Donghong Shares (603856): Beijing Tianyuan Law Firm regarding the repurchase and cancellation of some of the restricted shares that have been granted but have not yet been released from the restricted stock incentive plan of Shandong Donghong Pipe Industry Co., Ltd. in 2021 and the adjustment of the repurchase price Legal opinions on related matters – CFi.CN China Finance Network

Original title: Donghong Shares: Beijing Tianyuan Law Firm regarding the repurchase and cancellation of some restricted shares that have been granted but have not yet been released from sale restrictions and the adjustment of the repurchase price in the 2021 Restricted Stock Incentive Plan of Shandong Donghong Pipe Industry Co., Ltd. Legal advice on relevant matters

Beijing Tianyuan Law Firm
About Shandong Donghong Pipe Industry Co., Ltd.
2021 Restricted Stock Incentive Plan
The repurchase and cancellation part has been granted but has not yet been released from restrictions.
Matters related to stocks and adjustments to repurchase prices
legal advice

Jingtianguzi (2021) No. 047-5

To: Shandong Donghong Pipe Industry Co., Ltd.
According to the “Entrustment Agreement” signed by Beijing Tianyuan Law Firm (hereinafter referred to as the “Firm”) and Shandong Donghong Pipe Industry Co., Ltd. (hereinafter referred to as the “Company”), the Firm serves as the company’s 2021 restricted stock incentive As the special Chinese legal counsel on matters related to the plan (hereinafter referred to as the “Incentive Plan” or “this Incentive Plan”), our firm is now providing the Company with the repurchase and cancellation portion of this Incentive Plan that has been granted but has not yet been approved based on the progress of this Incentive Plan. Issue legal opinions on matters related to the lifting of restricted stocks and adjustment of repurchase prices (hereinafter referred to as “cancellation of this repurchase”).

Our firm and our handling lawyers comply with the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”), the Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”), and the Measures for the Administration of Equity Incentives of Listed Companies. (hereinafter referred to as the “Administrative Measures”), the “Administrative Measures for Law Firms Engaging in Securities Legal Business” and other laws and regulations, as well as the relevant provisions of the China Securities Regulatory Commission (hereinafter referred to as the “China Securities Regulatory Commission”) and the “Shandong Donghong Management Co., Ltd. 2021 Restricted Stock Incentive Plan (Draft)” (hereinafter referred to as the “Incentive Plan (Draft)”) and the facts that have occurred or existed before the date of issuance of this legal opinion, in accordance with the business standards recognized by the lawyer industry , ethics and diligence, this legal opinion is issued.

In order to issue this legal opinion, our lawyers reviewed the documents provided by the company related to this incentive plan and this repurchase and cancellation, and checked and verified the relevant facts.

Our lawyers make the following statement:
1. The firm and its handling lawyers have been in compliance with the “Securities Law”, “Measures for the Administration of Law Firms Engaging in Securities Legal Business”, “Law Firms’ Securities Legal Business Practice Rules (Trial)” and other provisions and before the date of issuance of this legal opinion. Regarding the facts that occurred or existed, we have strictly performed our statutory duties, followed the principles of diligence and good faith, and conducted sufficient verification and verification to ensure that the facts identified in this legal opinion are true, accurate, and complete, and that the concluding opinions issued are legal and Accurate, without false records, misleading statements or major omissions, and bear corresponding legal liability.

2. Our lawyers have adopted methods such as written review, inquiry, and review in accordance with the business rules formulated in accordance with the law, and have diligently and prudently performed their verification and verification obligations.

3. When issuing this legal opinion, our lawyers have fulfilled the special duty of care of legal professionals on legal-related business matters, and have fulfilled the general duty of care of ordinary people on other business matters.

4. Our lawyers handle documents directly obtained from state agencies, organizations with the function of managing public affairs, accounting firms, asset appraisal agencies, credit rating agencies, notary agencies and other public institutions, and perform legal work on legal-related business matters. The special duty of care of professionals is used as the basis for issuing legal opinions after fulfilling the general duties of attention of ordinary people on other business matters; for documents that are not obtained directly from public institutions, it is used as the basis for issuing legal opinions after verification and verification.

5. The firm agrees to regard this legal opinion as a necessary legal document for the company’s incentive plan, report or announce it together with other materials, and assume corresponding legal responsibilities in accordance with the law.

