Huazhang Technology : Announcements and Notices - Business Updates Adoption of Share Award Scheme Exem ...

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Huazhang Technology Holding Limited 華章科技控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1673)

Business Updates

Adoption of Share Award Scheme Exempted Connected Transaction

BUSINESS UPDATES

The Group is presently involved in the research and development, manufacture and sale of industrial products, project contracting services, environmental products, and the provision of supporting service.

Recently, China has begun the process of banning the importation of foreign waste materials (including recyclable plastics, waste paper and scrap metal) for recycling. It is expected that a total ban would be fully implemented by 2019.

Until recently, about half of the world's recyclable plastics, waste paper and scrap metals have been absorbed by China. The ban would result in large pile-up of recyclable waste all over the world.

Recently, the Company has been offered the opportunity to set up waste treatment plants outside China for developing waste recycling and treatment service business globally. The potential market for this service is considerably large. This opportunity, if materializes, will represent an exciting expansion of the Group's environmental services business.

The Waste Recycling and Treatment Project is still in its planning stage. If the Board decide to pursue in such project, it is likely that the Company will need to utilize the equity and/or debt capital markets to fund the expansion.

FRAMEWORK AGREEMENT

The Company has obtained the support of the Company's substantial shareholder, Florescent Holdings for the participation in the Waste Recycling and Treatment Project.

Florescent Holdings has agreed to transfer the Gift Shares (consisting of 170 million Shares) at nil consideration to the Trustee of a Share Award Scheme to be established by the Company for the purpose of attracting talents who might be able to assist in the development of the Waste Recycling and Treatment Project.

In this connection, Florescent Holdings and the Company have entered into a Framework Agreement setting out, amongst others, the conditions and other terms in relation to the gift over the Gift Shares.

Terms of the Framework Agreement

Pursuant to the Framework Agreement, Florescent Holdings shall transfer the Gift Shares (representing approximately 23.53% of the Company's issued share capital as at the date of this Announcement) to the Trustee of the Share Award Scheme at nil consideration, such transfer to be completed within six months following the execution of the Framework Agreement.

• 1. The Gift Shares shall only be granted to relevant personnel, specialists and other contractors of the Group which are involved in the Waste Recycling and Treatment Project.

• 2. All awards of Shares by the Trustee (upon the request of the Board) to the Participants shall only vest if:

  • (a) In any of the Calculation Year, the Waste Recycling and Treatment Project generates a net profit (after deduction of non-recurring items) of at least HK$400 million (the "Required Return"). For this purpose:

    "Calculation Year" means (i) the 12-months period from the date of commencement of the Waste Recycling and Treatment Project to its first anniversary, (ii) the 12-months period after the first anniversary of the commencement of the Waste Recycling and Treatment Project to the second anniversary, and (iii) the 12-months period after the second anniversary of the commencement of the Waste Recycling and Treatment Project to the third anniversary.

    The actual figure of the net profit (after deduction of non-recurring items) generated by the Waste Recycling and Treatment Project shall be based on the audited net profit (after deduction of non-recurring items) prepared by auditors of the Group at the end of each Calculation Year.

    The date of commencement of the Waste Recycling and Treatment Project shall be the incorporation date of the company which is established in the jurisdiction of where the Waste Recycling and Treatment Project is implemented.

    The vesting date of the Award Shares shall be the date of such audit report (the "Vesting Date").

  • (b) If the Waste Recycling and Treatment Project is unable to meet the Required Return in all the three Calculation Years, the following terms shall apply:

    (1)If the highest net profit (after deduction of non-recurring items) achieved in the three Calculation Years is equal to or more than HK$100 million but less than the Required Return, the Selected Participant shall receive a pro-rata amount of the Award Shares based on the following calculations:

    Number of adjusted Award Shares = (P/400 * Award Shares granted to such Selected Participant on the Grant Date)

    Where P (in HK$ millions) is the highest audited net profit (after deduction of non-recurring items) of the three Calculation Years.

    (2) However, if the Waste Recycling and Treatment Project is unable to make equal or more than HK$100 million in any of the three Calculation Years, the Award Shares shall not vest.

  • (c) The Board or the Board Committee shall not impose other vesting criteria and conditions or periods for the Award to be vested.

• 3. No Shares shall be awarded by the Trustee (upon the request of the Board) to Participants prior to the commencement of the Waste Recycling and Treatment Project.

• 4. The Trustee shall award the Shares to the Participants in accordance the list imposed by the Board.

• 5. If the Waste Recycling and Treatment Project is aborted or has not legally commenced operations on or before 31 December 2019, the Gift Shares shall be returned to Florescent Holdings.

• 6. After the Vesting Date, the Trust shall return all remaining Gift Shares and Additional Shares (if any) to Florescent Holdings.

• 7. Florescent Holdings shall set up a Hong Kong company to be the Trustee of the Share Award Scheme until the Waste Recycling and Treatment Project is either implemented or aborted. The Trustee shall not receive remuneration for its services as Trustee.

LISTING RULES IMPLICATION

Based on the closing price of HK$4.08 per Share as on 11 January 2019 (being the latest practicable date prior to the date of this Announcement), the Gift Shares are valued at approximately HK$693.6 million.

The Framework Agreement constitutes an exempted financial assistance from a Connected Person to the Company.

The Directors (including independent non-executive Directors) are of the view that the Framework Agreement is fair and reasonable and conducted on normal commercial terms (or better). It is in the interests of the Company and its shareholders as a whole to enter into the Framework Agreement.

DETAILS OF THE SHARE AWARD SCHEME

The Share Award Scheme does not constitute a share option scheme for the purpose of Chapter 17 of the Listing Rules and is a discretionary scheme of the Company.

