Nameson : Announcements and Notices - Continuing Connected Transactions

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1982)

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

On 22 March 2019:

(i) Hebei Yuteng and the Purchasers (being subsidiaries of the Company) entered into the New Raw Materials Purchase Agreement in respect of the purchase of cashmere and other raw materials by the Purchasers from Hebei Yuteng for a term of 1 year from 1 April 2019 to 31 March 2020;

(ii) Hebei Yuteng (as lessor) and Nanguan Tech (a non-wholly owned subsidiary of the

Company as lessee) entered into the Lease Agreement in respect of the lease of the Factory Plant by Nanguan Tech from Hebei Yuteng for the production of cashmere yarn for a term of three years from 1 April 2019 to 31 March 2022; and

(iii) Hebei Rongcang (as service provider) and the Purchasers (as service recipients)

entered into the Processing Agreement in respect of the Processing Service to be provided by Hebei Rongcang to the Purchasers for a term of 1 year from 1 April 2019 to 31 March 2020.

LISTING RULES IMPLICATIONS

Nanguan Tech is a non-wholly owned subsidiary of the Company. Two of Nanguan Tech's directors are also the controlling shareholders of Hebei Yuteng and Hebei Rongcang, both of which are associates of such directors. In addition, Hebei Yuteng is a substantial shareholder of Nanguan Tech. Consequently, each of Hebei Yuteng and Hebei Rongcang, the associates of two of our directors of Nanguang Tech, is a connected person of the Company at the subsidiary level under the Listing Rules and the transactions contemplated under each of the New Raw Materials Purchase Agreement, the Lease Agreement and the Processing Agreement constitute continuing connected transactions of the Company under the Listing Rules that is exempt from the circular, independent financial advice and shareholders' approval requirements under Rule 14A.101 of the Listing Rules.

THE NEW RAW MATERIALS PURCHASE AGREEMENT

Reference is made to the announcement of the Company dated 24 July 2018 in relation to, amongst others, the Existing Cashmere Purchase Agreement and the announcement of the Company dated 18 December 2018 in relation to the supplemental agreement to the Existing Cashmere Purchase Agreement.

The principal terms of the New Raw Materials Purchase Agreement are set out as follows:

Date: 22 March 2019

Parties: (1) Hebei Yuteng as seller;

• (2) Each of Nanguan Tech, Huizhou Nanxuan and Huizhou Nanguan as purchasers

Subject matter:

Each of the Purchasers agreed to purchase, and Hebei Yuteng agreed to sell, cashmere and other raw materials pursuant to orders placed from time to time.

Term: Effective from 1 April 2019 and ending on 31 March 2020.

Pricing of Cashmere and other raw materials:

Hebei Yuteng agreed to ensure that the price for cashmere and other raw materials it charges the Purchasers is not higher than (i) the market price, which is the price offered to the Purchasers by independent third party for the same or similar cashmere and other raw materials; or (ii) the price it offers to its other customers. For the avoidance of doubt, such pricing mechanism should apply to any orders issued during the term of the New Raw Materials Purchase Agreement.

Sourcing of raw cashmere and other raw materials by Hebei Yuteng:

Consistent with market practice, a deposit (the ''Deposit'') will be paid by the Purchasers to Hebei Yuteng after the order is placed by the Purchasers. Hebei Yuteng undertakes that the Deposit should only be used for sourcing raw cashmere and other raw materials, which will then be sold to the Purchasers pursuant to the orders placed by the Purchasers.

If Hebei Yuteng fails to complete the sourcing of raw cashmere and other raw materials required by the Purchasers within 90 days from the date of receipt of the Deposit, the Purchasers can terminate the New Raw Materials Purchase Agreement and require a full refund of the Deposit and payment of interest by Hebei Yuteng at a rate of 10% per annum calculated from the date of receipt of the Deposit until the date of full payment by Hebei Yuteng.

Delivery of cashmere and other raw materials by Hebei Yuteng to the

Purchasers:

Hebei Yuteng should issue an invoice to the Purchasers for the transaction amount of each batch of cashmere and other raw materials delivered by Hebei Yuteng to the Purchasers, and such transaction amount should be offset by the Deposit already paid to Hebei Yuteng.

If the total transaction amount of the cashmere and other raw materials delivered by Hebei Yuteng is more than the Deposit, the Purchasers should pay such excess amount to Hebei Yuteng within the period specified in the New Raw Materials Purchase Agreement.

