Thursday, June 18, 2020 and have also been published on the website of the Hong Kong Stock Exchange (www.hkexnews.hk) and the Company’s website (www.dfzq.com.cn). If you are not able to attend the EGM, please complete and return the form of proxy in accordance with the instructions printed thereon as soon as practicable and in any event not less than 24 hours before the time appointed for the holding of the EGM (i.e. 2:00 p.m. on Sunday, July 12, 2020), and deposit it together with the notarized power of attorney or other document of authorization with the H Share Registrar, Computershare Hong Kong Investor Services Limited (for holders of H Shares). Completion and return of the form of proxy will not preclude you from attending and voting at the EGM should you so desire.

June 24, 2020

TABLE OF CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
ANNEX I – EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF
東方證券股份有限公司. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
ANNEX II – INDEPENDENT OPINIONS ON THE EMPLOYEE STOCK
OWNERSHIP PLAN FROM INDEPENDENT NON-EXECUTIVE
DIRECTORS OF東方證券股份有限公司. . . . . . . . . . . . . . . . . . . . . . .	II-1
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

In this circular, 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” or “Entrusted Management Agency” or “Asset Manager”

the qualified asset management agency appointed by the Board of Directors or authorized personnel to implement the ESOP

“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” or “Board”

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 Hong Kong Listing Rules

“CSRC”

the China Securities Regulatory Commission

“Director(s)” the director(s) of the Company

“EGM”

the 2020 first extraordinary general meeting to be held at Meeting Room, 15/F, No. 119 South Zhongshan Road, Shanghai, the PRC on Monday, July 13, 2020 at 2:00 p.m. or any adjournment thereof (as the case may be)

– 1 –

DEFINITIONS

“Employee Stock Ownership the employee stock ownership plan of the Company and the Plan”, “ESOP” or full text of the Employee Stock Ownership Plan (Draft) of “the Plan” 東方證券股份有限公司 is set out in the Annex I to this circular
“ESOP Subscription Agreement” or “Subscription Agreement”

the subscription agreement of the ESOP of the Company

“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 by making contribution 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
“Latest Practicable Date” June 19, 2020, being the latest practicable date for the purpose of ascertaining certain information contained in this circular prior to its publication

– 2 –

DEFINITIONS

“Management Committee” the management committee of the ESOP of the Company “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 circular 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 circular were presented in Renminbi.

– 3 –

LETTER FROM THE BOARD

(Stock Code: 03958)

Executive Directors: Mr. PAN Xinjun (Chairman) Mr. JIN Wenzhong (President)

Non-executive Directors: Mr. LIU Wei Mr. WU Junhao Mr. ZHOU Donghui Mr. LI Xiang Ms. XIA Jinghan Mr. XU Jianguo Mr. CHEN Xiaobo (employee representative director)

Registered office: Orient Securities Building No. 119 South Zhongshan Road Huangpu District, Shanghai PRC

Principal place of business in Hong Kong: 28-29/F No. 100 Queen’s Road Central Central Hong Kong

Independent Non-executive Directors: Mr. XU Guoxiang Mr. TAO Xiuming Mr. WEI Anning Mr. XU Zhiming Mr. JIN Qinglu

June 24, 2020

To the Shareholders

Dear Sir or Madam,

INTRODUCTION

References are made to the suggestive announcement regarding preparation of Employee Stock Ownership Plan of H Shares dated May 25, 2020, and the announcement in relation to the proposed adoption of the Employee Stock Ownership Plan dated June 17, 2020.

The purpose of this circular is to provide you, as holders of H Shares, with (i) further information on the proposed adoption of the Employee Stock Ownership Plan and information reasonably necessary to enable you to make an informed decision on whether to vote for or against the proposed resolutions or abstain from voting at the EGM; and (ii) the notice of the EGM.

At the EGM, an ordinary resolution will be proposed to consider and approve the resolution in relation to the Employee Stock Ownership Plan (Draft) and its abstract of 東方證券股份有限公司 ; an ordinary resolution will be proposed to consider and approve the resolution in relation to the authorization to the Board to fully handle matters related to the Employee Stock Ownership Plan of the Company.

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LETTER FROM THE BOARD

PROPOSED ADOPTION OF THE EMPLOYEE STOCK OWNERSHIP PLAN

An ordinary resolution will be proposed to consider and approve the resolution in relation to the Employee Stock Ownership Plan (Draft) of 東方證券股份有限公司 and its abstract at the EGM.

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. The full text of the Employee Stock Ownership Plan (Draft) is set out in the Annex I to this circular. Independent Opinions on the Employee Stock Ownership Plan from Independent Non-executive Directors of 東方證券股份有限公司 is set out in the Annex II to this circular. The Employee Stock Ownership Plan (Draft) of the Company is prepared in Chinese. In case of any inconsistencies between the Chinese and English version, the Chinese version shall prevail.

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.

– 5 –

LETTER FROM THE BOARD

(II) Limitation on Participants

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

the employee has been publicly condemned or declared unfit by a stock exchange in the last three years;
the employee has been subject to administrative penalty by the CSRC for serious violation of laws or regulations in the last three years;
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;
the circumstance under which the board of directors determines that the employee is not qualified to be the Holder under the Plan;
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.

(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.

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LETTER FROM THE BOARD

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
Disposal of Equity Interests of the ESOP
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.
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.

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LETTER FROM THE BOARD

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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LETTER FROM THE BOARD

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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LETTER FROM THE BOARD

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

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.

Minimum asset requirement of the Asset Management Scheme

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

Duties of the Asset Custodian

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.

– 10 –

LETTER FROM THE BOARD

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 Plan, 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 considered and approved at the 20th meeting of the fourth session of the Board.

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

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

– 11 –

LETTER FROM THE BOARD

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 Rule 8.08 of the Hong Kong Listing Rules may be slightly reduced by a limited extent. As at the Latest Practicable Date, 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.

PROPOSED AUTHORIZATION TO THE BOARD TO FULLY HANDLE MATTERS RELATED TO THE EMPLOYEE STOCK OWNERSHIP PLAN

An ordinary resolution will be proposed to consider and approve the resolution in relation to the authorization to the Board to fully handle matters related to the Employee Stock Ownership Plan of the Company at the EGM.