6. This legal opinion can only be used by the company for the purpose of this incentive plan and may not be used by anyone for any other purpose.

Based on the above, our lawyers issued the following legal opinions:
1. Approval and authorization of this repurchase and cancellation
1. On February 8, 2021, the company’s first extraordinary shareholders’ meeting in 2021 reviewed and approved the “Proposal on the 2021 Restricted Stock Incentive Plan (Draft)” and its Summary, and the “Proposal on the 2021 Restricted Stock Incentive Plan (Draft)” and its summary Proposal on Implementation Assessment and Management Measures for Incentive Plans>, and “Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Handle Matters Related to the Company’s 2021 Restricted Stock Incentive Plan”. The company’s implementation of the incentive plan was approved, and the board of directors was authorized to determine the grant date of the restricted stock incentive plan, grant restricted stocks to the incentive objects when the incentive objects meet the conditions, and handle all matters necessary for the grant of restricted stocks.

2. On March 17, 2021, the 10th meeting of the company’s third board of directors reviewed and approved the “Proposal on Adjusting Matters Related to the 2021 Restricted Stock Incentive Plan” and the “Proposal on Granting Restricted Stocks to Incentive Objects”. In view that the four incentive targets involved in the company’s incentive plan have given up their subscription due to personal reasons, and according to the authorization of the company’s first extraordinary shareholders’ meeting in 2021, the company’s board of directors decided to adjust the list of incentive targets and the number of awards. At the same time, the board of directors believes that this restriction The conditions for granting the restricted stocks have been met, and it is agreed that the grant date of the company’s 2021 restricted stock incentive plan will be March 17, 2021, and 1.62 million restricted shares will be granted to 25 incentive targets.

3. On April 24, 2024, the twelfth meeting of the company’s fourth board of directors reviewed and approved the “Proposal on the Repurchase and Cancellation of Restricted Stocks that have been granted but have not yet been released from sale and the adjustment of the repurchase price”. The Board of Directors It was agreed that in accordance with the “Incentive Plan (Draft)”, a total of 486,000 restricted stocks that can be released from sales in the corresponding assessment year for all incentive targets will be repurchased and canceled. The repurchase price will be adjusted to 5.63034 yuan/share plus the sum of bank deposit interest for the same period.

4. On April 24, 2024, the 10th meeting of the company’s fourth session of the Supervisory Board reviewed and approved the “Proposal on the Repurchase and Cancellation of Restricted Stocks that have been granted but have not yet been released from sale and the adjustment of the repurchase price”, and the Supervisory Board agreed This repurchase and cancellation of some restricted stocks.

In summary, our lawyers believe that according to the authorization of the company’s first extraordinary general meeting of shareholders in 2021, the repurchase and cancellation matter is within the scope of authorization of the company’s board of directors and does not need to be submitted to the company’s general meeting of shareholders for review. Therefore, as of the date of issuance of this legal opinion, the company’s repurchase and cancellation has obtained the necessary authorization and approval at this stage, and is in compliance with the relevant provisions of the “Management Measures” and the “Incentive Plan (Draft)”. Since the repurchase and cancellation of some restricted stocks will result in a reduction of the company’s registered capital, the company still needs to complete the cancellation registration procedures for the restricted stocks and the industrial and commercial procedures for reducing the registered capital in accordance with the relevant provisions of the “Company Law” and the “Incentive Plan (Draft)” Change registration procedures.

2. Reasons and contents of this repurchase cancellation
According to the “Incentive Plan (Draft)” and the resolutions of the 12th meeting of the 4th Board of Directors and the 10th meeting of the 4th Board of Supervisors, the reasons, quantities and repurchase prices for this repurchase and cancellation are as follows: 1. Repurchase and cancellation The reason and quantity
According to the relevant provisions of the “Incentive Plan (Draft)”, “If the incentive target resigns due to retirement, the board of directors shall decide whether the restricted stock granted to him shall be in accordance with the procedures stipulated in the plan before retirement. The board of directors shall decide to continue in accordance with the provisions of the plan before retirement. If the procedures are carried out, the personal performance appraisal conditions will no longer be included in the conditions for lifting the sales restrictions; if the board of directors decides to terminate its incentive plan, the restricted stocks that have been granted to the incentive targets but have not been released from the sales restrictions shall not be released from the sales restrictions, and the company will increase the sales restrictions based on the grant price. The sum of the deposit interest of the Bank of Shanghai for the same period will be repurchased and written off. “In view of the fact that one incentive subject involved in the “Incentive Plan (Draft)” resigned due to retirement, the incentive subject shall be disqualified and shall repurchase and cancel the shares that have been granted but have not been released from sale. The total number of restricted shares is 33,000 shares.

