Sinopec Engineering Group Co Ltd. — Proxy Solicitation & Information Statement 2017

Nov 3, 2017

THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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 adviser.

If you have sold or transferred all your shares in SINOPEC Engineering (Group) Co., Ltd. , you should at once hand this circular, together with the accompanying form of proxy, to the purchaser or to the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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.

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中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]

(a joint stock limited liability company incorporated in the People’s Republic of China)

(Stock Code: 2386)

PROPOSED ADOPTION OF THE H SHARE APPRECIATION RIGHTS SCHEME AND THE PROPOSED INITIAL GRANT

AUTHORISATION TO THE BOARD TO DEAL WITH MATTERS RELATING TO THE H SHARE APPRECIATION RIGHTS SCHEME

PROPOSED AMENDMENTS TO THE ARTICLES

PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE BOARD OF DIRECTORS

A letter from the Board is set out on pages 4 to 13 of this circular.

An extract of the notice convening the second extraordinary general meeting of the Company for the year 2017 (the “ EGM ”) to be held at the V-Continent Beijing Parkview Wuzhou Hotel, 8 Beisihuan Zhong Lu, Chaoyang District, Beijing, the PRC at 9 a.m. on Wednesday, 20 December 2017 is set out on pages 14 to 16 of this circular.

If you intend to attend the EGM, please complete and return the enclosed reply slip in accordance with the instructions printed thereon as soon as possible and in any event by Thursday, 30 November 2017.

Whether or not you are able to attend the EGM, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as possible and in any event not less than 24 hours before the time scheduled for holding such meeting (or any adjourned meeting thereof). Completion and delivery of the proxy form shall not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

* For identification purposes only.

3 November 2017

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
NOTICE OF THE EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . .	14
APPENDIX I — THE H SHARE APPRECIATION RIGHTS SCHEME
AND THE INITIAL GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17

— i —

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings.

• “Articles”

the articles of association of the Company, as amended, supplemented or otherwise modified from time to time

• “Board of Directors” or “Board” the board of directors of the Company

• “Companies Ordinance” the Companies Ordinance (Chapter 622 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

• “Company”

SINOPEC Engineering (Group) Co., Ltd., a joint stock limited liability company incorporated under the laws of the PRC on 28 August 2012, which is listed on the Main Board of Hong Kong Stock Exchange (Stock Code: 2386)

“Company Law” the Company Law of the People’s Republic of China (中華人民共和國公司法), as amended and adopted by the Standing Committee of the Twelfth National People’s Congress on 28 December 2013 and effective on 1 March 2014, as amended, supplemented or otherwise modified from time to time

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

• “Domestic Share(s)” ordinary share(s) of the capital of the Company, with a nominal value of RMB1.00 each, which are subscribed for and paid up in RMB and are unlisted Shares which are currently not listed or traded on any stock exchange

• “Domestic Shareholder(s)” the Shareholder(s) who/which hold Domestic Share(s)

• “EGM”

• the second extraordinary general meeting of the Company for the year 2017 to be convened and held on 20 December 2017

• “EGM Notice”

• the notice for convening the EGM set out on pages 14 to 16 of this circular

• “Group” or “we” the Company and its subsidiaries

• “H Share(s)”

overseas listed foreign invested ordinary share(s) in the ordinary share capital of the Company, with a nominal value of RMB1.00 each, listed on the Main Board of the Hong Kong Stock Exchange

• “H Share Appreciation Rights Scheme” or the “Scheme”

the H Share appreciation rights scheme of the Company

— 1 —

DEFINITIONS

“H Share Appreciation Rights” the H share appreciation rights under the Scheme, which confer the Incentive Recipients with the right to gain from the increase in the price of H Shares within a specified time period, subject to the relevant conditions “H Shareholder(s)” the Shareholder(s) who/which hold H Shares “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hong Kong Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time

“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited “Incentive Recipient(s)” the qualified recipient(s) of the H Share Appreciation Rights under the H Share Appreciation Rights Scheme

“Initial Grant”

the proposed initial grant by the Company of 13,143,000 units of H Share Appreciation Rights to a total of 89 Incentive Recipients (including the Directors (other than the independent non-executive Directors), the Company’s senior management members (including presidents, vice presidents and chief financial officer) and the core management, technical and highly skilled personnel of the Company’s subsidiaries)

• “PRC” or “People’s Republic of China”

the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, Macau Special Administration Region of the PRC and Taiwan

“RMB”

the lawful currency of the PRC

• “Rules and Procedures for the Meetings of the Board”

• the Rules and Procedures for the Meetings of the Board of Directors of the Company

“SASAC” State-owned Assets Supervision and Administration Commission of the State Council of the PRC “Share(s)” share(s) in the capital of the Company, with a nominal value of RMB1.00 each “Shareholder(s)” holder(s) of the Share(s) “Sinopec Group” China Petrochemical Corporation (中國石油化工集團公司), a state-owned enterprise incorporated under the laws of the PRC and established in July 1998 upon reorganisation of the former China Petrochemical Corporation (中國石油化工總公 司), and the Company’s controlling shareholder

— 2 —

	DEFINITIONS
“subsidiary” or “subsidiaries”	has the meaning ascribed thereto in section 15 of the
	Companies Ordinance
“substantial shareholder(s)”	has the meaning ascribed thereto in the Hong Kong Listing
	Rules
“Supervisor(s)”	the member(s) of the Supervisory Committee
“Supervisory Committee”	the Company’s supervisory committee established pursuant to
	the Company Law
“%”	percentage ratio

— 3 —

LETTER FROM THE BOARD

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中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]

(a joint stock limited liability company incorporated in the People’s Republic of China)

(Stock Code: 2386)

Non-executive Directors: LING Yiqun (凌逸群) ( Chairman ) LI Guoqing (李國清)

Executive Directors: LU Dong (陸東) ( Vice Chairman ) XIANG Wenwu (向文武) SUN Lili (孫麗麗) ( employee representative Director ) WU Derong (吳德榮) ( employee representative Director )

Independent non-executive Directors: HUI Chiu Chung, Stephen (許照中) JIN Yong (金涌) YE Zheng (葉政)

3 November 2017

To the Shareholders

Dear Sir or Madam,

PROPOSED ADOPTION OF THE H SHARE APPRECIATION RIGHTS SCHEME AND THE PROPOSED INITIAL GRANT AUTHORISATION TO THE BOARD TO DEAL WITH MATTERS RELATING TO THE H SHARE APPRECIATION RIGHTS SCHEME PROPOSED AMENDMENTS TO THE ARTICLES

PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE BOARD OF DIRECTORS

* For identification purposes only.

— 4 —

LETTER FROM THE BOARD

I. INTRODUCTION

The purpose of this circular is to provide you with, among other things, further information in relation to the following resolutions to be proposed at the EGM:

1. to consider and approve the proposed adoption of the H Share Appreciation Rights Scheme and the proposed Initial Grant;

2. to consider and approve authorisation to the Board to deal with matters relating to the H Share Appreciation Rights Scheme;

3. to consider and approve the proposed amendments to the Articles; and

4. to consider and approve the proposed amendments to the Rules and Procedures for the Meetings of the Board;

II. PROPOSED ADOPTION OF THE H SHARE APPRECIATION RIGHTS SCHEME AND THE PROPOSED INITIAL GRANT

Reference is made to the Company’s announcement dated 21 August 2017 in relation to, among other things, the H Share Appreciation Rights Scheme proposed to be adopted by the Company, reasons for adopting the Scheme and the Proposed Initial Grant under the Scheme. As at the date of this circular, the Scheme has not been approved by the SASAC. In order to ensure the smooth implementation of the Scheme, the Company will seek the Shareholders’ approval at the EGM by way of a special resolution to approve the Scheme and to authorise the Board to deal with matters relating to the Scheme. The Scheme will come into effect upon being approved by the SASAC and the Shareholders at the EGM.

In addition, since the issue of the Company’s announcement dated 21 August 2017, based on the actual circumstances of the Company, the relevant director who was authorised to amend the H Share Appreciation Rights Scheme by the Board at the ninth meeting of the Second Session of the Board has made adjustments, as appropriate, to the content of the Initial Grant in accordance with such authorisation.

