Legal Opinion Letter. Issued by Beijing Zhonglun Law Firm, Shenzhen Branch for Relevant Matters. Concerning GEMDALE CORPORATION's

Transcription

1 Issued by Beijing Zhonglun Law Firm, Shenzhen Branch for Relevant Matters Concerning GEMDALE CORPORATION's Adjustments to the Share Option Incentive Plan and Exercise of Share Options JULY 2014

2 Legal Opinion Letter Issued by Beijing Zhonglun Law Firm, Shenzhen Branch for Relevant Matters Concerning GEMDALE CORPORATION's Adjustments to the Share Option Incentive Plan and Exercise of Share Options To: GEMDALE CORPORATION Pursuant to relevant provisions of the Company Law of the People's Republic of China (hereinafter referred to as the "Company Law"), Securities Law of the People's Republic of China (hereinafter referred to as the "Securities Law"), Administrative Measures for Equity Incentives of Listed Companies (Trial) (hereinafter referred to as the "Administrative Measures"), Memorandum on Issues Concerning Equity Incentives No.1, Memorandum on Issues Concerning Equity Incentives No.2 and Memorandum on Issues Concerning Equity Incentives No.3 (the above-mentioned three memoranda jointly referred as the "Memoranda") issued by the China Securities Regulatory Commission (hereinafter referred to as the "CSRC"), Beijing Zhonglun Law Firm, Shenzhen branch (hereinafter referred to as the "Firm"), has accepted the appointment of GEMDALE CORPORATION (hereinafter referred to as the "Company") to prepare this legal opinion letter in connection to relevant matters concerning the Company's adjustments to the share option incentive plan and exercise of share options. The Firm has been guaranteed by the Company that: all the documents provided, and all the statements and explanations made by the Company to 1

3 the Firm are complete, true and valid, and all the facts and documents that are to affect this legal opinion letter have been disclosed to the Firm without any or material omissions; all the signatures and seals in the documents provided by the Company are true, and the copies, photocopies or faxed copies of the documents are consistent with the originals. The Firm guarantees that lawyers of the Firm have strictly performed their legal obligations, complied with the principles of diligently discharging the duties, and being honest and trustworthy, and sufficiently inspected and verified relevant matters concerning the Company's grant of the reserved share options so as to make sure there are no false representations, misleading statements or material omission in this legal opinion letter. The Firm agrees that the Company will use the legal opinion letter as a necessary document for the adjustments and exercise of the share options and submit it, accompanied by other documents and materials, to the CSRC and/or Shanghai Stock Exchange. This legal opinion letter will be used only for the grant of the reserved share options and is not allowed to be used for other purposes without getting the Firm's written permission in advance. The following are the legal opinions given by the lawyers of the Firm according to the business criteria, moral norms and the spirit of diligently discharging the duties widely recognized in the legal practice industry after conducting sufficient inspection and verification of the relevant documents and facts provided by the Company: 2

4 Part I: Adjustments to the Share Option Incentive Plan I. Basis for Adjustments to the Share Option Plan (I) Legal and norm basis for adjustments to the share option plan 1. Clause 1 of Article 25 of the Administrative Measures stipulates that: "Listed companies may adjust the exercise price or the number of options granted, as a result of ex-rights and ex-dividend of the target shares, or for other reasons, pursuant to the principals and methods as stipulated in the share option plan. 2. Chapter 11 "Adjustment Methods and Procedures of Share Options" under A Share Option Plan of GEMDALE CORPORATION (Revised Draft) (hereinafter referred to as the "Incentive Plan") contains specific methods and procedures for adjustments to the number of options granted and the exercise price, if the Company has undergone events, such as conversion of capital reserve into share capital, bonus issue, share subdivision, rights issue or share consolidation before exercise of the rights. The Firm is of the view that the Company's adjustments to the number of options granted and the exercise price of the share option plan, as a result of the Company's bonus issue, have sufficient legal and norm basis, and are in compliance with relevant provisions of the Administrative Measures and Incentive Plan. (II) Contents of adjustments to the share option plan 1. Adjustment to the exercise price As a result of the Company's distribution of profits between 2009 and 2013 by conversion of capital reserve into share capital, the exercise price shall be adjusted correspondingly pursuant to the Administrative Measures and Incentive Plan. Details of adjustments are as follows:: 3