According to the relevant provisions of the “Incentive Plan (Draft)”, the performance assessment indicators for the third unlocking period of the company’s 2021 restricted stock incentive plan are “the company’s operating income in 2023 will not be less than 3.8 billion yuan, and the net profit will not be less than 4.5 billion”, the above “net profit” is calculated based on the net profit attributable to shareholders of the listed company excluding share-based payment expenses. According to the company’s 2023 audit report data, the company’s operating income in 2023 was 2,864,070,400 yuan, and the net profit attributable to shareholders of the listed company was 161,127,800 yuan. Therefore, the company-level performance assessment requirements for the third unlocking period stipulated in the company’s 2021 restricted stock incentive plan have not been met, and a total of 453,000 restricted shares of all incentive targets that do not meet the conditions for unlocking should be repurchased and canceled.

According to the relevant provisions of the “Incentive Plan (Draft)”, the restricted stocks repurchased and canceled this time are RMB ordinary shares, and the total number of repurchased and canceled shares is 486,000 shares.

2. Repurchase price and adjustment
According to the provisions of the “Incentive Plan (Draft)”, after the restricted stocks granted to the incentive objects have been registered, if the company converts capital reserves into share capital, distributes stock dividends, subdivides shares, allots shares or reduces shares, pays dividends, etc. For matters that affect the company’s total share capital or the company’s stock price, the company should make corresponding adjustments to the repurchase price of restricted stocks that have not yet been lifted. The adjustment method for the repurchase price is as follows: Dividend distribution: P=P0-V, where P0 is the repurchase price of restricted shares per share before adjustment; V is the dividend amount per share; P is the adjusted restricted stock price per share. Stock repurchase price. After adjusting for dividends, P must still be greater than 1.

In view of the fact that the company implemented the 2020 equity distribution, 2021 equity distribution, and 2022 equity distribution respectively in May 2021, July 2022, and April 2023, cash dividends of 0.37066 yuan (including tax) and 0.155 yuan per share were distributed respectively. (tax included), 0.174 yuan (tax included). Therefore, according to the relevant provisions of the company’s “Incentive Plan (Draft)” and the authorization of the company’s first extraordinary shareholders’ meeting in 2021, the repurchase price of this restricted stock should be as follows Adjustment: P=P0-V=6.33 yuan/share-0.37066 yuan/share-0.155 yuan/share-0.174 yuan/share=5.63034 yuan/share. Therefore, the stock repurchase price is 5.63034 yuan/share plus the bank for the same period The sum of deposit interest.

3. Total repurchase funds and sources of funds
The total amount of repurchase funds expected to be paid this time is RMB 2.7363 million plus the sum of bank deposit interest for the same period, all of which will be paid with the company’s own funds.

In summary, our lawyers believe that the reasons, quantity and repurchase price of the company’s repurchase and cancellation are in compliance with the relevant provisions of the “Administrative Measures” and the company’s “Incentive Plan (Draft)”.

3. Concluding observations
In summary, our lawyers believe:
1. As of the date of issuance of this legal opinion, the company’s repurchase and cancellation has obtained the necessary authorization and approval at this stage, and complies with the relevant provisions of the “Management Measures” and “Incentive Plan (Draft)”; 2. The company’s repurchase The reason for cancellation, quantity and repurchase price comply with the relevant provisions of the “Management Measures” and the company’s “Incentive Plan (Draft)”;
3. Since the repurchase and cancellation of some restricted stocks will result in a reduction of the company’s registered capital, the company still needs to complete the cancellation registration procedures for restricted stocks and reduce the registered capital in accordance with the relevant provisions of the “Company Law” and the “Incentive Plan (Draft)” Industrial and commercial change registration procedures.

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