1. Reasons for the Adoption of the H Share Appreciation Rights Scheme

The Board is of view that the Scheme will enable the Company (1) to establish and cultivate a performance-oriented culture, under which value is created for the Shareholders, and to establish an interests sharing and restraining mechanism between the Shareholders and the Company’s management; (ii) to further improve the Company’s corporate governance structure and unify the interests balance mechanism among the Shareholders, decision makers and executives to ensure a stable and long-term development of the Group; (iii) to optimise the basic remuneration, short-term incentives and long-term incentives of the management, technical and skilled talents of the Company so as to retain different talents more flexibly and effectively and to better promote the development of the Company; and (iv) to effectively motivate the management and core teams to make efforts to enhance their performance and the core competitiveness of the Group.

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LETTER FROM THE BOARD

2. Summary of Key Terms of the H Share Appreciation Rights Scheme

• Conditions for implementation of the Scheme:

• the Scheme shall be implemented after the Scheme is reviewed and approved by the SASAC and approved at the Company’s general meeting

Term:

subject to the SASAC’s review and approval and the Shareholders’ approval at the Company’s general meeting, the Scheme shall be valid for 10 years. If there is any change in relevant policies during such term, the Scheme will be executed in accordance with the latest policies

Incentive Recipients:

the Company’s directors, senior management members and core technical talents, key management officers and highly skilled talents who have direct influence over the Group’s overall performance and sustainable development

• Limits of H Share Appreciation Rights to be granted:

• the H Share Appreciation Rights to be granted within the effective period of the Scheme shall not in aggregate exceed 10% of the total share capital of the Company; initial grant of H Share Appreciation Rights shall not in aggregate exceed 1% of the total share capital of the Company; the anticipated earnings from the H Share Appreciation Rights granted to an individual Incentive Recipient shall not exceed 30% of his/her total remuneration (including the earnings from the H Share Appreciation Rights) at the time of grant

Exercise price:

the highest of:

• (i) the closing price of the H Shares as stated in the daily quotation sheet of the Hong Kong Stock Exchange on the date of grant of the relevant H Share Appreciation Rights;

• (ii) the average closing price of the H Shares as stated in the daily quotation sheets of the Hong Kong Stock Exchange for the five consecutive trading days prior to the date of grant of the relevant H Share Appreciation Rights; or

• (iii) the nominal value of the H Shares

Further details regarding the terms of the Scheme are set out in Appendix I to this circular.

— 6 —

LETTER FROM THE BOARD

3. Proposed Initial Grant under the H Share Appreciation Rights Scheme

The Company proposes to initially grant 13,143,000 units of H Share Appreciation Rights (the number of corresponding H Shares is 13,143,000) to a total of 89 Incentive Recipients, accounting for 0.5% of the total number of contracted employees (including the Directors (other than the independent non-executive Directors), the Company’s senior management members (including presidents, vice presidents and chief financial officer) and the core management, technical and highly skilled personnel of the Company’s subsidiaries).

Details of the Initial Grant are as follows:

Total number of Shares in issue	4,428,000,000
Total number of units of H Share Appreciation Rights to be granted under
the Initial Grant	13,143,000
Proportion of the amount of the H Share Appreciation Rights to be granted
under the Initial Grant to the total number of Shares in issue	0.30%

					Proportion of	Proportion to
			Average		units of H	the total
			number of		Share	number of
			units of H		Appreciation	units of H
			Share	Total number	Rights in this	Share
			Appreciation	of units of H	category to	Appreciation
			Rights to be	Share	the total	Rights to be
			granted per	Appreciation	issued share	granted
			individual in	Rights in this	capital of the	under the
		Number of	this category	category	Company	Initial Grant
Name/Category of Recipients		individual(s)	(thousand)	(thousand)	(%)	(%)
LU Dong	Vice Chairman and	1	210	210	0.005%	1.60%
	Executive Director
XIANG Wenwu	Executive Director and	1	210	210	0.005%	1.60%
	President
SUN Lili	Executive Director and	1	200	200	0.005%	1.52%
	President of Sinopec
	Engineering Incorporation
WU Derong	Executive Director and	1	180	180	0.004%	1.37%
	President of SINOPEC
	Shanghai Engineering
	Co., Ltd.
XIAO Gang	Vice President	1	180	180	0.004%	1.37%
GUAN Qingjie	Chairman of Trade Union	1	180	180	0.004%	1.37%
QI Guosheng	Vice President	1	180	180	0.004%	1.37%
JIA Yiqun	Chief Financial Officer	1	180	180	0.004%	1.37%
SANG Jinghua	Vice President and	1	180	180	0.004%	1.37%
	Secretary to the Board
SUN Xiaobo	Vice President and	1	180	180	0.004%	1.37%
	President of Sinopec Lift
	and Transportation
	Company
Senior management of subsidiaries（Chief position A）		1	180	180	0.004%	1.37%
Senior management of subsidiaries（Deputy position A、Chief position B）		17	160	2,720	0.061%	20.70%
Senior management of subsidiaries（Deputy position B）		19	150	2,850	0.064%	21.68%
Senior management of subsidiaries（Chief		3	140	420	0.009%	3.20%
position C)
Senior management of subsidiaries（Deputy		21	120	2,520	0.057%	19.17%
position C)

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LETTER FROM THE BOARD

					Proportion of	Proportion to
		Average			units of H	the total
		number of			Share	number of
		units of H			Appreciation	units of H
		Share	Total number		Rights in this	Share
		Appreciation	of units of H		category to	Appreciation
		Rights to be		Share	the total	Rights to be
		granted per	Appreciation		issued share	granted
		individual in	Rights in this		capital of the	under the
	Number of	this category		category	Company	Initial Grant
Name/Category of Recipients	individual(s)	(thousand)		(thousand)	(%)	(%)
Key engineering technical expert A	8	160		1,280	0.029%	9.74%
Key engineering technical expert B	7	150		1,050	0.024%	7.99%
Key engineering technical expert C	1	108		108	0.002%	0.82%
Key skills expert A	1	80		80	0.002%	0.61%
Key skills expert B	1	55		55	0.001%	0.42%
Total	89	148		13,143	0.30%	100.00%

Note (1): Percentage is calculated based on the total number of 4,428,000,000 issued Shares of the Company on 3 November 2017 and the proposed Initial Grant of 13,143,000 units of H Share Appreciation Rights.

Note (2): The difference between the figures in the list and the subtotal / aggregate figures is due to rounding.

4. General Information

The Incentive Recipients do not actually hold the Shares, and do not have any Shareholders rights, such as voting rights or placement rights. The Incentive Recipients shall not deal in the H share appreciation rights they are entitled to pursuant to the Scheme on their own, including but not limited to transfer, sell, exchange or charge such rights, or use such rights as guarantee or to settle debts. The Incentive Recipients must avoid behaviours that are prejudicial to the interests of the Group, including major derelictions of duties, major decision-making mistakes resulting in substantial damages to the Group’s interests, or dealings in the H share appreciation rights in violation of the above restrictions. In the event of any aforementioned behaviour, the Incentive Recipients may lose all or part of the H Share Appreciation Rights and the gains thereon, and the Company has the right to reclaim the gains realised from exercising the H Share Appreciation Rights during the relevant period.

Under the Scheme, each H Share Appreciation Right is linked to one H Share and the H Share Appreciation Rights are to be settled by way of cash. Therefore, the Scheme does not affect the total number of H Shares in issue and will not result in any dilution effect on the Shares. The Scheme does not involve grant of options over new Shares or other new securities of the Company or any of its subsidiaries. Therefore, the Scheme is not required to be subject to the provisions under Chapter 17 of the Hong Kong Listing Rules.

For other details relevant to the Scheme, please refer to the announcement entitled “The Proposed Initial Terms of H Share Appreciation Rights Scheme” issued by the Company on 21 August 2017.