In order to ensure the smooth implementation of the Company’s Employee Stock Ownership Plan, it is proposed to the EGM to authorize the Board, in accordance with the provisions of relevant laws and regulations and the opinions of the regulatory body, under the framework and principles considered and approved by the Shareholders’ meeting, with the principle of maximizing Shareholders’ interests, to fully handle all matters related to the Company’s Employee Stock Ownership Plan, including but not limited to:

(1) To formulate the detailed plan of the Employee Stock Ownership Plan, including but not limited to, to ascertain the number of participants, the qualifications of the participants, the source of funds, the scale of the Plan, the number and price of the Subject Shares, the term, the lock-up period, the management pattern and other matters in accordance with the applicable laws, regulations and relevant rules of the regulatory authorities and the resolution(s) of the general meeting of the Company;
(2) To adjust and deal with the relevant matters in relation to the Employee Stock Ownership Plan (except those to be re-approved at the general meeting of the Company as required by the laws, regulations and the Articles of Association), including considering the amendment, extension, termination (including early termination) of the Employee Stock Ownership Plan, etc. in accordance with the requirements of the regulatory authorities, the changes of policies or the market conditions;
(3) To apply for all the necessary approval in relation to the Employee Stock Ownership Plan, including but not limited to the approval, filing, registration, declaration procedures, etc. and the formulation, amendment, submission, execution, etc. of the relevant materials in accordance with relevant rules and to disclose information in accordance with the relevant laws, regulations and the listing rules of the stock exchanges at the places where the securities of the Company are listed;

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LETTER FROM THE BOARD

(4) To determine the Asset Management Agency and the Asset Custodian of the Employee Stock Ownership Plan and assist the Company to implement the Employee Stock Ownership Plan in accordance with the applicable laws, regulations and relevant rules of the regulatory authorities and the resolution(s) of the general meeting of the Company;
(5) To deal with all the matters in relation to the lock-up of and unlock-up of the Shares purchased by the Employee Stock Ownership Plan;
(6) To deal with other matters that are necessary for the Employee Stock Ownership Plan;
(7) Subject to the obtaining of the above-mentioned authorizations, to authorize the Board to delegate to the management of the Company to deal with items (3) to (5) above in accordance with the relevant policies and procedures (except those required by the laws, regulations, normative documents and the Articles of Association).

The above matters to be authorized to the Board, if required to be approved by the Holders’ Meeting, shall be submitted to the Holders’ Meeting or the Management Committee authorized by the Holders’ Meeting.

The above authorizations shall be effective from the date of the approval at the EGM until the completion of the liquidation of the Plan.

EGM

The register of members of H Shares of the Company will be closed from Wednesday, July 8, 2020 to Monday, July 13, 2020 (both days inclusive), during which time no share transfers of H Shares will be effected. Purchasers of H shares who have submitted their instruments of share transfer to the H Share Registrar of the Company and registered as shareholders on the register of members of H Shares of the Company before 4:30 p.m. on Tuesday, July 7, 2020 are entitled to attend and vote in respect of all resolutions to be proposed at this EGM. In order to attend this EGM, holders of H Shares should ensure that all transfer documents, accompanied by the relevant share certificates, are lodged with the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, before 4:30 p.m. on Tuesday, July 7, 2020.

Form of proxy for the EGM has been distributed on Thursday, June 18, 2020 and has also been published on the website of the Hong Kong Stock Exchange (www.hkexnews.hk) and the Company’s website (www.dfzq.com.cn). To be valid, for holders of H Shares, the form of proxy and notarized power of attorney or other document of authorization must be delivered to the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 24 hours before the time appointed for the EGM (i.e. before 2:00 p.m. on Sunday, July 12, 2020). Completion and return of the form of proxy will not preclude you from attending and voting at the EGM in person if you so wish.

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LETTER FROM THE BOARD

HONG KONG LISTING RULES REQUIREMENT

According to Rule 13.39(4) of the Hong Kong Listing Rules, any vote of shareholders at a general meeting must be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. Accordingly, all proposed resolutions at the EGM will be taken by way of a poll.

As at the Latest Practicable Date, to the best knowledge of the Directors, no Shareholder has a material interest in any of the above resolutions and therefore no Shareholder is required to abstain from voting in respect of the above resolutions at the EGM.

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

RECOMMENDATION

The Directors consider that the proposed resolutions are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends that all Shareholders to vote in favour of the resolutions in the notice of the EGM as annexed to this circular at the EGM.

Yours faithfully, By order of the Board PAN Xinjun Chairman

– 14 –

EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

東方證券股份有限公司

EMPLOYEE STOCK OWNERSHIP PLAN

(DRAFT)

JUNE 2020

– I-1 –

EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-2
RISK	WARNING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-3
SPECIAL NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		I-4
I.	DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-6
II.	BACKGROUND, PURPOSE AND PRINCIPLES OF THE ESOP. . . . . . . . . . . . . . .	I-8
III.	PARTICIPANTS OF THE ESOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-9
IV.	SOURCE OF FUNDS AND SOURCE OF SHARES OF THE ESOP. . . . . . . . . . . . .	I-10
V.	PARTICIPATION IN THE FINANCING ARRANGEMENTS OF
	THE COMPANY BY THE ESOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-11
VI.	TERM, LOCK-UP PERIOD AND DEALING RESTRICTION OF THE ESOP. . . .	I-11
VII.	MANAGEMENT MODE OF THE ESOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-12
VIII.	SUPERVISORY AND MANAGEMENT BODY OF THE ESOP. . . . . . . . . . . . . . . .	I-14
IX.	APPOINTMENT OF ASSET MANAGEMENT AGENCY FOR THE ESOP AND
	PRINCIPAL TERMS OF MANAGEMENT CONTRACT. . . . . . . . . . . . . . . . . . . . .	I-20
X.	OWNERSHIP AND DISPOSAL OF SHARE INTEREST UNDER THE ESOP. . . .	I-22
XI.	AMENDMENT AND TERMINATION OF THE ESOP. . . . . . . . . . . . . . . . . . . . . . .	I-24
XII.	MEASURES FOR DISPOSAL UPON EXPIRY OF THE ESOP. . . . . . . . . . . . . . . .	I-25
XIII.	PROCEDURES FOR IMPLEMENTATION OF THE ESOP. . . . . . . . . . . . . . . . . . .	I-25
XIV.	OTHER IMPORTANT MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-26

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EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

RISK WARNING

(I) The ESOP shall be implemented upon approval at the shareholders’ general meeting of the Company, and there is uncertainty as to whether the Plan will be approved at the shareholders’ general meeting of the Company;
(II) The detailed source of funds, amount of contribution and implementation plan of the ESOP are preliminarily decided, and there is uncertainty as to whether the Plan will be implemented;
(III) Upon establishment, the ESOP will be entrusted to a professional institution for management, and there is uncertainty as to whether the scale and objectives of the Plan can be achieved as expected; and
(IV) The Company will disclose relevant progress according to relevant regulations, and investors are advised to exercise caution and pay attention to relevant risks associated with investment before making any decision.

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EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

SPECIAL NOTICE

The abbreviations used in this part shall have the same meanings as defined in the section headed “Definitions”.