5 Year Price before adjustment (RMB) Price after adjustment (RMB) Reasons for adjustment The Company's Profit Distribution Plan for 2009: a cash dividend payout of RMB1.0 for every 10 shares (including tax) and issue of scrip dividends on the basis of 8 new shares for every 10 shares held by way of conversion from capital reserves The Company's Profit Distribution Plan for 2010: a cash dividend payout of RMB0.6 for every 10 shares (including tax) The Company's Profit Distribution Plan for 2011: a cash dividend payout of RMB0.68 for every 10 shares (including tax) The Company's Profit Distribution Plan for 2012: a cash dividend payout of RMB0.8 for every 10 shares (including tax) The Company's Profit Distribution Plan for 2013: a cash dividend payout of RMB1.6 for every 10 shares (including tax) Lawyers of the Firm are of the view after verification that the above-mentioned adjustments to the exercise price of the Company's share options are fully justified and are in compliance with relevant provisions of the Administrative Measures and Incentive Plan. 2. Adjustments to the participants Since the grant of share options in 2010 until now, some participants have become unqualified as they are not able to satisfy relevant conditions by reason of being appointed as a supervisor or voluntary resignation, etc.. The Remuneration Committee of the Board of Directors confirms that the number of participants under the Company's share option incentive plan will be adjusted from 224 to 138 with the number of share options granted being adjusted to 109,062,000 correspondingly; 4

6 Lawyers of the Firm have verified the Statement and resignation certificates of the resigned participants provided by the Company, and are of the view that the adjustments to the participants of share options are fully justified and are in compliance with relevant provisions of the Administrative Measures and Incentive Plan. II. Approval and Authorization for Adjustments to the Share Option Plan Clause 1 of Article 25 of the Administrative Measures stipulates that: "Listed companies may adjust the exercise price or the number of options granted, as a result of ex-rights and ex-dividend of the target shares, or for other reasons, pursuant to the principals and methods as stipulated in the share option plan. Pursuant to Chapter 11 "Adjustment Methods and Procedures of Share Options" under the Incentive Plan, the general meeting will authorize the Board of Directors to adjust the number of options and the exercise price, in case of the Company's conversion of capital reserve into shares, bonus issue, share subdivision, share consolidation, rights issue and dividend payment. At the seventh meeting of the seventh session of the Board of Directors held on 25 July 2014, the Company considered and passed the Resolution on Adjustments to the List of Participants, Number of Options and Exercise Price of the Share Option Plan, and agreed to adjust the number of options and the exercise price. After considering the adjustments to the share option incentive plan, the independent directors of the Company are of the view that the Company's adjustments to the share option incentive plan are in compliance with relevant provisions of the Administrative Measures, Memoranda and Incentive Plan relating to adjustments to the number of share options and exercise price, and agree unanimously that the Board of Directors of the Company will adjust the number of share options and exercise price of the share option incentive plan correspondingly. The Firm is of the view that all the necessary approvals and authorizations have 5

7 been obtained for the adjustments to the share option plan, which are in compliance with relevant provisions of the Administrative Measures, Memoranda and Incentive Plan. III. Information Disclosure for Adjustments to the Share Option Plan Pursuant to the Administrative Measures and all the relevant normative documents of the Shanghai Stock Exchange, the Company still needs to perform its information disclosure obligations for adjustments to the share option plan by applying for and going through relevant adjustment procedures with the China Securities Depository and Clearing Corporation Limited Shanghai Branch. Part II: Relevant Matters Concerning Exercise of the Share Option Incentive Plan I. Formulation and Implementation of the Share Option Incentive Plan (I) Approval of the Company's share option incentive plan 1. On 14 January 2010, the Board of Directors of the Company considered and passed the Resolution on A Share Option Plan of GEMDALE CORPORATION (Draft), and decided to adopt share options as the long-term incentive tool of the Company. Each share option is conferred a right to purchase one share of the Company at the exercise price within the valid exercise period, subject to the satisfaction of the exercise conditions and exercise arrangements. After the above-mentioned resolution was approved, the Company filed relevant materials with the CSRC for record, and Shenzhen Securities Regulatory Bureau for reference. 2. Following the confirmation of the Company's share option incentive plan by the CSRC, the Company held its 2010 first extraordinary general meeting on 26 February 2010, at which the Company considered and passed the Resolution on A Share Option Plan (Revised Draft) of GEMDALE CORPORATION and Its Summary, and the Resolution on Proposing to the General Meeting to Authorize the Board of 6