— 8 —

LETTER FROM THE BOARD

III. AUTHORISATION TO THE BOARD TO DEAL WITH MATTERS RELATING TO THE H SHARE APPRECIATION RIGHTS SCHEME

In order to complete the matters relating to the H Share Appreciation Rights Scheme in an efficient and orderly manner, the Board recommends that Shareholders authorise the Board to deal with matters relating to the H Share Appreciation Rights Scheme as follows:

1. to amend the terms of the H Share Appreciation Rights Scheme in accordance with the SASAC’s comments (if any);

2. to determine dates of grant and grant prices according to various plans for the grant under the H Share Appreciation Rights Scheme;

3. to grant H Share Appreciation Rights to Incentive Recipients upon the satisfaction of the conditions of grant in accordance with the various plans under the H Share Appreciation Rights Scheme, and to deal with all matters such as the effective arrangements and exercise of the H Share Appreciation Rights in accordance with the effective arrangements and performance conditions;

4. to consider and approve other various plans for the grant in line with the H Share Appreciation Rights Scheme, including but not limited to determining the scope of grant, number of grants, date of grant, effective arrangements and effective performance conditions; and

5. to implement other matters necessary for the H Share Appreciation Rights Scheme, including but not limited to the modification of the performance evaluation method and management approach of the Company for the H Share Appreciation Rights Scheme, other than the rights which are explicitly required by the relevant laws, regulations and regulatory documents to be exercised at the Company’s general meeting.

IV. PROPOSED AMENDMENTS TO THE ARTICLES

1. Rationale for Proposed Amendments to the Articles

In accordance with the Company Law and the resolutions passed at the ninth meeting of the Second Session of the Board, in order to further enhance corporate governance, improve the corporate governance level to promote the long-term development of the Company, and taking into account the actual circumstances of the Company, amendments are proposed to be made to the Articles. The Company published an announcement regarding the details of the proposed amendments to the Articles on 28 June 2017. The amended Articles will become effective on the date they are considered and approved at the EGM by way of a special resolution.

— 9 —

LETTER FROM THE BOARD

2. Major Contents of the Proposed Articles Amendments

(1) Proposed amendments to paragraph 3 of Article 1 of the Articles

The current paragraph 3 of Article 1:

The Company is a joint stock limited liability company which was converted from the former SINOPEC Engineering (Group) Co., Ltd. (中石化煉化工程(集團)股份有限公司). The Company was established by way of promotion. It is registered with and has obtained a business license from China’s State Administration for Industry and Commerce on 28 August 2012 in China. The Company’s business license number is: 100000000041054.

is proposed to be amended as follows:

The Company is a joint stock limited liability company which was converted from the former SINOPEC Engineering (Group) Co., Ltd. (中石化煉化工程(集團)股份有限公司). The Company was established by way of promotion. It is registered with and has obtained a business license from China’s State Administration for Industry and Commerce on 28 August 2012 in China. The Company’s uniform social credit code is: 911100007109349087.

(2) Proposed inclusion of a new article as Article 8 in Chapter 1 (General) of the Articles:

Article 8 In accordance with the Company Law and the Constitution of the Communist Party of China (the “Party”), the Company hereby set up Party organizations and related working organs, and maintain an adequate level of staffing to handle Party affairs as well as sufficient funding necessary for the activities of the Party organizations. The Party organizations play the role of the leadership core and political core in the Company.

The current Article 8 and the subsequent existing articles of the Articles will be renumbered accordingly.

(3) Proposed amendments to Article 93 of the Articles

The current Article 93:

The board of directors shall consist of nine directors, including three independent non-executive directors. There shall be a chairman and a vice chairman of the board of directors. An independent non-executive director refers to a director who does not hold any position other than directorship in the Company and who has no other relationship with the Company or its substantial shareholders.

is proposed to be amended as follows:

The board of directors shall consist of nine directors, including three independent non-executive directors. There shall be a chairman and a vice chairman of the board of directors. An independent non-executive director refers to a director who does not hold any position other

— 10 —

LETTER FROM THE BOARD

than directorship in the Company and who has no relationship with the Company or its major shareholder(s) (i.e. a shareholder who alone holds or shareholders who together hold 5% or more of the total voting shares of the Company) that could hinder such shareholder(s) from making independent and objective judgments, and who is in compliance with the independence requirements under the stock exchange rules in the place where shares of the Company are listed.

(4) Proposed amendments to paragraph 2 of Article 94 of the Articles

The current paragraph 2 of Article 94:

Directors shall be elected at the shareholders’ general meeting and each has a term of three years. Upon the expiry of the term of office of a director, the term is renewable upon re-election. The term of office of any independent non-executive director may not be renewed for more than six years.

is proposed to be amended as follows:

Directors shall be elected at the shareholders’ general meeting and each has a term of three years. Upon the expiry of the term of office of a director, the term is renewable upon re-election. However, the term of office (excluding the first tenure) of any independent non-executive director may not be renewed for more than six years. If an independent non-executive director has already served nine years, his further appointment shall be subject to a separate resolution to be approved at the shareholders’ general meeting.

(5) Proposed inclusion of a new article as Article 103 in Chapter 10 (Board of Directors) of the Articles

Article 103 When making decisions on significant matters such as direction of reform and development, key objectives, and priority operational arrangements of the Company, the board of directors shall seek advice from the Party organization. When the board of directors appoints the management personnel of the Company, the Party organization shall consider and provide comments on the candidates for management positions nominated by the board of directors or the president, or recommend candidates to the board of directors and/or the president.

The current Article 103 and the subsequent existing articles of the Articles will be renumbered accordingly.

— 11 —

LETTER FROM THE BOARD

V. PROPOSED AMENDMENTS TO THE RULES AND PROCEDURES FOR THE MEETINGS OF THE BOARD

1. Rationale for Proposed Amendments to the Rules and Procedures for the Meetings of the Board

In order to further enhance corporate governance, improve the corporate governance level to promote the long-term development of the Company, and taking into account the actual circumstances of the Company, amendments are proposed to be made to the Rules and Procedures for the Board of Directors’ Meeting. The Company published the announcement regarding the details of the proposed amendments to the Rules and Procedures for the Meetings of the Board on 28 June 2017. According to Rule 43 of the Rules and Procedures for the Meetings of the Board, revisions to the Rules and Procedures for the Meetings of the Board shall be submitted as a special resolution to the Company’s general meeting for approval. The amended Rules and Procedures for the Meetings of the Board shall become effective on the date they are considered and approved at the EGM by way of a special resolution.

2. Major Contents of the Proposed Amendments to the Rules and Procedures for the Meetings of the Board

The Board proposes to include a new article as Article 2 in Chapter 2 (The Authority and Authorisation of the Board of Directors):

“Article 2 When making decisions on significant matters such as direction of reform and development, key objectives, and priority operational arrangements of the Company, the board of directors shall seek advice from the Party organization. When the board of directors appoints the management personnel of the Company, the Party organization shall consider and provide comments on the candidates for management positions nominated by the board of directors or the president, or recommend candidates to the board of directors and/or the president.”

The current Article 2 and the subsequent existing articles of the Rules and Procedures for the Meetings of the Board will be renumbered accordingly.

VI. RECOMMENDATION

The Directors (including all independent non-executive Directors) consider that the resolutions in relation to (i) the proposed adoption of the H Share Appreciation Rights Scheme and the proposed Initial Grant; (ii) the authorisation to the Board to deal with matters relating to the H Share Appreciation Rights Scheme; (iii) the proposed amendments to the Articles, and the authorisation to Mr. SANG Jinghua, Vice President, the secretary to the Board and the Company secretary, to, on behalf of the Company, deal with all procedural requirements such as applications, approvals, registration and filings in relation to the proposed amendments to the Articles (including the amendments to wording as requested by relevant regulatory authorities); (iv) the proposed amendments to the Rules and Procedures for the Meetings of the Board, and the authorisation to Mr. SANG Jinghua, Vice President, the secretary to the Board and the Company secretary, to, on behalf of the Company, deal with all procedural requirements such as applications, approvals, registration

— 12 —

LETTER FROM THE BOARD

and filings in relation to the proposed amendments to the Rules and Procedures for the Meetings of the Board (including the amendments to wording as requested by relevant regulatory authorities) are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM as set out in the EGM Notice.