A summary of the principal terms of the Share Award Scheme is set out below.

Purposes

The purposes of the Share Award Scheme are to (i) provide incentives to attract talents to assist the Company to expand its environmental services business, as set out above, (ii) align the interests of the Participants with the interests of shareholders of the Company through ownership of Shares by the Participants; (iii) attract and retain talented Participants who may be beneficial to the growth and development of the Group; and (iv) encourage or facilitate the holding of Shares by the Participants.

Administration

The Company shall appoint the Trustee to assist with the administration and vesting of Award Shares to be granted pursuant to the Share Award Scheme.

Duration

Subject to any early termination as may be determined by the Board or the Board Committee, the Share Award Scheme shall be valid and effective for a period of five years commencing on the Adoption Date provided that no further Award will be granted after the Award period.

Scheme Limit

The number of Shares granted under the Share Award Scheme shall not exceed the total number of Gift Shares from Florescent Holdings plus an Additional Shares.

Operation of Share Award Scheme

Subject to terms and conditions of the Share Award Scheme and the requirements of the Listing Rules, the Board and the Board Committee may, from time to time at its absolute discretion select any Participant to be a Selected Participant, make an offer to the Selected Participants and grant Award Shares to such Selected Participants which are to be satisfied by the Gift Shares to be transferred by Florescent Holdings to the Trustee pursuant to the Framework Agreement and/or any Additional Shares subsequently issued and allotted to the Trustee.

In determining the Selected Participants, the Board or the Board Committee shall take into consideration matters including, but without limitation, the present and expected contribution of the relevant Selected Participants to the Group.

Before the vesting of the Award Shares (regardless whether the Shares are awarded to the Selected Participants), the Trustee shall vote in accordance with the directions of Florescent Holdings in respect of those Shares. The Selected Participants shall not exercise the voting rights in respect of any Award Shares that have not been vested.

Vesting of Awards

If there is an event of change in control of the Company (including by way of merger, privatization, or offer), the outstanding Award shall remain valid and vest in accordance with the Share Award Scheme.

Rights of Selected Participants before vesting

Notwithstanding that the Award Shares are not yet vested, Selected Participants shall be entitled to all dividends and distributions (if any) from the date of the Award.

The Trustee shall hold the Award Shares awarded until they are vested to the relevant Selected Participants in accordance with the terms of the Share Award Scheme.

Restrictions

No offer or grant of Award shall be made to Selected Participants in the following circumstances:

• 1. after a price sensitive event in relation to the securities of the Company has occurred or a price sensitive matter in relation to the securities of the Company has been the subject of a decision, until such price sensitive information has been published in accordance with the Listing Rules and Part XIVA of the Securities and Futures Ordinance (Cap 571 of the laws of Hong Kong);

• 2. on any day on which the Company's financial results are published and: (a) during the period of 60 days immediately preceding the publication date of the Company's annual results or , if shorter, the period from the end of the relevant financial year up to the publication date of the results; and (b) during the period of 30 days immediately preceding the publication date of the Company's quarterly results or half-year results or, if shorter, the period from the end of the relevant quarterly or half-year period up to the publication date of the results, unless there are circumstances of the Company that fall within the exceptions under the Listing Rules; or

• 3. in any circumstances which are prohibited under the Listing Rules or where the requisite approval from any applicable regulatory authorities has not been granted.

No Assignment of Award Shares

Any rights attached to the Award Shares granted under the Share Award Scheme but not yet vested to the Selected Participant shall be personal to the Selected Participant to whom it is made and shall not be assignable or transferable and no Selected Participant shall in any way sell, transfer, charge, mortgage, encumber or create any interest in favour of any other person over or in relation to any Award or enter into any agreement to do so.

Termination

The Share Award Scheme shall terminate on the expiry of the period of five years from the Adoption Date provided that such termination shall not affect any subsisting rights of any Selected Participant.

DEFINITIONS

"Adoption Date"	11 January 2019, being the date on which the Board adopted the Share Award
Scheme;
"Additional Shares"	any bonus shares and shares accruing to the Gift Shares pursuant to a rights
issue or other equity issue by the Company;
"Award"	an award of Award Shares granted by the Board or the Board Committee to a
Selected Participant as the Board or Board Committee may determine in
accordance with the terms of the rules of the Share Award Scheme;
"Award Share"	the Shares granted to a Selected Participant in an Award
"Board"	the board of directors of the Company:
"Board Committee"	the board committee duly authorised for administration of Share Award
Scheme;
"Business Day"	any day on which the Stock Exchange is open for the business of dealing in
securities;
"Company"	Huazhang Technology Holding Limited, a company incorporated in the
Cayman Islands with limited liability and the shares of which are listed on the
Stock Exchange (stock code: 1673);
"Connected Person"	has the meaning given to it under Rule 14A.06(7) of the Listing Rules;
"Director(s)"	The director(s) of the Company;
"Florescent	Florescent Holdings Limited, the Company's substantial shareholder, holds
Holdings"	411,924,000 Shares of the Company as at the date of this Announcement,
representing approximately 57.00% of the Company's issued share capital;
"Framework	the framework agreement entered into by Florescent Holdings and the
Agreement"	Company on 11 January setting out the conditions in relation to the Gift
Shares and other terms;
"Gift Shares"	The 170 million Shares which Florescent Holdings shall transfer to the
Trustee of the Share Award Scheme at nil consideration;
"Grant Date"	the date (which shall be a Business Day) on which the grant of an Award is
made to a Selected Participant;
"Group"	the Company and its Subsidiaries from time to time;
"HK$"	Hong Kong dollars, the lawful currency of Hong Kong;
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC;
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