The ESOP of DFZQ is formulated in accordance with the requirements of the Company Law, the Securities Law, the Guidance and other relevant laws, administrative regulations, rules, normative documents and the Articles of Association.
The ESOP follows the principles of independent decision by the Company and voluntary participation of employees. There will not be any such situation of forcing employees to participate in the ESOP by way of apportionment or forced distribution.
Upon establishment, the ESOP will be entrusted to a professional institution with asset management qualifications for management by establishing the Asset Management Scheme which complies with the requirements of relevant laws and policies. The ESOP will fully subscribe the units under the Asset Management Scheme, and the Asset Management Scheme will purchase and hold the H Shares of the Company in the secondary market through the Shanghai-Hong Kong Stock Connect (the “ SH-HK Stock Connect ”) and/or the Shenzhen-Hong Kong Stock Connect (the “ SZ-HK Stock Connect ”). The purchase and number of the Subject Shares are subject to actual implementation of the plan and hence involve uncertainty.
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 controlling subsidiaries as of April 30, 2020 with total number of participants expected to be not exceeding 4,000 participants, and the specific number of participants will be determined according to the actual payment of employees.
The total amount of funds for 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 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. 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.
Term and lock-up period of the ESOP:

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 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.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

After consideration and approval by the board of directors of the Company, a notice will be made to convene and hold a shareholders’ general meeting for the purpose of considering the ESOP. The ESOP shall be implemented upon approval at the shareholders’ general meeting of the Company.
Matters of finance, accounting treatment and tax expenses in relation to the implementation of the ESOP will be dealt with according to the relevant finance rules, accounting standards and tax policies. Relevant individual income tax payable regarding the implementation of the ESOP shall be borne by employees themselves.
The shareholding structure will remain in compliance with the listing requirements after the implementation of the ESOP.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

I. DEFINITIONS

Unless otherwise required by the context, the following abbreviations and terms shall have the following meanings in this draft:

“Articles of Association”

the Articles of Association of 東方證券股份有限公司

“Asset Management Scheme”

the asset management scheme established and managed by the Asset Management Agency or Manager in respect of the ESOP

“Asset Management Agency” or “Entrusted Management Agency” or “Asset Manager”

the qualified asset management agency appointed by the board of directors or authorized personnel to implement the ESOP

“Company” or “DFZQ”

東方證券股份有限公司

“Company Law”

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

“CSRC”

the China Securities Regulatory Commission

“Employee Stock Ownership Plan”, “ESOP” or the “Plan”

the employee stock ownership plan of DFZQ

“ESOP unit(s)” or “unit(s)”

the subscription units under the ESOP of RMB1.00 each

“ESOP Subscription Agreement” or “Subscription Agreement”

the subscription agreement of the ESOP of DFZQ

“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

“Holder(s)”

the Company’s employees who participate in the ESOP according to its terms

“Holders’ Meeting” meeting of Holders of the ESOP of DFZQ
“Management Committee” the management committee of the ESOP of DFZQ
“Participation” the act of investors to apply for purchase of ESOP units

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

“RMB”, “RMB’0,000”, “RMB100 million”

Renminbi 1 Yuan, Renminbi 10,000 Yuan and Renminbi 100 million Yuan

“SFC”

the Securities and Futures Commission of Hong Kong

“Securities Law”

the Securities Law of the People’s Republic of China (《中華人民共和國證券法》)

“Subject Shares” the H Shares of DFZQ
“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

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

II. BACKGROUND, PURPOSE AND PRINCIPLES OF THE ESOP

(I) Background of the ESOP

In June 2014, the CSRC published the Guidance on the Pilot Implementation of Employee Stock Ownership Plan by Listed Companies which stated that the pilot implementation of employee stock ownership plan by listed companies can facilitate the establishment and improvement of benefit sharing mechanism between employees and employers, improve the corporate governance standard, and enhance the cohesion among employees and competitiveness of the listed companies. In May 2019, the Institution Department under the CSRC issued the Notice on Supporting the Implementation of Employee Stock Ownership Plan and Share Incentive Scheme by Securities Firms according to Relevant Laws (《關於支持證券公司依法實施員工持股、股權激勵計劃的函》) to support securities firms to implement employee stock ownership plan, and stated that listed securities firms shall implement employee stock ownership plan by way of asset management scheme according to the requirements of relevant laws.

(II) Purpose of the ESOP

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 Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and other relevant laws, administrative regulations, rules, normative documents and the Articles of Association.

The purpose of implementation of the ESOP by the Company is 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.

(III) Principles for Implementation of the ESOP

1. The Principle of Compliance with Laws and Regulations

The Company will strictly comply with the requirements of relevant laws, regulations, departmental rules, normative documents and the Articles of Association, diligently perform relevant decision-making procedures, disclose information in a truthful, accurate, complete and timely manner, and adopt strict prevention and control measures to prevent insider trading, market manipulation and other unlawful action related to securities transactions.

2. The Principle of Voluntary Participation

The Company shall implement the Plan under the principles of independent decision by the Company and voluntary participation of employees. The Company shall not force employees to participate in the Plan by way of apportionment or forced distribution.

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EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

3. The Principle of Risk Taking

The participants of the ESOP are responsible for their own profits or losses at their own risks and rank pari passu with other investors in respect of relevant rights and benefits.

III. PARTICIPANTS OF THE ESOP

(I) Scope of Participants of the ESOP

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:

the employee has been publicly condemned or declared unfit by a stock exchange in the last three years;
the employee has been subject to administrative penalty by the CSRC for serious violation of laws or regulations in the last three years;
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;
the circumstance under which the board of directors determines that the employee is not qualified to be the Holder under the Plan;
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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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

(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. The number of Subject Shares associated with the ESOP units held by any individual Holder shall not, in aggregate, exceed 0.1% of the Company’s total share capital.

IV. SOURCE OF FUNDS AND SOURCE OF SHARES OF THE ESOP

(I) Source of Funds of the ESOP

The funds of the ESOP shall be derived from the employees’ lawful remuneration, self-raised funds and other sources as permitted under the laws and regulations. The Company shall not provide advances, guarantees, loans and other financial assistance to the Holders.

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.

(II) Source of Shares of the ESOP

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. If the Entrusted Management Agency fails to complete the purchase of shares within 6 months after the ESOP is considered and approved at the shareholders’ general meeting due to market or other factors, the board of directors will authorize the Management Committee to extend the period for purchase of shares as appropriate.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

(III) Size of the ESOP

The total amount subscribed by the participants of the ESOP shall not exceed RMB400 million (inclusive). After implementation of the Plan, it is expected that the total number of shares held under all effective employee stock ownership plans of the Company shall not exceed 2% of the Company’s total share capital. The number of shares of the Company associated with the ESOP units held by any individual Holder shall not, in aggregate, exceed 0.1% of the Company’s total share capital.

Given that currently the total subscription amount and number of the shares of the Company available for purchasing under the Plan is still uncertain, the final number of shares of the Company held under the Plan shall be subject to actual implementation, and Company will make disclosure in time to fulfill its obligations pursuant to relevant regulations.

V. PARTICIPATION IN THE FINANCING ARRANGEMENTS OF THE COMPANY BY THE ESOP

If the Company raises funds through rights issue, placement, issue of convertible bonds or other financing methods within the term of the Plan, the ESOP may participate pursuant to the number of share placement or the preferential placement proportionate to its shareholding. The Management Committee shall determine if the ESOP participates in such fund raising or not as well as the relevant source of funding in case of participating.

VI. TERM, LOCK-UP PERIOD AND DEALING RESTRICTION OF THE ESOP

(I) Term of the ESOP

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.