By order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD. SANG Jinghua

Vice President, Secretary to the Board

Beijing, PRC 3 November 2017

— 13 —

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

==> picture [43 x 44] intentionally omitted <==

中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]

(a joint stock limited liability company incorporated in the People’s Republic of China)

(Stock Code: 2386)

NOTICE OF THE SECOND EXTRAORDINARY GENERAL MEETING FOR THE YEAR 2017 AND CLOSURE OF REGISTER OF MEMBERS FOR H SHARES

NOTICE IS HEREBY GIVEN that the second extraordinary general meeting for the year 2017 (the “ EGM ”) of SINOPEC Engineering (Group) Co., Ltd. (the “ Company ”) will be held at the V-Continent Beijing Parkview Wuzhou Hotel, 8 Beisihuan Zhong Lu, Chaoyang District, Beijing, the PRC at 9 a.m. on Wednesday, 20 December 2017 for the purpose of considering and, if deemed appropriate, approving the following resolutions. In this notice, unless the context otherwise requires, capitalised terms used herein shall have the same meanings as defined in the Company’s circular (the “ Circular ”) dated 3 November 2017.

RESOLUTIONS TO BE CONSIDERED AND APPROVED AT THE EGM

By way of special resolutions:

• (1) to consider and approve the proposed adoption of H Share Appreciation Rights Scheme and the proposed Initial Grant;

• (2) to consider and approve the authorisation to the Board to deal with matters relating to the H Share Appreciation Rights Scheme;

• (3) to consider and approve the proposed amendments to the Articles, and to approve the authorisation to Mr. SANG Jinghua, Vice President and the secretary to the Board, to, on behalf of the Company, deal with all procedural requirements such as applications, approvals, registration and filings in relation to the proposed amendments to the Articles (including the amendments to wording as requested by relevant regulatory authorities); and

• (4) to consider and approve the proposed amendments to the Rules and Procedures for the Meetings of the Board, and to approve the authorisation to Mr. SANG Jinghua, Vice President and the secretary to the Board, to, on behalf of the Company, deal with all procedural requirements such as applications, approvals, registration and filings in relation to the proposed amendments to the Rules and Procedures for the Meetings of the Board (including the amendments to wording as requested by relevant regulatory authorities).

• For identification purposes only.

— 14 —

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Details of the above resolutions proposed at the EGM are contained in the Circular, which is available on the website of Hong Kong Exchanges and Clearing Limited (www.hkex.com.hk) and the website of the Company (www.segroup.cn).

By Order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD. SANG Jinghua

Vice President, Secretary to the Board

Beijing, PRC 3 November 2017

As at the date of this notice, the Company’s executive directors are LU Dong, XIANG Wenwu, SUN Lili (employee representative director) and WU Derong (employee representative director); the non-executive directors are LING Yiqun and LI Guoqing; and the independent non-executive directors are HUI Chiu Chung, Stephen, JIN Yong and YE Zheng.

This notice is available on the website of Hong Kong Exchanges and Clearing Limited (www.hkex.com.hk) and on the website of the Company (www.segroup.cn).

Notes:

ATTENDEE OF THE EGM

1. ELIGIBILITY AND REGISTRATION PROCEDURE FOR ATTENDING THE EGM

• (a) Closure of Register of Members. For the purpose of ascertaining Shareholders who are entitled to attend and vote at the EGM, the register of members of the Company will be closed from Monday, 20 November 2017 to Wednesday, 20 December 2017 (both days inclusive).

• (b) Domestic Shareholders and H Shareholders whose names appear on the register of members of the Company before the close of business on Monday, 20 November 2017 are entitled to attend and vote in respect of all resolutions to be proposed at the EGM.

• (c) H Shareholders who wish to attend the EGM shall lodge their share certificates accompanied by the transfer documents with Computershare Hong Kong Investor Services Limited before 4:30 p.m. on Friday, 17 November 2017 for registration.

• (d) A Shareholder or his/her/its proxy shall produce proof of identity when attending the meeting. If a Shareholder is a legal person, its legal representative or other persons authorised by the board of directors or other governing body of such Shareholder may attend the EGM by producing a copy of the resolution of the board of directors or other governing body of such Shareholder appointing such persons to attend the meeting.

• (e) Domestic Shareholders and H Shareholders intending to attend the EGM should return the reply slip for attending the EGM to the Company on or before Thursday, 30 November 2017.

• (f) Shareholders may send the above reply slip to the Company by hand, by post or by fax.

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

2. Proxy

• (a) A member eligible to attend and vote at the EGM is entitled to appoint, in written form, one or more proxies to attend and vote on his/her/its behalf. A proxy needs not be a Shareholder.

• (b) A proxy should be appointed by a written instrument signed by the appointer or his/her/its attorney duly authorised in writing. If the proxy form is signed by the attorney of the appointer, the power of attorney authorising that attorney to sign or the authorisation document(s) must be notarised.

• (c) To be valid, the power of attorney or other authorisation document(s) which have been notarised together with the completed proxy form must be delivered to the place of business of the Company for Domestic Shareholders and Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong for H Shareholders not less than 24 hours before the time designated for holding of the EGM.

• (d) A Shareholder or his/her/its proxy may exercise the right to vote by poll.

3. Miscellaneous

• (a) The EGM will not last for more than one working day. Shareholders who attend the EGM shall bear their own travelling and accommodation expenses.

• (b) The address of the Company’s Share Registrar of H Shares, Computershare Hong Kong Investor Services Limited, is at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.

• (c) The place of business of the Company is at:

Tower B, No. 19 Anyuan, Anhui Beili, Chaoyang District, Beijing, the PRC Post Code: 100101 Telephone No.: +86(10) 6499 8054 Facsimile No.: +86(10) 6499 8599

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APPENDIX I THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

Set forth below are the terms of the H Share Appreciation Rights Scheme proposed to be approved and adopted at the EGM. The following is not and will not constitute part of the terms of the Scheme, and hence does not affect any interpretation of the terms of the Scheme.

Chapter One Definitions

Article 1 Unless the context otherwise requires, words and expressions below shall have the following meanings in this Scheme:

Company means SINOPEC Engineering (Group) Co., Ltd., a joint stock limited liability company incorporated under the laws of the PRC Group the Company and its subsidiaries Scheme means the H Share Appreciation Rights Scheme of the Company Hong Kong Stock Exchange The Stock Exchange of Hong Kong Limited Listing Rules means the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited General Meeting means the general meeting of the Company Board means the board of directors of the Company Remuneration Committee means the remuneration committee under the Board of the Company Director(s) means the director(s) of the Company Supervisory Committee means the supervisory committee of the Company Share(s) means the share(s) in the capital of the Company, with a nominal value of RMB1.00 each H Share(s) means the overseas listed foreign invested ordinary share(s) in the ordinary share capital of the Company, with a nominal value of RMB1.00 each, listed on the Main Board of the Hong Kong Stock Exchange Domestic Share(s) means the ordinary share(s) of the capital of the Company, with a nominal value of RMB1.00 each, which are subscribed for and paid up in RMB

Incentive Recipient(s) means parties who are to be granted the Share Appreciation Rights under the Scheme

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APPENDIX I

THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

Share Appreciation Rights

means the H Share appreciation rights under the Scheme, which confer the Incentive Recipients with the right to gain from the increase in the price of H Shares within a specified time period, subject to the relevant conditions. Incentive Recipients do not hold the shares, the shareholders’ voting rights or placement rights. Share Appreciation Rights shall not be transferred or used as guarantee or to settle debts and so on.