If, prior to 31 March 2020, the transaction amount of the cashmere and other raw materials delivered by Hebei Yuteng is less than the Deposit, Hebei Yuteng is required to return to the Purchasers the remaining Deposit after offsetting the transaction amount of cashmere and other raw materials already delivered by Hebei Yuteng. If Hebei Yuteng fails to return such remaining Deposit to the Purchasers by 15 May 2020, Hebei Yuteng is required to pay interest at a rate of 10% per annum calculated from the relevant due date until the date of full payment by Hebei Yuteng.

Annual cap:

The annual cap in respect of the purchase of cashmere and other raw materials from Hebei Yuteng by the Purchasers under the New Raw Materials Purchase Agreement for the financial year ending 31 March 2020 is RMB400 million (equivalent to approximately HK$471 million).

The above annual cap was determined after taking into account the following factors:

(i) the average unit price for cashmere purchased from the

Group's existing suppliers during the 10-month period from 1 April 2018 to 31 January 2019;

(ii) the current market price of cashmere and other raw materials;

• (iii) the volume of cashmere purchased from Hebei Yuteng by the Group during the period from 1 April 2018 up to 31 January 2019; and

• (iv) the expected volume of the cashmere and other raw materials required by the Group for production during the term of the New Raw Materials Purchase Agreement based on the Group's sales forecasts and the expected roll out of the Purchasers' production capacity.

The Group's purchases of cashmere from Hebei Yuteng during the three years ended 31 March 2016, 2017 and 2018 were approximately RMB19.0 million (equivalent to approximately HK$22.4 million), RMB18.0 million (equivalent to approximately HK$21.2 million) and RMB27.0 million (equivalent to approximately HK$31.8 million), and the Group's wholly-owned in-house cashmere yarn production for each of those three years was approximately 100 tonnes.

The Group's purchase of cashmere from Hebei Yuteng from 1 April 2018 up to 31 January 2019 was approximately RMB114.0 million (equivalent to approximately HK$134.0 million).

THE LEASE AGREEMENT

Date: 22 March 2019

Parties: (1) Hebei Yuteng as lessor; and

• (2) Nanguan Tech as lessee

Subject matter:

Nanguan Tech agreed to lease the Factory Plant from Hebei Yuteng.

Term:

Effective from the 1 April 2019 and ending on 31 March 2022.

Nanguan Tech has the option to renew the Lease Agreement for 3 years upon the expiration of the Lease Agreement. The Company will comply with the relevant Listing Rules at the relevant time if Nanguan Tech elects to renew the Lease Agreement.

Factory Plant:

The Factory Plant is located in the southern area of Hui Gong Da Dao and the western area of He Lan Dao, Qinghe County, Xingtai City, Hebei Province* (河北省邢臺市清河縣揮公大道 南側、賀蘭路西側), with a total area of approximately 71,000 square meters.

Nanguan Tech intends to use the Factory Plant for the production and manufacturing of cashmere yarn.

Monthly rent:

RMB759,427/690,388 (equivalent to approximately HK$893,444/812,221) (value added tax inclusive/exclusive and exclusive of water, electricity, gas, communication network fees and all registration fees required for Nanguan Tech to use the Factory Plant).

Annual caps:

The annual caps in respect of the lease of the Factory Plant by Nanguan Tech from Hebei Yuteng for each of the three financial years ending 31 March 2022 is as follows:

For the year	For the year	For the year
ending	ending	ending
31 March 2020	31 March 2021	31 March 2022
RMB	RMB	RMB
Annual caps (Value added	8,500,000	8,500,000	8,500,000
tax exclusive)	(equivalent to	(equivalent to	(equivalent to
approximately	approximately	approximately
HK$10,000,000)	HK$10,000,000)	HK$10,000,000)

The above annual caps were determined after taking into account the following factors:

(i) the demand of the Group for factory space for the manufacturing and production of cashmere yarn;

• (ii) the monthly rental of the Factory Plant; and

• (iii) the valuation report issued by an independent valuer engaged by the Company in respect of the market rental value of the Factory Plant.

There is no historical figure for the transactions contemplated under the Lease Agreement as the Group has not previously leased any property and/or factory plant from Hebei Yuteng in the past.