8 Directors to Handle Relevant Matters Concerning the Company's Share Option Incentive Plan. The Firm is of the view that all the approvals and authorizations necessary for the current period have been obtained for the Company's share option incentive plan. (II) Grant matters under the Company's share option incentive plan Pursuant to the Incentive Plan, the Company's share option incentive plan may be immediately put into practice after being approved at the general meeting, and the Board of Directors will handle matters concerning the grant and exercise of the share options, etc, as authorized by the general meeting. At the forty-fourth meeting of the fifth session of the Board of Directors held on 19 March 2010, the grant date for the share option plan was determined as 19 March The share options involve million of target shares, 224 participants and the exercise price of the share options granted is RMB (III) Adjustments during Implementation of the share option incentive plan Due to the Company's Profit Distribution Plan for 2009 implemented in May 2010 by the issue of scrip dividends on the basis of 8 new shares for every 10 shares held by way of conversion from capital reserves, the number of share options has been adjusted from 99,370,000 to 178,866,000 correspondingly, as stipulated in the Incentive Plan. The Firm is of the view that all the approvals and authorizations necessary for the current period have been obtained for the Company's grant and implementation of the share options, and the grant procedures as stipulated in the Incentive Plan have been performed, which is in compliance with the Administrative Measures and Memoranda. II. Conditions for the Exercise of Share Options and their Fulfillment Pursuant to the resolution of the Remuneration and Appraisal Committee of the 7

9 Board of Directors of the Company, the resolution of the Board of Directors of the Company, the Opinions of Independent Directors and the resolution of the Board of Supervisors, annual reports of the Company and the statements and undertakings of the Company, the lawyers of the Firm have verified each of the conditions as required for participants to exercise the share options granted to them as stipulated in the "Incentive Plan" of the Company. The Company and the participants of the exercise of share options have satisfied the conditions as stipulated in the Incentive Plan. Details are as follows: (I) Exercisable Period Arrangements as Stipulated in the Incentive Plan Exercisable period The first valid exercise period The second valid exercise period The third valid exercise period The fourth valid exercise period Valid exercise period From the first trading day after the 1st anniversary of the date of grant to the last trading day before the 7th anniversary of the date of grant From the first trading day after the 2nd anniversary of the date of grant to the last trading day before the 7th anniversary of the date of grant From the first trading day after the 3rd anniversary of the date of grant to the last trading day before the 7th anniversary of the date of grant From the first trading day after the 4th anniversary of the date of grant to the last trading day before the 7th anniversary of the date of grant Percentage of number of exercisable options to the total number of options granted 20% 20% 20% 20% 8

10 The fifth valid exercise period From the first trading day after the 5th anniversary of the date of grant to the last trading day before the 7th anniversary of the date of grant 20% According to the resolutions of the forty-fourth meeting of the fifth session of the Board of Directors of the Company, the date of grant with respect to the Share Option Incentive Plan of the Company was determined as 19 March Therefore, except for the fifth valid exercise period, which has not expired, the first to the fourth valid exercise periods have satisfied the exercisable period arrangements as stipulated in the Incentive Plan. (II) The conditions of results of the Company as stipulated in the Incentive Plan According to the Incentive Plan, the share options can only be exercised upon satisfaction of the following conditions of results of the Company in the financial year immediately preceding the share options becoming effective: 1. the weighted average return on net assets after exceptional gains and losses should not be lower than 10%; 2. the compound annual growth rate of the net profits attributable to the shareholders of the listed company after exceptional gains and losses should not be lower than 20% as compared with 2009; 3. the compound annual growth rate of the sales revenue should not be lower than 30% as compared with 2009; 4. the net profits attributable to the shareholders of the listed company and the net profits attributable to the shareholders of the listed company after exceptional gains and losses should not be lower than the average figures for the three fiscal years before the date of grant (the year of ) or negative. Pursuant to the Company's Auditor's Report, annual reports, statements and commitments, the Company met the performance requirements stipulated in the Incentive Plan during the first and second valid exercise periods, and thus the share options were exercisable thereunder; while it failed to meet the performance requirements during the third and fourth valid exercise periods, and thus the share options were cancelled. Details are set out below: 9