• Target Shares means the shares based on which the Incentive Recipients calculate earnings from the increase in share price according to the Scheme, i.e. the H shares of the Company

• Date of Grant means the date on which the Company grants the Share Appreciation Rights to the Incentive Recipients according to this Scheme and shall be trading day and determined by the Board

• Lock-up Period means the two-years period from the Date of Grant, during which the Incentive Recipients are not allowed to exercise the rights

• Effective means upon the expiry of the Lock-up Period, an Incentive Recipient may be allowed to Exercise part or all Share Appreciation Rights when the performance of the Company and that of the individual Incentive Recipient achieves specified performance conditions of the Share Appreciation Rights

• Effective Date Means the date on which Share Appreciation Rights come into force (shall be trading day)

• Exercise means the act to be taken by the Incentive Recipients to exercise all or part of the Share Appreciation Rights which have become Effective and are within the Effective Period and, therefore, to gain earnings from the increase in share price to be paid by the Company according to this Scheme

Exercise Price means the pre-determined exercise price of Share Appreciation Rights Exercise Date means the date on which the Incentive Recipients shall exercise the rights Exercise Period means the period from the effective date of the Share Appreciation Rights to the expiry of the Effective Period, other than the particular dates prescribed in Article 16 of this Scheme

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APPENDIX I

THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

Articles means the articles of association of the Company, as amended from time to time China means the People’s Republic of China SASAC means the State-owned Assets Supervision and Administration Commission of the State Council of the PRC RMB the lawful currency of the PRC

Unless otherwise specified or the context otherwise requires, “the financial year immediately before the Grant” as specified in the conditions of the Initial Grant under the Scheme means the year of 2016, “the year of the Date of Grant” means the year of 2017, “the year before the First Effective Phase coming into effect” means the year of 2018, “the year before the Second Effective Phase coming into effect” means the year of 2019, and “the year before the Third Effective Phase coming into effect” means the year of 2020.

Chapter Two General Principals

Article 2 In order to establish and improve the incentive and restriction mechanism and to effectively stimulate the management and core teams, this Scheme has been formulated in accordance with the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Trial Measures on Implementation of Share Incentives by State-Controlled Listed Companies (Overseas) 《國有控股上市公司（境外）實施股權激勵試行辦法》( ) and the Notice on Several Issues regarding Regulating the Implementation of the Share Incentive System by State-Controlled Listed Companies 《關於規範國有控股上市公司實施股權激勵制度有關問題的通( 知》) issued by SASAC, as well as the relevant requirements of the Listing Rules, other laws and regulations and the Articles.

Article 3 Objectives of the Scheme

• (I) To establish and cultivate a performance-oriented culture, under which value is created for the shareholders, and to establish an interests sharing and restraining mechanism between the Shareholders and the Company’s management;

• (II) to further improve the Company’s corporate governance structure and unify the interests balance mechanism among the Shareholders, decision-makers and executives to secure a stable and long-term development of the Group;

• (III) to optimise the basic remuneration, short-term incentives and long-term incentives of the management, technical and skilled talents of the Company so as to retain different talents more flexibly and effectively and to better promote the development of the Company;

• (IV) to effectively motivate the management and core teams to make efforts to enhance their performance and the core competitiveness of the Group.

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THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

APPENDIX I

• Article 4 Principles of this Scheme: it should

• (I) be in compliance with law, and be public and transparent;

• (II) keep the interests of the shareholders, the Company and the Incentive Recipients consistent with one another;

• (III) coordinate the long-term and short-term targets in combination of the Company’s strategic and performance requirements;

• (IV) combine incentives with constraints and match performance with benefits;

• (V) consistent, convenient and easily workable; and

• (VI) comply with relevant laws and regulations.

Article 5 This Scheme shall be implemented after being submitted by China Petrochemical Corporation, the controlling shareholder of the Company, to and reviewed and approved by the SASAC and approved at a General Meeting.

Chapter Three Basis for Determination of and Scope of Incentive Recipients

Article 6 Incentive Recipients of Share Appreciation Rights are, in principle, limited to the Company’s directors and senior management members and core technical employees, key management officers and highly skilled talents who have direct influence over the Group’s overall performance and sustainable development.

Article 7 The Initial Grant of Share Appreciation Rights shall be granted to:

• (I) Directors (other than the independent directors), the senior management members (including presidents, vice presidents and chief financial officer); and

• (II) the core management, technical and highly skilled personnel of the subsidiaries of the Company.

The number of the Incentive Recipients proposed to be under the proposed Initial Grant by the Company is 89, accounting for 0.5% of the total number of contracted employees.

Article 8 The Supervisory Committee shall review the list of the Incentive Recipients. The Incentive Recipients shall undertake that they have not participated in any long-term incentive scheme adopted by other listed companies at the time of the grant of the Scheme by the Company and they will not participate in any incentive scheme of other companies after the grant, in which case during the implementation of the Scheme the Incentive Recipients shall automatically abstain from the Scheme without compensation by the Company.

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APPENDIX I THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

Article 9 Pursuant to relevant regulations of SASAC, the following people shall not participate in the Company’s share incentive scheme:

• (I) a person who does not hold any position at, nor is an employee of, the Group;

• (II) a supervisor or independent non-executive director of the Company;

• (III) a person who is, or is a close relative of, a major shareholder or actual controller who holds more than 5% of the shares of the Company on the Date of Grant, except for those who have been approved at the Company’s general meeting (at which any shareholder who is proposed to be an Incentive Recipient or is associated with an Incentive Recipient shall abstain from voting);

• (IV) other persons who are not allowed to be Incentive Recipients pursuant to the requirements of securities regulatory authorities.

Chapter Four Number and Allocation of Share Appreciation Rights

Article 10 The total number of units to be granted within the effective period of a share incentive scheme shall not exceed 10% of the total share capital of the Company, and the number of units to be granted under the Initial Grant shall be controlled within 1% of the total share capital of the listed company.

Article 11 The total number of shares in issue of the Company is 4,428,000,000. According to relevant regulations of SASAC and China Petrochemical Corporation, the anticipated earnings from the Share Appreciation Rights granted to an individual Incentive Recipient shall not exceed 30% of the total remuneration (including the earnings from the Share Appreciation Rights) at the time of grant. The class of the Target Shares involved in the Scheme is H share. The number of the Initial Grant of Share Appreciation Rights to Incentive Recipients are 13,143,000 and the number of the Target Shares is 13,143,000, representing 0.30% of the total shares of the Company for the time being.

Article 12 The Initial Grant of Share Appreciation Rights are as follows:

Total number of Shares in issue	4,428,000,000
Total number of units of H Share Appreciation Rights to be granted under
the Initial Grant	13,143,000
Proportion of the amount of the H Share Appreciation Rights to be granted
under the Initial Grant to the total number of Shares in issue	0.30%

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APPENDIX I

THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

						Proportion to
			Average		Proportion of	the total
			number of		units of H	number of
			units of H		Share	units of H
			Share	Total number	Appreciation	Share
			Appreciation	of units of H	Rights in this	Appreciation
			Rights to be	Share	category to	Rights to be
			granted per	Appreciation	the total	granted
			individual in	Rights in this	issued share	under the
		Number of	this category	category	capital of the	Initial Grant
**Name/Category of **	Recipients	individual(s)	(thousand)	(thousand)	Company(%)	(%)
LU Dong	Vice Chairman and	1	210	210	0.005%	1.60%
	Executive Director
XIANG Wenwu	Executive Director and	1	210	210	0.005%	1.60%
	President
SUN Lili	Executive Director and	1	200	200	0.005%	1.52%
	President of Sinopec
	Engineering Incorporation
WU Derong	Executive Director and	1	180	180	0.004%	1.37%
	President of SINOPEC
	Shanghai Engineering
	Co., Ltd.
XIAO Gang	Vice President	1	180	180	0.004%	1.37%
GUAN Qingjie	Chairman of Trade Union	1	180	180	0.004%	1.37%
QI Guosheng	Vice President	1	180	180	0.004%	1.37%
JIA Yiqun	Chief Financial Officer	1	180	180	0.004%	1.37%
SANG Jinghua	Vice President and	1	180	180	0.004%	1.37%
	Secretary to the Board
SUN Xiaobo	Vice President and	1	180	180	0.004%	1.37%
	President of Sinopec Lift
	and Transportation
	Company
Senior management position A）	of subsidiaries（Chief	1	180	180	0.004%	1.37%
Senior management of subsidiaries（Deputy position A、Chief position B）		17	160	2,720	0.061%	20.70%
Senior management position B）	of subsidiaries（Deputy	19	150	2,850	0.064%	21.68%
Senior management	of subsidiaries（Chief	3	140	420	0.009%	3.20%
position C)
Senior management	of subsidiaries（Deputy	21	120	2,520	0.057%	19.17%
position C)
Key engineering technical expert A		8	160	1,280	0.029%	9.74%
Key engineering technical expert B		7	150	1,050	0.024%	7.99%
Key engineering technical expert C		1	108	108	0.002%	0.82%
Key skills expert A		1	80	80	0.002%	0.61%
Key skills expert B		1	55	55	0.001%	0.42%
Total		89	148	13,143	0.30%	100.00%

Note (1): Percentage is calculated based on the total number of 4,428,000,000 issued Shares of the Company on 3 November 2017 and the proposed Initial Grant of 13,143,000 units of H Share Appreciation Rights.