(II) Lock-up Period of the Subject Shares Purchased under the ESOP

The lock-up period of the Subject Shares purchased under the 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.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

(III) Dealing Restriction of the ESOP

No shares of the Company shall be traded under the ESOP during the following periods:

The period starting from 60 days prior to the convening of the Company’s board meeting for the consideration of annual report to the date of disclosure of the annual report (both days inclusive);
The period starting from 30 days prior to the convening of the Company’s board meeting for the consideration of quarterly or interim report to the date of disclosure of the quarterly or interim report (both days inclusive);
10 days prior to the release of the Company’s results warning or preliminary report (both days inclusive);

Trading of the Company’s shares is prohibited during the periods referred to in items 1 to 3 above, which include the extended period for release of the Company’s results announcement;

The period starting from the date when a material event, which may significantly affect the Company’s share price, occurs or is in the process of decision-making to 2 trading days after the event being disclosed in accordance with laws;
Other periods stipulated by relevant laws, regulations and rules applicable to the Company and the requirements of the CSRC, the SFC and the stock exchanges at the places where the securities of the Company are listed.

VII. MANAGEMENT MODE OF THE ESOP

(I) 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 Plan 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.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

(II) Responsibilities of the Governing Body of the Company

As the highest governing body of the Company, the shareholder’s general meeting shall be responsible for considering and approving the ESOP.

The board of directors of the Company shall be responsible for formulating the ESOP and submitting the same to the shareholders’ general meeting for consideration and approval and handling other related matters of the ESOP within the scope authorized by the shareholders’ general meeting.

The supervisory committee of the Company shall be responsible for verifying the list of the Holders, and providing opinion on whether the ESOP is conducive to the sustainable development of the Company, whether it will jeopardize the interest of the Company and its shareholders as a whole, whether the Company has forced the employees to participate in the ESOP by means of apportionment, forced distribution or other ways.

The independent directors shall provide independent opinion on whether the ESOP is conducive to the sustainable development of the Company, whether it will jeopardize the interest of the Company and its shareholders as a whole, whether the Company has forced the employees to participate in the ESOP by means of apportionment, forced distribution or other ways.

(III) Supervision and Management of the ESOP

The ESOP Holders’ Meeting will be the highest governing and supervisory body of the Plan to assume the responsibilities of supervision and management on behalf of all Holders.

The ESOP Management Committee is established under the Holders’ Meeting, and the members of the Management Committee shall be elected at the Holders’ Meeting who shall be responsible for the daily management of the ESOP and exercising relevant rights of shareholders on behalf of all Holders.

The board of directors or the Management Committee shall appoint a professional asset management agency as the Entrusted Management Agency of the Plan. The Entrusted Management Agency shall possess relevant asset management qualifications that meet the requirements of relevant laws and regulations, and set up the Asset Management Scheme to purchase and hold the Company’s shares by means as permitted by laws and regulations.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

VIII. SUPERVISORY AND MANAGEMENT BODY OF THE ESOP

(I) Rights and Obligations of the Holders

The Holders of the Plan represent employees actually participating in the ESOP and being entitled to the relevant equity interests.

The Holders of the Plan shall be entitled to the following rights:
(1) Attending the Holders’ Meeting;
(2) Being entitled to the voting rights at the Holders’ Meeting based on their respective proportion of investment in the ESOP;
(3) Being entitled to the ESOP units and corresponding rights and interests according to the provisions of the Plan; and
(4) Other rights as prescribed by the laws, regulations and the Plan.
Holders of the Plan shall assume the following obligations:
(1) Contributing to the ESOP within the agreed period based on the amount as agreed in the Subscription Agreement;
(2) Assuming relevant risks associated with the Plan based on the units subscribed under the Plan; and
(3) Other obligations as prescribed by the laws and regulations and the Plan.

(II) Duties of the Holders’ Meeting

The Holders’ Meeting is the organ of authority of the ESOP and has the Management Committee established thereunder.

The Holders’ Meeting shall be entitled to exercise the following functions and powers:

Electing and removing members of the Management Committee;
Considering the amendment, termination and extension of the term of the ESOP;
Authorizing the Management Committee or the authorized Asset Management Agency to exercise shareholders’ rights;
Authorizing the Management Committee to supervise the daily management of the ESOP;

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

Authorizing the Management Committee to change the Asset Management Agency;
Authorizing the Management Committee to formulate and revise relevant administrative rules;
Authorizing the Management Committee to liaise with the Asset Management Agency;
Authorizing the Management Committee to determine whether to participate in the Company’s refinancing activities such as placement, rights issue or issue of convertible bonds;
Authorizing the Management Committee to handle the liquidation and distribution of assets under the ESOP; and
Other functions and powers that may be exercised by the Holders’ Meeting of the ESOP as stipulated by laws and regulations or rules of the CSRC, the SFC and the stock exchanges of places where the Company’s securities are listed.

(III) Procedures for Convening Holders’ Meetings

The first Holders’ Meeting shall be convened and presided over by the chairman of the Company or his authorized person and subsequent Holders’ Meetings shall be convened by the Management Committee and presided over by the chairman of the Management Committee; when the chairman of the Management Committee fails to perform his duties, he shall appoint a Holder to preside over the meeting.
In the event of any of the following situations, a Holders’ Meeting shall be convened:
(1) the amendment and termination of the ESOP and extension of the term of the ESOP;
(2) more than three members of the Management Committee leaving office or failing to perform his/her duties for three consecutive months or otherwise that are unfit for the job of a member of the Management Committee;
(3) when the Holders holding in aggregate 30% or more of the total number of units require to convene the meeting;
(4) other matters having such significant impact on the rights and obligations of the Holders of the ESOP that a Holders’ Meeting needs to be convened.
To convene a Holders’ Meeting, the convener of the meeting shall issue a notice of meeting at least three days (inclusive) prior to the meeting (where there is an urgent matter, the foregoing requirement of three days notification period may be waived) and deliver such notice to all Holders in person, by post, fax, e-mail or other means.

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EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

A notice of the Holders’ Meeting shall at least include the following details:
(1) time and venue of the meeting;
(2) way of holding the meeting;
(3) matters (proposals) to be considered at the meeting;
(4) the convener and chairman of the meeting and the proposer of extraordinary meeting and his/her written proposals;
(5) meeting materials required for voting and the specified arrangement including way and time for voting;
(6) requirements for the Holders to attend the meeting in person or appoint other Holders to attend the meeting on his/her behalf;
(7) contact person and contact information;
(8) date of issuance of the notice
The Holders’ Meeting can be convened by way of physical presence, tele-conferencing, video-conferencing, telecommunication voting, online voting and other means. All Holders are entitled to attend the Holders’ Meeting. The Holders shall attend the Holders’ Meeting in person and vote or appoint the proxies in writing to attend and vote on their behalf. The expenses of travel, accommodation and meals incurred by Holders and their proxies to attend the Holders’ Meeting shall be borne by Holders.