11 The First Valid The Second Valid The Third Valid The Fourth Valid Exercise Period Exercise Period Exercise Period Exercise Period (2010) (2011) (2012) (2013) Weighted average return on net assets after exceptional gains and losses Compound annual growth rate of the net profits 16.47% 14.61% 11.75% 7.86% (Conditions not satisfied) attributable to the shareholders of the listed company after exceptional 52.65% 30.77% 17.26% (Conditions not satisfied) 5.34% (Conditions not satisfied) gains and losses as compared with 2009 Compound annual growth rate of the sales revenue as compared with 2009 Net profits attributable to 45.57% 40.96% 37.79% 27.12% (Conditions not satisfied) the shareholders of the listed company 2.69 billion 3.67 billion 3.72 billion 3.61 billion Net profits attributable to the shareholders of the listed company after exceptional gains and losses 2.68 billion 3.06 billion 2.87 billion 2.16 billion (III) The Company has not encountered the following situations: (1) an auditor's report with denying opinions or qualified opinions is issued by a Certified Public Accountant on the financial report of the Company for the latest financial year; (2) the Company is given administrative penalties by CSRC due to serious breach of laws and regulations in the last year; (3) other circumstances which CSRC considered inappropriate to carry out the share option plan. According to the standard unqualified Auditor's Report on the Company's

12 financial statements issued by the Company's auditor Deloitte Touche Tohmatsu CPA LLP (De Shi Bao (Shen) Zi (14) No. P1528), the lawyers of the Firm consider that there is no occurrence of "An auditor's report with denying opinions or qualified opinions is issued by a Certified Public Accountant on the financial report of the Company for the latest financial year"; and according to the Company's statements and commitments, there is no occurrence of "The Company is given administrative penalties by CSRC due to serious breach of laws and regulations in the last year" or " Other circumstances which CSRC considered inappropriate to carry out the share option plan". (IV) The entitled participant has not encountered any of the following situations: (1) the participant was publicly censored or declared as an inappropriate person by any stock exchange during the last three years; (2) the participant was given administrative penalties by CSRC due to serious breach of laws and regulations during the last three years; (3) circumstances where the participant is considered as inappropriate to assume the position of a director, supervisor or senior management member pursuant to the Company Law. According to the Company's statements and commitments and after due diligence investigation carried out by the lawyers of the Firm, none of the entitled participants has encountered any situations mentioned above. (V) Pursuant to the Appraisal Measures for the Implementation of Share Option Incentive Plan of GEMDALE CORPORATION (hereinafter referred to as the "Appraisal Measures"), participants have met the required performance standards in the year before the share options become exercisable. According to the appraisal carried out by the Remuneration and Appraisal Committee under the Board of Directors of the Company, all of the 138 participants of the share options have passed the appraisal and complied with the requirements under the Incentive Plan and the Appraisal Measures. Options III. Relevant Approval and Authorization Concerning Exercise of the Share 11

13 On 15 July 2014, the Remuneration and Appraisal Committee under the Board of Directors of the Company considered and passed the Resolution on Relevant Matters Concerning Exercise of the Share Options at the second meeting in 2014, and considered that both the Company and the 138 participants did not encounter any situations where the exercise of share options was prohibited, the Company satisfied the above performance conditions and both the Company and participants satisfied the exercise conditions of share options. On 25 July 2014, the seventh (extraordinary) meeting of the seventh session of the Board of Directors of the Company was convened, at which the Board reviewed and passed the Resolution on Relevant Matters Concerning Exercise of the Share Options and confirmed that the Company satisfied the exercise conditions for the year of 2010 and 2011, and 40% of the total number of options granted satisfied the exercise conditions, while the Company failed to satisfy the exercise conditions for the year of 2012 and 2013, and 40% of the total number of options granted that could not take effect had lapsed. The total share options of the Company amounted to 109,062,000, of which 43,624,800 were valid and 43,624,800 could be exercised for the current period. The Board of Directors has authorized the management to generally handle the exercise of share options and registration of shares arising from the exercise of share options by the participants within the exercise period as stipulated by relevant policies, and determine the exercise date as the date when registration procedures for share transfers are completed with China Securities Depository and Clearing Corporation Limited Shanghai Branch, and carry out industrial and commercial registration of changes and all the other relevant procedures after completion of the exercise. On 25 July 2014, all Independent Directors of the Company expressed the following independent opinions in respect of the matters concerning exercise of the share options: the exercise of the share options conformed to the provisions stipulated in the Incentive Plan concerning exercise of the share options; the participants of the exercisable options were in compliance with the provisions and conditions as specified in relevant laws, regulations and regulatory documents, such as the Administrative Measures and the Memoranda, and satisfied the exercise conditions 12