Note (2): The difference between the figures in the list and the subtotal / aggregate figures is due to rounding.

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THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

APPENDIX I

Chapter Five Exercise Price of Share Appreciation Rights

Article 13 The Exercise Price of the Share Appreciation Rights shall be determined according to fair market price. The Exercise Price of the various Share Appreciation Rights granted shall be the highest of the followings:

• (I) the closing price of the Company’s H shares as stated in the daily quotation sheet of the Hong Kong Stock Exchange on the Date of Grant;

• (II) the average closing price of the Company’s H shares as stated in the daily quotation sheets of the Hong Kong Stock Exchange for five consecutive trading days prior to the Date of Grant; or

• (III) the nominal value of the Company’s H shares.

Article 14 The General Meeting authorises the Board to decide the Exercise Price of various grants by publishing announcements on the date of grant upon the satisfaction of grant conditions in accordance with the above principle.

Chapter Six Effective Period, Date of Grant, Lock-up Period and Effective Schedule of Share Appreciation Rights

Article 15 The Effective Period of the Scheme is 10 years, and the Scheme shall become effective after the Scheme is reviewed and approved by the SASAC and approved by the Company’s general meeting. During the Effective Period of the Scheme if there is any changes in policies, it shall follow the latest policy advice for implementation.

Unless otherwise arranged by the Board, the Share Appreciation Rights are granted to eligible Incentive Recipients once every two years subject to the conditions for grant. Following the second anniversary of the grant, the vesting shall be completed in 3 years on a yearly basis in three equal batches. At later stage, the Board, in accordance with laws and regulations and the Company’s development strategy, propose to arrange 2-3 grants, the scope of grant recipients can be appropriately extended to the middle level management and professional and technical personnel, and in principle, the number of grant recipients of each grant shall not exceed 4% of the total number of employees under contracts.

Article 16 After the Scheme is reviewed and approved by SASAC, and approved at the General Meeting and the grant conditions are satisfied, the Board decide the Date of Grant in accordance with the requirements of the Scheme. The date of grant shall be a trading day and shall not fall on a day that is:

• (I) 30 days prior to the date of publication of any periodic report;

• (II) 10 days prior to the date of announcement of any pre-announcement of results and preliminary earnings estimate;

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APPENDIX I THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

• (III) during the process of a major transaction or a decision-making process for a major issue till and within 2 trading days following the announcement of such issue;

• (IV) from the date of other major events that may affect the stock price until 2 trading days following the announcement thereof.

Article 17 The Effective Period of the Share Appreciation Rights shall be ten years following the grant of Share Appreciation Rights. Upon the expiration of the Effective Period, any outstanding Share Appreciation Rights shall lapse.

Article 18 Lock-up Period refers to the two-year period following the Date of Grant, during which the Incentive Recipients are not allowed to Exercise the rights.

Article 19 Subject to the satisfaction of corresponding performance-based conditions as set out in Chapter Seven of this Scheme, the Share Appreciation Rights under various grants shall become effective in proportions as follows:

		Effective
Period	Date	Proportion
Lock-up Period	Within two years following the Date of Grant of Share Appreciation Rights	0
The First Effective Phase	From the second anniversary of the Date of	33%
	Grant of Share Appreciation Rights
The Second Effective Phase	From the third anniversary of the Date of	33%
	Grant of Share Appreciation Rights
The Third Effective Phase	From the fourth anniversary of the Date of	34%
	Grant of Share Appreciation Rights

Article 20 Exercise Date: The Share Appreciation Rights granted to the Incentive Recipients may be Exercised in accordance with relevant requirements of the Board after such rights become Effective till the end of the Effective Period, except for any particular dates as provided for in Article 16, in which case the Exercise period may be extended but shall not outlast the Effective Period of the Share Appreciation Rights.

Chapter Seven Performance Conditions for Share Appreciation Rights

Article 21 Based on the actual circumstances of the Group, the ROE, the growth rate of revenue and the EVA of the Group are chosen as the financial performance conditions to be satisfied by the Group. Pursuant to relevant regulations, the Company will use the financials prepared in accordance with the China Accounting Standards for Business Enterprises and the net profit after deduction of non-recurring profit or loss for the purposes of computing the ROE, the growth rate of revenue and the EVA under the Scheme. The benchmark companies shall be those with similar business, in similar markets, with similar scale as the Group and with relatively stable historical operating performance. In the course of the annual assessment, if the benchmark companies have a major change in the main business or a large deviation from the sample extreme value, then the Board shall remove or replace such samples in the assessment.

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THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

APPENDIX I

Article 22 The conditions for the Initial Grant of Share Appreciation Rights are as follows:

(I) Conditions based on the Group’s Performance

1. the ROE of the Group for the financial year immediately before the grant shall not be lower than 7.4%, and shall not be lower than 50 percentile of such growth rate of revenue of benchmark companies;

2. the revenue of the Group for the financial year immediately before the grant shall not be less than RMB39.5 billion;

3. the EVA of the Group for the financial year immediately before the grant shall not be less than RMB1.220 billion.

4. (II) Conditions based on the Individual’s Performance

The performance evaluation rating of the Incentive Recipient of the Scheme for the financial year immediately before the year of the Date of Grant shall be “A” or “B”.

Article 23 The conditions upon which the granted Share Appreciation Rights become Effective are as follows:

(I) Conditions based on the Group’s performance

Effective Phases

Performance Evaluation Targets

First Effective Phase

• the ROE of the financial year immediately before the year of the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies;

• the growth rate of revenue of the financial year immediately before the effective date as compared with that of the financial year immediately before the grant shall not be lower than 14.2% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies;

• the EVA of the financial year immediately before the year of the effective date shall not be less than RMB2.099 billion;

• Second Effective Phase • the ROE of the financial year immediately before the year of the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies;

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THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

APPENDIX I

Effective Phases

Performance Evaluation Targets

• the growth rate of revenue of the financial year immediately before the effective date as compared with that of the financial year immediately before the grant shall not be lower than 21.6% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies;

• the EVA of the financial year immediately before the effective date shall not be less than RMB2.233 billion;

• Third Effective Phase • the ROE of the financial year immediately before the year of the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies;

• the growth rate of revenue of the financial year immediately before the effective date as compared with that of the financial year immediately before the grant shall not be lower than 29.3% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies;

• the EVA of the financial year immediately before the effective date shall not be less than RMB2.373 billion.

(II) Conditions based on the individual’s performance

If the aforementioned conditions based on the Group’s performance are satisfied, the H Share Appreciation Rights granted to the Incentive Recipients shall become effective as determined based on the following:

1. If the Incentive Recipient’s performance evaluation rating for the previous year is “A”, then 100% of the Share Appreciation Rights in the relevant phase shall become Effective.

2. If the Incentive Recipient’s performance evaluation rating for the previous year is “B”, then 90% of the Share Appreciation Rights in the relevant phase shall become Effective.

3. If the Incentive Recipient’s performance evaluation rating for the previous year is “C”, then 30% of the Share Appreciation Rights in the relevant phase shall become Effective.