(IV) Procedure for Voting at the Holders’ Meeting

After each proposed resolution has been fully reviewed by Holders, it shall be submitted to Holders for voting in accordance with the voting method and the voting period as stipulated in the notice of the meeting. Voting shall be made in effective methods such as voting in writing on-site, voting in writing through communication (including mail, fax, etc.) or online voting.
Under the Plan, a Holder shall be entitled to one vote for each unit held by him/her.
Holders may choose to vote for or against any resolution or abstain from voting. Holders attending the meeting shall select one of the aforesaid voting options, and any vote with no option or two or more options indicated will be deemed as abstention. Any vote made by Holders after the counting of voting results or lapse of prescribed voting period shall not be counted.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

Each proposed resolution shall only become a valid resolution at the Holders’ Meeting after being passed by Holders holding more than 50% (excluding 50%) of the total number of units under the ESOP.
In the event that a resolution of the Holders’ Meeting is required to be submitted to the board of directors and the general meeting of the Company for consideration, it shall be submitted to the board of directors and the general meeting of the Company for consideration in accordance with the provisions of the Articles of Association.

(V) Composition of the Management Committee

A Management Committee shall be established for the Plan to take charge of the ESOP and its daily management, and has the right to authorize the Asset Management Agency to exercise the shareholders’ rights on behalf of Holders.

The Management Committee comprises five members with one chairman of the Management Committee. All members of the Management Committee shall be Holders and elected at the Holders’ Meeting. The chairman of the Management Committee shall be elected by more than half of all members of the Management Committee. The term of office of members of the Management Committee shall be the term of the Plan (including the extended term).

Members of the Management Committee have the following fiduciary duties to the ESOP and to comply with laws, administrative regulations and relevant administrative measures:

Not to take advantage of their functions and powers to accept bribes or other illegal income; and not to occupy any property of the ESOP;
Not to misappropriate funds of the ESOP;
Without the consent of the Management Committee, not to deposit the assets or funds of the ESOP into the personal account under his or her own name or other persons’ names;
Not to violate the provisions of the ESOP to lend the funds of the ESOP to other persons or provide guarantee for other persons with the properties of the ESOP without the consent of the Holders’ Meeting;
Not to take advantage of their functions and powers to jeopardize the interests of the ESOP.

Where a member of the Management Committee causes any loss to the ESOP due to breach of his or her fiduciary duties, such member shall be liable for the loss.

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ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

(VI) Duties of the Management Committee

Convening the Holders’ Meetings;
Exercising shareholders’ rights on behalf of all Holders or authorizing the Asset Management Agency to exercise the shareholders’ rights on their behalf;
Implementing the daily management of the ESOP on behalf of all Holders, and formulating relevant management rules;
Being responsible for liaising with the Asset Management Agency;
Registering for the units of the ESOP by itself or entrusting the Asset Management Agency to do so;
Managing the allocation of benefits of the ESOP;
Deciding whether or not to participate in refinancing activities of the Company such as placement, rights issue or the issuance of convertible bonds;
Other responsibilities as delegated by the Holders’ Meeting.

(VII) Functions and Powers of the Chairman of the Management Committee

Presiding over the Holders’ Meetings, convening and presiding over the meetings of the Management Committee;
Supervising and inspecting the implementation of the resolutions of the Holders’ Meeting(s) and the meeting(s) of Management Committee;
Other functions and powers as delegated by the Management Committee.

(VIII) Rules of Procedure for the Meetings of the Management Committee

The Management Committee meeting shall be convened occasionally by the chairman of the Management Committee. A notice of meeting shall be delivered to all members of the Management Committee by e-mail, fax or in person two days prior to the convention of the meeting.
Extraordinary meeting of Management Committee can be convened by Holder(s) representing 30% or more of the total number of units or 50% or more of the members of the Management Committee. Chairman of the Management Committee shall convene and preside over the extraordinary meeting of Management Committee within five days after receiving the proposal.

– I-18 –

EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

A notice of meeting of the Management Committee shall include the following details:
(1) the date and venue of the meeting;
(2) the duration of the meeting;
(3) the reasons for and agenda of the meeting;
(4) the date of issuance of the notice.
A Management Committee meeting shall only be held when more than half of the members are present. Resolutions of the Management Committee shall be valid only upon obtaining approval from more than half of all members of the Management Committee. Management Committee meetings shall implement a one-person one-vote system.
Voting for resolutions of the Management Committee meetings shall be conducted by way of open ballot. Provided that members of the Management Committee can fully express their views, resolutions of the Management Committee meetings can be voted on and passed by means of fax, e-mail, etc., and shall be signed by members of the Management Committee attending the meeting.
The meeting of the Management Committee can be convened by way of physical presence, tele-conferencing, video-conferencing, telecommunication voting and other means. The members of the Management Committee shall attend the meeting in person. Where a member is unable to attend a meeting for any reason, he/she may appoint another member of the Management Committee by a written power of attorney to attend the meeting on his/her behalf. The power of attorney shall set out the name of the representative, subject matters of representation, scope of the authorization and valid period, with the signature or seal of the appointer. A member of the Management Committee who attends a meeting on behalf of another member shall exercise the member’s rights within the scope of authorization. A member of the Management Committee who fails to attend a meeting of the Management Committee and who has not appointed a representative to do so shall be deemed to have waived his/her voting rights in respect of that meeting.
The Management Committee shall keep minutes relating to the matters resolved at the meeting, and the members of the Management Committee present at the meeting shall sign the minutes.

– I-19 –

ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

IX. APPOINTMENT OF ASSET MANAGEMENT AGENCY FOR THE ESOP AND PRINCIPAL TERMS OF MANAGEMENT CONTRACT

(I) Appointment of the Asset Management Agency

With the authorization of the general meeting of the Company, the board of directors authorizes the management to appoint the Asset Management Agency of the Plan. The Company has appointed China Universal Asset Management Co., Ltd. as the Asset Management Agency of the ESOP. After the establishment of the Management Committee under the Plan, the Management Committee shall be responsible for the replacement of the ESOP Asset Management Agency.
The Company will enter into the asset management contract and related agreement and documents with China Universal Asset Management Co., Ltd. on behalf of the ESOP to stipulate the rights and obligations, safeguard the legitimate rights and interests of the Holders under the ESOP, and ensure independence and safety of assets under the ESOP. Relevant fees incurred by the Asset Management Agency for management of the assets under the ESOP shall be borne by the ESOP.

(II) Principal Terms of the Asset Management Contract

For convenience of calculating the public float of H Shares, 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 and 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.

DFZQ ESOP Single Asset Management Scheme No. 1 and DFZQ ESOP Single Asset Management Scheme No. 2:

(1) Name of the Asset Management Scheme: China Universal – DFZQ ESOP Single Asset Management Scheme No. 1/No. 2
(2) Asset trustor: 東方證券股份有限公司 (on behalf of the ESOP)
(3) Asset Manager: China Universal Asset Management Co., Ltd.
(4) Asset Custodian: the custodian with qualification in custodian business for securities investment funds
(5) Investment scope: The Asset Management Scheme mainly invests in the H Shares issued by 東方證券股份有限公司 (stock code: 03958.hk, stock name: DFZQ) as prescribed in the ESOP. Idle capital can be invested in bank deposits and liquidity management tools such as government bonds.