14 specified in the Incentive Plan, and hence their qualifications as participants under the Share Option Incentive Plan of the Company were legal and valid. After excluding participants who have ceased to qualify as participants by reasons of being appointed as a supervisor or resignation or otherwise, there were 138 participants who were entitled to exercise share options and the number of the corresponding share options granted was 43,624,800 with an exercise price of RMB7.42. On 25 July 2014, at the second meeting of the seventh session of the Board of Supervisors of the Company, the Board of Supervisors reviewed and was of the view that: the participants of such exercisable options were in compliance with the requirements and conditions of relevant laws, regulations and regulatory documents and the exercise conditions of the share options specified in the Incentive Plan, and their qualifications as participants under the Share Option Incentive Plan of the Company were legal and valid; the implementation of the Share Option Incentive Plan of the Company was in compliance with the provisions of relevant laws, regulations and regulatory documents, such as the Administrative Measures and the Memoranda and relevant requirements of the Incentive Plan. Based on the above mentioned, the responsible lawyers of the Firm hold the opinion that the Company has performed the necessary approval and authorization procedures in respect of relevant matters such as determination of the range of qualified participants, and complied with the provisions of the Administrative Measures, the Memoranda and the Incentive Plan. The lawyers of the Firm are of the view that the principles used in determination of the exercise price of the Share Option Incentive Plan are in compliance with Rule 24 of the Administrative Measures. IV. The Arrangements regarding the Exercise of Share Options Pursuant to the Incentive Plan of the Company and the Resolution on Adjustments to the List of Participants, Number of Options and Exercise Price of the Share Option Plan, the Board of Directors has authorized the management to generally handle the exercise of share options and registration of shares arising from 13

15 the exercise of share options by the participants within the exercise period as stipulated by relevant policies, and determine the exercise date as the date when registration procedures for share transfers are completed with China Securities Depository and Clearing Corporation Limited Shanghai Branch, and carry out industrial and commercial registration of changes and all the other relevant procedures after completion of the exercise. V. Conclusive Opinions In conclusion, the lawyers of the Firm hold the following opinions: (I) The adjustments to the Share Option Plan by the Company have been effected according to the provisions of the Administrative Measures and the Incentive Plan, and in compliance with relevant laws, regulations and regulatory documents, such as the Company Law, the Administrative Measures and the relevant provisions of the Incentive Plan. The Adjustments to the Share Option Plan are legal and valid, but the Company is yet to comply with related information disclosure obligations and complete the procedures for the adjustments. (II) According to the requirements of the Administrative Measures, the Memoranda and the Incentive Plan, the 138 participants who are recognized as qualified for exercise of options have satisfied the conditions for the exercise of options under the Share Option Incentive Plan, and may exercise their share options pursuant to the Incentive Plan. (III) The relevant arrangements made by the Board of the Company regarding the exercise of options under the Share Option Incentive Plan are in compliance with the Administrative Measures, the Memoranda and the Incentive Plan, and are legal and valid. (The following is the signature page without text.) (This page is the signature page without text for the Legal Opinion Letter 14

16 regarding the Adjustments to the Share Option Incentive Plan of GEMDALE CORPORATION and the Relevant Matters of the Exercise of Share Options Expressed by Beijing Zhonglun Law Firm, Shenzhen Branch( 北京市中伦 ( 深圳 ) 律师事务所 ).) Beijing Zhonglun Law Firm, Shenzhen Branch Head: Lai Jihong Responsible Lawyers: Xu Zhigang Sun Minfang [ ]