4. If the Incentive Recipient’s performance evaluation rating for the previous year is “D”, irrespective of whether the Company has satisfied the performance conditions or not, all the Share Appreciation Rights in the relevant phase shall lapse.

5. Article 24 Conditions precedent for Exercise of the rights by the individual Incentive Recipients:

6. (I) The Group satisfies the performance-based conditions for Exercise of the rights and other conditions;

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APPENDIX I THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

• (II) None of the following circumstances occurs to the Incentive Recipient within the Effective Period of this Scheme as of the current effective phase:

• the Incentive Recipient has been publicly denounced or declared as an inappropriate officer by the Hong Kong Stock Exchange within three years;

• any circumstance where the Incentive Recipient is not allowed to act as the Company’s director or officer as set out under the Company Law of People’s Republic of China;

• any other severe violation of Company policies as determined by the Board.

• (III) The Incentive Recipient’s performance evaluation rating for the previous year is “C” or above pursuant to the Assessment and Management Policies of the Company.

If such conditions precedent are satisfied, the Incentive Recipient may Exercise the Share Appreciation Rights exercisable in the corresponding effective phase. If the Incentive Recipient does not satisfy the condition precedent set out in clause (II) above, such Incentive Recipient’s right to participate in this Scheme shall be forfeited without any compensation; if the Incentive Recipient does not satisfy the condition precedent set out in clause (III) above, then the Share Appreciation Rights granted to such Incentive Recipient for the corresponding effective phase shall lapse.

Chapter Eight Restrictions

Article 25 In order to fully reflect the feature of this Scheme, i.e. a combination of incentives and constraints, the Incentive Recipients participating in the Scheme shall comply with the following restrictions:

• (I) the Incentive Recipients shall not deal in the Share Appreciation Rights they are entitled to pursuant to the Scheme on their own, including but not limited to transfer, sell, exchange or charge such rights, or use such rights as guarantee or to settle debts;

• (II) The Incentive Recipients must avoid behaviours that are prejudicial to the interests of the Group, including major derelictions of duties, major decision-making mistakes resulting in substantial damages to the Group’s interests, or dealings in the Share Appreciation Rights in violation of above restrictions. In the event of any aforementioned behaviour, the Incentive Recipients may lose all or part of the Share Appreciation Rights and the gains thereon, and the Company has the right to reclaim the gains realised from exercising the Share Appreciation Rights during relevant period.

• (III) The determining and handling of any of the aforementioned action by the Incentive Recipients shall follow the applicable state laws, regulations and the relevant provisions and policies made by the governing authorities and the Company and handled in accordance with the appropriate procedures.

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THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

APPENDIX I

Article 26 The Scheme shall lapse automatically in any of the following events:

• (I) the expiration of the Effective Period of the Share Appreciation Rights;

• (II) when the certified accountants issue an audit report with an adverse opinion or a disclaimer of opinion with regard to the Group’s financial statements for the latest fiscal year, or that the Supervisory Committee or the audit department raises material objection against the Group’s performance and the annual financial statements, the Share Appreciation Rights of the current year that have been granted to the Incentive Recipients but not been Exercised shall automatically lapse;

Article 27 The Incentive Recipient is no longer qualified to Exercise the rights in any of the following events:

• (I) any severe dereliction of duty or misconduct;

• (II) any breach of applicable state laws, regulations or the Articles of the Company;

• (III) The Company has enough evidence to prove that holder of the Share Appreciation Rights has caused loss to the Group in his or her tenure by taking or extorting bribes, embezzlement, pilferage, revealing business or technology secrets of the Group, harming the Group’s interest and reputation by implementing connected transactions and any other act with a major adverse impact on the Group’s image.

Chapter Nine Adjustment to Share Appreciation Rights

Article 28 In the event of any change in the total share capital of the Company resulting from, among others, issuance of new shares, conversion from capital reserves into share capital, merger, division and repurchase of Shares, the Exercise Price and the number of units of Share Appreciation Rights shall be adjusted accordingly following the principles below:

• (I) Adjustment to the number of units of Share Appreciation Rights. If, prior to the Exercise, any of the following circumstances of the Company occurs, the number of units of Share Appreciation Rights shall be adjusted accordingly in such a way as specified below:

• Conversion from Capital Reserves into Share Capital, Distribution of Dividend and Share Subdivision

The number of units of Share Appreciation Rights after adjustment ＝the Number of units of Share Appreciation Rights before Adjustment � (1 + the number of shares increased due to the conversion, distribution or subdivision per share)

1. Share Consolidation

The number of units of Share Appreciation Rights after adjustment ＝ the number of units of Share Appreciation Rights before adjustment � the consolidation ratio

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THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

APPENDIX I

1. Allotment of Shares and Placing of New Shares Targeting Original Shareholders

The number of units of Share Appreciation Rights after adjustment ＝ the number of Share Appreciation Rights before adjustment � the closing price of the Shares at the date of share registration (1 + the allotment ratio) � (the closing price of the Shares at the date of share registration + the allotment price � the allotment ratio)

• (II) Adjustment to the Exercise Price of Share Appreciation Rights. If, prior to the Exercise, any of the following circumstances of the Company occurs, the Exercise Price of the Share Appreciation Rights shall be adjusted accordingly in such a way as specified below, provided that such adjustment shall not cause the Exercise Price to be lower than the par value of Shares:

• Conversion from Capital Reserves into Share Capital, Distribution of Bonus Shares and Share Subdivision

The Exercise Price after adjustment ＝ the Exercise Price before adjustment � (1 + the number of shares Increased due to the conversion, distribution or subdivision per share)

1. Share Consolidation

The Exercise Price after adjustment ＝ the Exercise Price before adjustment � the consolidation ratio

1. Distribution of Dividends

The Exercise Price after adjustment ＝ the Exercise Price before adjustment — the amount of dividends distributed per share

1. Allotment of Shares and Placing of New Shares Targeting Original Shareholders

The Exercise Price after adjustment ＝ the Exercise Price before adjustment � (the closing price of the Shares at the date of share registration + the allotment price � the allotment ratio) � (the closing price of the Shares at the date of share registration � (1 + the allotment ratio))

(III) The General Meeting authorises the Board the right to adjust the number of units of Share Appreciation Rights or the Exercise Price in accordance with the above reasons. The legal counsels shall provide professional opinions from to advise as to whether such adjustment complies with relevant laws and regulations, the Articles and this Scheme. The independent financial adviser or auditor of the Company shall issue opinions with respect to adjustments to the Board in writing and confirm its compliance with the requirements of the Scheme. After the Board adjusts the Exercise Price or the number of units of Share Appreciation Rights according to the above requirements, it shall promptly publish the announcement and inform the Incentive Recipients.

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APPENDIX I THE H SHARE APPRECIATION RIGHTS SCHEME AND THE INITIAL GRANT

Article 29 If the Company adjusts the Exercise Price or the number of units of Share Appreciation Rights for other reasons, it shall be decided by the Board resolutions and approved by the General Meeting.

Chapter Ten Exercise under Special Circumstances

Article 30 In the event of any false records in the Group’s financial and accounting documents, the Incentive Recipient liable for such false records shall return to the Company all the earnings acquired under this Scheme within 12 months of the date of publication of such financial and accounting documents; all the Share Appreciation Rights that having been granted but are not yet Effective shall lapse automatically.

Article 31 In case of any merger, division or change of control of the Group, in principle, all the Share Appreciation Rights that have been granted shall remain unchanged, and no accelerated Exercise is allowed to the Incentive Recipients. However, if such merger, division or change of control causes a change of the Target Shares under in this Scheme, the filing and approval procedures shall be gone through again.

Article 32 In the event of any change in the position of an Incentive Recipient, if he/she remains with the Group, the number of his/her units of Share Appreciation Rights that have been granted and the conditions for those units to become Effective shall remain unchanged.