– I-20 –

EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

(6) Term: The term of the Asset Management Scheme is 5 years, and may be early terminated or extended depending on market conditions and the contract, if so agreed between the Asset Manager and the Asset Trustor.

(III) Determination, Basis and Payment Method of Relevant Fees

Management fee of the Asset Manager: To be determined based on the asset management contract to be executed;
Custodial fee of the Asset Custodian: To be determined based on the asset management contract to be executed;
Other fees
(1) Bank charges for the transfer of entrusted property and bank charges for funds accounts, etc.;
(2) Securities, futures transaction fees and account opening fees for entrusted property;
(3) Information disclosure fees for Asset Management Scheme after the establishment of the Asset Management Scheme;
(4) 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;
(5) 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.

The accrual method, accrual standard and payment method of the above fees shall be implemented in accordance with the relevant laws and regulations and the contract.

(IV) Taxation

The tax liability arising from the operation of the entrusted property shall be borne by the entrusted property. The various gains obtained by the asset trustee from the entrusted property shall be handled by the asset trustee in accordance with the provisions of national laws and regulations, and shall perform tax declaration and fulfill the tax payment obligations. Asset managers and asset custodians perform their respective tax obligations in accordance with laws and regulations.

– I-21 –

ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

X. OWNERSHIP AND DISPOSAL OF SHARE INTEREST UNDER THE ESOP

(I) Ownership of Assets of the ESOP

The assets of the ESOP are independent from those of the Company and the Asset Management Agency. Neither the Company nor the Asset Management Agency could classify the assets of the ESOP as their own assets. Assets and gains obtained from the operation, utilization of the ESOP or otherwise are classified as the assets of the ESOP.

(II) 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. Upon expiry of the lock-up period of the Plan, the Management Committee may formulate rules on governing the transfer of ESOP units among the employees.

(III) Disposal Measures for Holders who are not Eligible to Participate in the ESOP during the Term of the Plan

In the event of cancellation or termination of labor contract of the Holder during the lock-up period of the Plan, no change will be made to his/her entitlements under the Plan and the units held by the Holder under the ESOP shall be subject to the lock-up period of the Plan and other relevant arrangements.

Upon the expiry of the lock-up period, the above Holder (except for retirement due to attainment of retirement age as stipulated by the state) or his/her lawful successor shall apply for Withdrawal of the units held by them within four months of Withdrawal period, otherwise the Management Committee shall have the right to execute the Withdrawal of such Holder from the ESOP within reasonable period of time. The Asset Management Agency shall, as agreed in the Plan, sell the shares associated with the units held by the Holder and transfer the proceeds and related income (if any) to the designated account for the ESOP after deducting the relevant expenses in compliance with the laws. The Management Committee shall allocate the corresponding equities based on the units held by the Holder under the ESOP.

– I-22 –

ANNEX I

EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

In the event of cancellation or termination of labor contract of the Holder (except for retirement due to attainment of retirement age as stipulated by the state) after the expiry of the lock-up period, the Holder or his/her lawful successor shall apply for Withdrawal of the units held by them within four months of Withdrawal period after the date of cancellation or termination of labor contract, otherwise the Management Committee shall have the right to execute the Withdrawal of such Holder from the ESOP within reasonable period of time. The Asset Management Agency shall, as agreed in the Plan, sell the shares associated with the units held by the Holder and transfer the proceeds and related income (if any) to the designated account for the ESOP after deducting the relevant expenses in compliance with the laws. The Management Committee shall allocate the corresponding equities based on the units held by the Holder under the ESOP.

(IV) Income Distribution of Holders

During the lock-up period, in the event of capitalization of capital reserves, bonus issue and refinancing by the Company, the newly acquired shares attributable to shares of the Company held by the Plan shall also be subject to lock-up, and may not be sold in the secondary market or disposed of in other ways. The unlocking period of such new shares is the same as that of the corresponding shares.
During the term of the Plan, when the Company distributes share dividends, the cash dividends attributable to shares of the Company held by the Plan will firstly be applied to pay the asset management fee in principle, and the Management Committee may decide whether to allocate the remaining interests, if any.

(V) Withdrawal of Units of Holders

Except for the Withdrawal set out in item (III) above, upon the expiry of the lock-up period, the Holders may apply for Withdrawal with the Management Committee according to relevant provisions or administrative rules formulated by the Management Committee. In order to make payment for the Withdrawal application of the Holders, the Asset Management Agency shall sell the Subject Shares as agreed under the asset management contract. After selling relevant shares, the Asset Management Agency shall transfer the proceeds and related income (if any) to the designated account for the ESOP after deducting the relevant expenses in compliance with the laws. The Management Committee shall allocate the corresponding equities based on the units held by the Holder under the ESOP.

– I-23 –

ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

XI. AMENDMENT AND TERMINATION OF THE ESOP

(I) Amendment to the ESOP

During the term of the Plan, subject to the authorization of the shareholders’ general meeting, the Management Committee may propose amendments to the ESOP based on the actual conditions of the Company and pursuant to applicable laws, regulations and rules issued by relevant regulatory authorities. Such proposed amendments to the ESOP can only come into effect upon being considered and approved at the Holders’ Meeting and meeting of the board of directors of the Company.

(II) Termination of the ESOP

In any of the following cases, the Plan shall be terminated in accordance with the requirements of relevant laws, regulations and normative documents:

The continuing implementation of the Plan will result in non-compliance with relevant national laws, regulations or normative documents from time to time, and the termination of the Plan has been considered and approved at the meeting of board of directors;
The Company faces material operational difficulties and the termination of the Plan has been considered and approved at the Holders’ Meeting and the meeting of board of directors;
There are material changes in the market or there are other matters of significance encountered by the Company and the termination of the Plan has been considered and approved at the Holders’ Meeting and the meeting of board of directors;
The continuing implementation of the Plan will cause the shareholding percentage of all the Holders in aggregate or the total shareholding percentage of a single Holder under the ESOP to exceed relevant limits prescribed by relevant laws and regulations, and the termination of the Plan has been considered and approved at the Holders’ Meeting and the meeting of board of directors;
The Plan shall be terminated automatically upon expiry of its term;
After the expiry of the lock-up period of the Plan, if the assets under the ESOP are all monetary assets during the term of the ESOP, the Plan can be terminated and liquidated early after being considered and approved at the meeting of board of directors;
Other circumstances where termination of the Plan is required by relevant laws, regulations and normative documents and the rules of stock exchanges at the places where the securities of the Company are listed.

– I-24 –

EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

ANNEX I

XII. MEASURES FOR DISPOSAL UPON EXPIRY OF THE ESOP

After the termination of the Plan, the Asset Manager shall confirm the liquidation plan with the Asset Trustor in a timely manner and complete the liquidation of the Plan as soon as possible. The liquidation period of the Plan due to external factors may exceed 30 working days, at which time the Asset Manager will communicate with the Asset Trustor in advance about the estimated liquidation period. After deducting charges including management fees and custodial fees, the Asset Management Agency shall transfer the assets under the ESOP to the designated account for ESOP of the Company in the form of monetary assets and allocate such assets based on the units held by the Holders under the ESOP.

Upon the expiry of the term of the Plan, if the assets held under the Asset Management Scheme still contain Subject Shares, the Management Committee and the Asset Management Agency shall determine the disposal methods through negotiation.

XIII. PROCEDURES FOR IMPLEMENTATION OF THE ESOP

(I) The board of directors shall review the DFZQ Employee Stock Ownership Plan (draft) and relevant resolutions, and the independent directors shall issue their independent opinions on whether the Plan is conducive to the sustainable development of the Company, whether it will jeopardize the interest of the Company and its shareholders as a whole, and whether the Company has forced the employees to participate in the ESOP by means of apportionment, forced distribution or other ways.
(II) The supervisory committee of the Company shall issue the opinions on whether the Plan is conducive to the sustainable development of the Company, whether it will jeopardize the interest of the Company and its shareholders as a whole, and whether the Company has forced the employees to participate in the ESOP by means of apportionment, forced distribution or other ways.
(III) As at the date of approving the DFZQ Employee Stock Ownership Plan (draft) and relevant resolutions by the board of directors, the Company shall publish the resolutions of the board of directors, the DFZQ Employee Stock Ownership Plan (draft) and its summary, opinions from the independent directors and supervisory committee and H Shares announcements.
(IV) The Company shall convene an employee representative meeting to solicit the views of employees.
(V) The Company shall engage law firm to issue legal opinion on the Plan.
(VI) The Company shall issue the notice of convening a general meeting and publish the legal opinion before holding of the general meeting for considering the ESOP.

– I-25 –

ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

(VII) The Company shall convene a general meeting to consider the DFZQ Employee Stock Ownership Plan (draft) and its summary and relevant resolutions. The voting of the general meeting shall be taken by combination of physical voting and online voting.
(VIII) The Holders of the Plan shall convene a Holders’ Meeting to elect the members of the Management Committee and specify the details of implementation of the ESOP.
(IX) To perform other procedures required by the CSRC, the SFC, the stock exchanges at the places where the securities of the Company are listed and relevant competent authorities.

XIV. OTHER IMPORTANT MATTERS

(I) The Company will disclose the implementation of the ESOP during the reporting periods in periodic reports according to relevant requirements.
(II) Matters of finance, accounting treatment and tax expenses in relation to the implementation of the ESOP by the Company will be dealt with according to the relevant finance rules, accounting standards and tax policies.
(III) The ESOP approved by the board of directors and the general meeting of the Company shall not constitute a commitment made by the Company to its employees in respect of the employment period. The employment between the Company and the Holders shall continue to be governed by the labor contracts entered into by the Company and the Holders.
(IV) During the period from the date on which the draft of the ESOP is considered and approved by the board of directors or general meeting of the Company to the date on which all participants have contributed to the Plan and the Company makes announcement on establishment of the ESOP, if the implementation of the ESOP by the Company is in obvious conflict or practical contradiction with the new laws, regulations, departmental rules and other external requirements published by the state and competent authorities, the Company will terminate or suspend the ESOP based on actual situation after performing necessary internal decision-making procedures.
(V) The board of directors of the Company reserves the right of interpretation over the Plan.

– I-26 –

INDEPENDENT OPINIONS ON THE EMPLOYEE STOCK OWNERSHIP PLAN FROM INDEPENDENT NON‑EXECUTIVE DIRECTORS OF 東方證券股份有限公司

ANNEX II

According to the Guidance on the Pilot Implementation of Employee Stock Ownership Plan by Listed Companies (《關於上市公司實施員工持股計劃試點的指導意見》) of the CSRC, 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》) of the Shanghai Stock Exchange, the Articles of Association of 東方證券股份有限公司 , the Rules of Independent Directors of 東方證券股份有限公司 and other relevant requirements, the independent non-executive Directors of the fourth session of the Board of Directors of 東方證券股份有限公司 hereby express the following independent opinion on the Employee Stock Ownership Plan of the Company:

The Employee Stock Ownership Plan is in compliance with requirements of the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Guidance and other relevant laws, administrative regulations, rules, normative documents and the Articles of Association. At the Board meeting for consideration of relevant resolutions related to the Employee Stock Ownership Plan, the Directors that may participate in the Employee Stock Ownership Plan have abstained from voting, and the convening, attendance and voting procedure of the Board meeting are in compliance with the Company Law, the Articles of Association and other relevant requirements.
The Company is not involved in any matters that prohibit the implementation of the Employee Stock Ownership Plan as stipulated in the Guidance and other relevant regulations.
The contents of the Employee Stock Ownership Plan are in compliance with the Guidance and other relevant regulations without prejudice to the interests of the Company and its Shareholders as a whole.
The employees will participate in the Employee Stock Ownership Plan under the principles of compliance with laws and regulations, voluntary participation and risk taking, and the Company has not forced the employees to participate in the Employee Stock Ownership Plan by means of apportionment, forced distribution or other ways.
The Company has no plans or arrangements of provision of advances, guarantees, loans or any other financial assistance to the Holders of the Employee Stock Ownership Plan that violate relevant regulations.
The source of funds and source of Shares of the Employee Stock Ownership Plan are in compliance with relevant laws and regulations.
The implementation of the Employee Stock Ownership Plan may establish and improve the benefit sharing mechanism between employees and the Company, enhance the cohesion among employees and competitiveness of the Company, attract and retain talents, and effectively align the interests of the Shareholders and the Company with the personal interests of the Company’s employees, thereby promoting the long-term, sustainable and healthy development of the Company.

– II-1 –

ANNEX II INDEPENDENT OPINIONS ON THE EMPLOYEE STOCK OWNERSHIP PLAN FROM INDEPENDENT NON‑EXECUTIVE DIRECTORS OF 東方證券股份有限公司

In view of the above, we consider that the Employee Stock Ownership Plan of the Company is in compliance with relevant laws and regulations and in the interests of the Company and its Shareholders as a whole, and agree to submit the relevant matters related to the Employee Stock Ownership Plan to the Shareholders’ general meeting of the Company for consideration.

Independent non-executive Directors: XU Guoxiang, TAO Xiuming, WEI Anning, XU Zhiming, JIN Qinglu Date of signature: June 17, 2020

– II-2 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

(Stock Code: 03958)

NOTICE OF 2020 FIRST EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2020 first extraordinary general meeting (the “ Extraordinary General Meeting ”) of 東方證券股份有限公司 (the “ Company ”) will be held at Meeting Room, 15/F, No. 119 South Zhongshan Road, Shanghai, the People’s Republic of China (the “ PRC ”) on Monday, July 13, 2020 at 2:00 p.m. for the following purposes:

ORDINARY RESOLUTIONS

To consider and approve the resolution in relation to the Employee Stock Ownership Plan (Draft) of 東方證券股份有限公司 and its abstract.
To consider and approve the resolution in relation to the authorization to the Board of Directors to fully handle matters related to the Employee Stock Ownership Plan of the Company.