Article 33 Departure of Incentive Recipient (i.e., an Incentive Recipient ceases to work for the Company for various reasons)

• (I) Upon the expiration of the employment contract between an Incentive Recipient and the Company, if the Company no longer renews the contract with the Incentive Recipient or the Incentive Recipient does not intend to renew the contract with the Company; in the event an Incentive Recipient is seconded to another company as required by the Company during his/her term of service; in the event an Incentive Recipient ceases to work for the Company due to the Company’s restructuring, merger, strategic exit and other non-personal factors not on the part of the Incentive Recipient: the Effective but not yet Exercised portion of his/her Share Appreciation Rights shall be Exercised within six months after his/her departure, failing which such portion shall be forfeited and the portion not yet Effective shall lapse automatically. In the event an Incentive Recipient ceases to work for the Company due to the Company’s restructuring, merger, strategic exit and other non-personal factors not on the part of the Incentive Recipient, the Board may decide whether to provide compensation.

• (II) In the event an Incentive Recipient resigns with the consent of the Company prior to the expiration of his/her employment contract with the Company, and in the event an Incentive Recipient is fired by the Company due to his/her personal reasons and ceases his/her work without the permission and consent of the Company prior to the expiration of his/her

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employment contract with the Company, and in the event that an Incentive Recipient is fired by the Company due to his/her personal reasons: the unexercised portion of his/her Share Appreciation Rights (including those Effective and not yet effective) shall lapse automatically.

Article 34 In the event an Incentive Recipient loses his/her working capacity, retires or retires with honours from the Company, the Effective but not yet Exercised portion of his/her Share Appreciation Rights shall be Exercised within six months after his/her loss of working capacity and within six months after his/her retirement, failing which such portion shall be forfeited; and the portion not yet Effective shall lapse automatically; in the event an Incentive Recipient passes away, the Effective but not yet Exercised portion of his/her Share Appreciation Rights shall be Exercised by his/her estate in accordance with the terms of the Share Appreciation Rights Scheme within six months of the date of his/her death, failing which such portion shall be forfeited; and the portion not yet Effective shall lapse automatically

Article 35 In the event of any other circumstances of the Company or an Incentive Recipient unspecified above, the Board will deal with his/her Share Appreciation Rights pursuant to the above principles.

Chapter Eleven Restrictions on Gains and Payment of Taxes

Article 36 The maximum of gains de facto realized by an Incentive Recipient from Share Appreciation Rights shall not exceed 40% of the aggregate amount of remuneration as at the grant of such Share Appreciation Rights to the Incentive Recipient. Upon reaching such cap of 40%, the remaining Share Appreciation Rights shall lapse and no Exercise shall be made in respect thereof.

With respect to the Share Appreciation Rights granted to directors and senior management, their cash income gained through the Exercise shall be entitled to enter the accounts of the Company for the Share Incentive Recipients, and the cash income of the accounts not lower than 20% shall be withdrawn until expiration of the term of office (or the tenure) and he/she is qualified for the assessment. The positions of directors and senior management shall be determined according to the positions of the Incentive Recipients for the year.

Article 37 Any cash gains from the Exercise of Share Appreciation Rights shall be individual income and are subject to individual income tax and other taxes and fees pursuant to laws.

Chapter Twelve Rights and Obligations of Company and Incentive Recipients

Article 38 Rights and Obligations of Company

• (I) The Company will carry out performance assessment for the Incentive Recipients, and supervise and review whether an Incentive Recipient is qualified to continue with the Exercise;

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• (II) The Company will withhold and pay on behalf of the Incentive Recipients any accrued individual income taxes and any other taxes and fees pursuant to the national taxation laws and regulations;

• (III) The Company shall timely perform the obligations of, among others, submission of the Share Appreciation Rights Scheme and information disclosure in accordance with relevant provisions;

• (IV) Other relevant rights and obligations prescribed by laws and regulations.

Article 39 Rights and Obligations of Incentive Recipients

• (I) The Incentive Recipients shall diligently and conscientiously comply with the Group’s requirements for his/her position and strictly observe professional ethics to make due contributions to the Group’s development;

• (II) The Incentive Recipients may elect to or not to Exercise his/her Share Appreciation Rights and Exercise such Share Appreciation Rights in such an amount at his/her sole discretion to the extent granted;

• (III) The Incentive Recipients shall have the right to and shall Exercise the Share Appreciation Rights in accordance with the provisions of this Scheme;

• (IV) During the Exercise Period, the Incentive Recipients may Exercise the Share Appreciation Rights in multiple times, and shall timely submit an Exercise Application to the Company prior to the Exercise;

• (V) The Incentive Recipient’s Share Appreciation Rights which have been granted shall not be transferred or used for providing guarantee or repaying debts;

• (VI) Any gains acquired by the Incentive Recipients from the Scheme shall be subject to individual income tax and any other taxes and fees in accordance with the national taxation laws and regulations;

• (VII)Other relevant rights and obligations prescribed by laws and regulations.

Chapter Thirteen Amendment and Termination of the Scheme

Article 40 Amendment and Termination of the Scheme

• (I) The General Meeting, as the highest authority of the Company, shall be responsible for considering and approving the Scheme. The Board shall be authorised at a General Meeting to implement and manage the Scheme. The Board may expressly authorise the remuneration committee to deal with relevant matters associated with Share Appreciation Rights, if

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applicable. In the event that the terms of the Scheme conflict with relevant laws, regulations, agreements or the provisions of the Hong Kong Stock Exchange, the latter shall prevail. Under any of the following circumstances, amendment to the Scheme shall be subject to the approval at a General Meeting:

1. Certain amendments to the Scheme are required by laws, regulations, relevant agreements or the provisions of the Hong Kong Stock Exchange to be approved at a General Meeting or by the Hong Kong Stock Exchange;

2. Amendment to the provisions of the Scheme or the terms of Share Appreciation Rights is of a material nature;

3. The authority of the Board to amend the terms of the Scheme is changed.

4. (II) The General Meeting authorises the Board to be responsible for the implementation and management of the Scheme and, where necessary, to revise the Scheme and to file amendments to the institutions or departments that fulfil the obligations of the state-owned assets investors. In the event that the share appreciation rights have been accepted by the Incentive Recipients in accordance with the Scheme, the rights and obligations that Incentive Recipients already have shall not be changed or weakened when the Scheme is modified or suspended without the consent of the Incentive Recipients. The Board may, if it deems it necessary, modify it as follows:

5. allow for the adjustment of the granted Share Appreciation Rights to comply with the new requirements for the Scheme after the change of applicable laws and regulations;

6. Regularly or from time to time select or determine the Incentive Recipients of the Share Appreciation Rights;

7. Consider and approve other various grant plans other than the Initial Grant, including but not limited to the scope of grant, the number of units of grant, date of grant, effective schedule, effective performance conditions, etc., provided that such grant shall be approved by the institutions or departments that fulfil the obligations of the state-owned assets investors.

8. (III) In the event of any early termination of this Scheme, the Board shall submit a resolution thereon to be passed at a General Meeting for the early termination. The Scheme shall cease to implement in the event that the General Meeting passes the resolution for the early termination submitted by the Board. If it is so resolved at a General Meeting, the Company will no longer grant any Share Appreciation Rights pursuant to the Scheme. The Share Appreciation Rights that have been granted but have not yet been exercised before the termination of the Share Appreciation Rights continue to be valid and can still be exercised in accordance with the provisions of the Scheme.

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• (IV) In the event of any personal change in the Incentive Recipient, or if an Incentive Recipient shall be liable for any false records in the Group’s financial and accounting documents, the Board shall authorise the remuneration committee to deal with the relevant issues.

Chapter Fourteen Information Disclosure

Article 41 The Company will disclose the implementation of the Scheme during the period in the periodic report, including:

• (I) The Company’s Share Appreciation Rights plan of grant and effective situations during the reporting period:

• (II) The various adjustments of the number of Share Appreciation Rights and Exercise Price and the latest number of share appreciation rights and Exercise Price after adjustment during the reporting period;

• (III) The names, positions and the number of various granted Share Appreciation Rights and exercise of such rights of the directors and senior management;

• (IV) Other information to be disclosed in the periodic report.

Chapter Fifteen Supplemental Provisions

Article 43 The Scheme shall be subject to the explanation by the Board.

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