By order of the Board PAN Xinjun Chairman

Shanghai, PRC June 18, 2020

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

1. Eligibility for attending the Extraordinary General Meeting and date of registration of holders for H Shares

In order to attend this Extraordinary General Meeting, holders of H Shares should ensure that all transfer documents, accompanied by the relevant share certificates, are lodged with the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, before 4:30 p.m. on Tuesday, July 7, 2020.

2. Proxy

(1) Each shareholder entitled to attend and vote at the Extraordinary General Meeting may appoint one or more proxies in writing to attend and vote on his behalf. A proxy need not be a shareholder of the Company.
(2) The instrument appointing a proxy must be in writing under the hand of the appointor or his attorney duly authorized in writing, or if the appointor is a legal entity, either under seal or signed by a director or a duly authorized attorney. If that instrument is signed by an attorney of the appointor, the power of attorney authorizing that attorney to sign or other document of authorization must be notarized.

To be valid, for holders of H Shares, the form of proxy and notarized power of attorney or other document of authorization must be delivered to Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 24 hours before the time appointed for the Extraordinary General Meeting (before 2:00 p.m. on Sunday, July 12, 2020).

3. Registration procedures for attending the Extraordinary General Meeting

A shareholder or his proxy should present proof of identity when attending the Extraordinary General Meeting. If a shareholder is a legal person, its legal representative or other person authorized by the board of directors or other governing body of such shareholder may attend the Extraordinary General Meeting by providing a copy of the resolution of the board of directors or other governing body of such shareholder appointing such person to attend the meeting.

4. Voting by poll

According to Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, any vote of shareholders at a shareholders’ general meeting must be taken by poll.

– EGM-2 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

5. Miscellaneous

(1) The Extraordinary General Meeting is expected to be held for no more than half a day. Shareholders who attend the meeting in person or by proxy shall bear their own travelling and accommodation expenses. Meanwhile, for prevention and control of COVID-19, and to ensure the safety of participants, the shareholders and shareholder proxies who wish to attend must pay attention to and strictly abide by the regulations and requirements of the epidemic prevention and control in Shanghai. The Company will strictly comply with the epidemic prevention and control requirements and take appropriate measures for the on-site shareholders under the guidance and supervision of relevant government departments. Shareholders or shareholder proxies who have symptoms such as fever or do not comply with the requirements of epidemic prevention and control measures will not be able to enter the site of the Extraordinary General Meeting.
(2) The address of Computershare Hong Kong Investor Services Limited is:

17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

(3) The registered office of the Company:

Orient Securities Building No. 119 South Zhongshan Road Huangpu District, Shanghai The People’s Republic of China

Contact office: Office of the Board Telephone No.: 86 (21) 63326373 Facsimile No.: 86 (21) 63326010 Contact Person: Mr. DENG Haipeng

(4) For details of resolutions submitted at the Extraordinary General Meeting for consideration and approval, please refer to the circular to be issued by the Company on or before Wednesday, June 24, 2020 regarding the Extraordinary General Meeting.

As at the date of this notice, the Board 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.

– EGM-3 –

AI assistant

DFZQ — Proxy Solicitation & Information Statement 2020

50931_rns_2020-06-23_25f3319d-a6d3-4ba5-8346-9f521b5dbf87.pdf

PROPOSED ADOPTION OF THE EMPLOYEE STOCK OWNERSHIP PLAN PROPOSED AUTHORIZATION TO THE BOARD TO FULLY HANDLE MATTERS RELATED TO THE EMPLOYEE STOCK OWNERSHIP PLAN AND NOTICE OF THE 2020 FIRST EXTRAORDINARY GENERAL MEETING

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock Code: 03958)

INTRODUCTION

PROPOSED ADOPTION OF THE EMPLOYEE STOCK OWNERSHIP PLAN

PRINCIPAL TERMS OF THE EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT)

Participants (I) Scope of Participants of the ESOP

LETTER FROM THE BOARD

(II) Limitation on Participants

(III) Proposed Subscription by the Participants under the ESOP

LETTER FROM THE BOARD

MANAGEMENT OF THE EMPLOYEE STOCK OWNERSHIP PLAN

Management Mode

Asset Management Agency

ASSET MANAGEMENT CONTRACT

PRINCIPAL TERMS OF THE ASSET MANAGEMENT CONTRACT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

GENERAL INFORMATION OF THE PARTIES TO THE ASSET MANAGEMENT CONTRACT

BOARD CONFIRMATION

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

LETTER FROM THE BOARD

PROPOSED AUTHORIZATION TO THE BOARD TO FULLY HANDLE MATTERS RELATED TO THE EMPLOYEE STOCK OWNERSHIP PLAN

EGM

HONG KONG LISTING RULES REQUIREMENT

RESPONSIBILITY STATEMENT

RECOMMENDATION

東方證券股份有限公司

EMPLOYEE STOCK OWNERSHIP PLAN

(DRAFT)

JUNE 2020

CONTENTS

ANNEX I

RISK WARNING

ANNEX I

SPECIAL NOTICE

ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

I. DEFINITIONS

東方證券股份有限公司

II. BACKGROUND, PURPOSE AND PRINCIPLES OF THE ESOP

(I) Background of the ESOP

(II) Purpose of the ESOP

(III) Principles for Implementation of the ESOP

1. The Principle of Compliance with Laws and Regulations

2. The Principle of Voluntary Participation

ANNEX I

3. The Principle of Risk Taking

III. PARTICIPANTS OF THE ESOP

(I) Scope of Participants of the ESOP

(II) Limitation on Participants

(III) Proposed Subscription by the Participants under the ESOP

IV. SOURCE OF FUNDS AND SOURCE OF SHARES OF THE ESOP

(I) Source of Funds of the ESOP

(II) Source of Shares of the ESOP

(III) Size of the ESOP

V. PARTICIPATION IN THE FINANCING ARRANGEMENTS OF THE COMPANY BY THE ESOP

VI. TERM, LOCK-UP PERIOD AND DEALING RESTRICTION OF THE ESOP

(I) Term of the ESOP

(II) Lock-up Period of the Subject Shares Purchased under the ESOP

(III) Dealing Restriction of the ESOP

VII. MANAGEMENT MODE OF THE ESOP

(I) Management Mode

(II) Responsibilities of the Governing Body of the Company

(III) Supervision and Management of the ESOP

VIII. SUPERVISORY AND MANAGEMENT BODY OF THE ESOP

(I) Rights and Obligations of the Holders

(II) Duties of the Holders’ Meeting

ANNEX I EMPLOYEE STOCK OWNERSHIP PLAN (DRAFT) OF 東方證券股份有限公司

(III) Procedures for Convening Holders’ Meetings

(IV) Procedure for Voting at the Holders’ Meeting

(V) Composition of the Management Committee

(VI) Duties of the Management Committee

(VII) Functions and Powers of the Chairman of the Management Committee

(VIII) Rules of Procedure for the Meetings of the Management Committee

ANNEX I

DFZQ Proxy Solicitation & Information Statement 2020