China Environmental Technology : Major Transaction

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This announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

中 國 環 保 科 技 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

The Board is pleased to announce that, on 28 July 2016 (after trading hours), the Company (as the purchaser) and the Vendor entered into the Agreement, pursuant to which the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares for the Consideration of HK$190,000,000, which will be settled by the issue of the Consideration Shares and the Promissory Note(s).

As the applicable percentage ratios (as defined under the Listing Rules) in respect of the Acquisition are more than 25% but less than 100%, the Acquisition constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and is subject to approval by the Shareholders under the Listing Rules.

An EGM will be convened for the purpose of considering and, if thought fit, approving the Acquisition, the transactions contemplated thereunder and the Specific Mandate. To the best of the knowledge and belief of the Directors, having made all reasonable enquiries, no Shareholder has a material interest in the transactions contemplated under the Agreement such that he or it shall abstain from voting at the EGM on an ordinary resolution to approve the Agreement and the transactions contemplated thereunder and the Specific Mandate.

A circular containing, among other things, (i) further details of the Acquisition and the transactions contemplated thereunder; (ii) the valuation report of the Target Group; (iii) the financial and other information of the Group; (iv) the financial and other information of the Target Group; and (v) the pro forma financial information of the Enlarged Group, will be despatched to the Shareholders as soon as practicable, which is expected to be on or before 18 August 2016.

The Board is pleased to announce that, on 28 July 2016 (after trading hours), the Company (as the purchaser) and the Vendor entered into the Agreement, pursuant to which the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares for the Consideration of HK$190,000,000, which will be settled by the issue of the Consideration Shares and the Promissory Note(s).

Set out below are the principal terms of the Agreement:

28 July 2016 (after trading hours)

1. the Company; and

2. the Vendor

The Vendor is an investment holding company incorporated in the BVI with limited liability.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries,

(i) the Vendor and its beneficial owner and associates are Independent Third Parties and do not hold any Shares or other convertible securities in the Company as at the date of this announcement; and (ii) there was no previous transaction or business relationship among the Company, the Vendor, and its beneficial owner and/or associates in the previous 12 months which would result in aggregation under Rule 14.22 of the Listing Rules.

Pursuant to the Agreement, the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Shares, representing the entire equity interest in the Target Company.

The Consideration shall be payable by the Company in the following manner:

1. HK$100,000,000 of the Consideration shall be satisfied by allotting and issuing 500,000,000 Consideration Shares (the "Initial Consideration Shares") to the Vendor on the Completion Date at HK$0.20 per Consideration Share.

2. HK$90,000,000 of the Consideration, being the remaining part of the Consideration (the "Remaining Consideration"), shall be satisfied by (a) allotting and issuing 120,000,000 Consideration Shares (the "Further Consideration Shares") to the Vendor at HK$0.20 per Consideration Share; and (b) delivering to the Vendor the duly executed Promissory Note(s) in the aggregate principal amount of HK$66,000,000, subject to the settlement of the Account Receivable within two years from the Completion Date as described below.

3. Subject to the condition described under the paragraph headed "Account Receivable" below, upon any amount(s) of the Account Receivable having been collected after the Completion Date, the Company shall, as soon as practicable, inform the Vendor in writing and settle an amount of the Remaining Consideration equivalent to such amount(s) of the Account Receivable collected within seven (7) Business Days upon any amount(s) of the Account Receivable being collected. Settlement of any such outstanding Remaining Consideration shall first be made by the issuance of 120,000,000 Consideration Shares with any remaining balance to be settled by the delivery of the Promissory Note(s). If the Account Receivable is fully repaid prior to the Completion Date, then at Completion, the Company shall pay HK$190,000,000, being the entire amount of the Consideration, to the Vendor in the manner described under paragraphs (i) and (ii) above.

4. In the event that the Account Receivable cannot be fully settled by the end of the two years from the Completion Date (the "Second Anniversary Date"), the Consideration shall be adjusted to an amount equivalent to HK$100,000,000 plus the amount already received under the Account Receivable during the two years from the Completion Date. If no sum under the Account Receivable is being repaid within the two years from the Completion Date, the Consideration shall be adjusted to HK$100,000,000.

5. the Company shall not be obliged to pay any amount to the Vendor in excess of the Remaining Consideration even if the total amount collected by the Company under the Account Receivable exceeds the Remaining Consideration.

The Consideration of HK$190,000,000 was arrived at after arm's length negotiations between the Vendor and the Company after taking into account of the preliminary valuation of the Target Group of approximately HK$200,000,000 as at 30 April 2016 prepared by an independent valuer based on the income approach.

Principal assumptions applied in the aforesaid valuation includes the following:

1. management of the Target Company is assumed to be competent;

2. the financial projections in respect of the Target Company have been prepared on a reasonable basis, reflecting estimates that have been arrived at after due and careful consideration by the management of the Target Company. The sales growth, operating expenses, and level of working capital were determined with reference to historical figures and estimations based on Target Company's business plan;

3. there will be no major changes in the current taxation law in the jurisdiction where the Target Company currently operates or will operate which will materially affect the revenues attributable to the Target Company, that the rates of tax payable remain unchanged and that all applicable laws and regulations will be complied with;

4. economic condition will not deviate significantly from economic forecasts; and

5. discount rate of 11% was used to derive present value of all future benefits that flow to the Target Company and a perpetual growth rate of 3% was used to determine the terminal value.

The Vendor and the Company agree that any sums collected under the Account Receivable shall first be used to settle the Second Minsheng Loan (as defined under the paragraph headed "Release of Personal Guarantees" below) and the Entrusted Loans (as defined under the paragraph headed "Release of Personal Guarantees" below) prior to the settlement of the Remaining Consideration up and until the Company has procured the release of the Personal Guarantees (as defined under the paragraph headed "Release of Personal Guarantees" below). If the Company has procured the release of the Personal Guarantees prior to any sums collected under the Account Receivable, the Company shall not be obliged to use any such sums to settle the Second Minsheng Loan and/or the Entrusted Loans (as defined below).

On 14 August 2015, Tianmai Commercial has entrusted Ms. Liu to borrow RMB4,900,000 from 民生銀 行南京浦口支行 (Minsheng Bank Nanjing Pukou Branch*) ("Minsheng Bank") (the "First Minsheng Loan"); and on 25 October 2015, Tianmai Commercial has entrusted Ms. Liu to borrow RMB3,300,000 from 徽商銀行南京分行 (Huishang Bank Nanjing Branch*) (the "Huishang Loan") (the First Minsheng Loan and Huishang Loan are collectively referred to as the "Entrusted Loans"). On 24 August 2015, Tianmai Commercial has entrusted Ms. Liu to borrow RMB1,000,000 from the Minsheng Bank whereby each of Ms. Yang Meiqin and Mr. Lu Shuangwei has provided personal guarantees to secure such loan (the "Second Minsheng Loan"). Ms. Liu has provided property and other assets as security for the

Entrusted Loans and the Second Minsheng Loan (the personal guarantees provided by Ms. Yang Meiqin and Mr. Lu Shuangwei under the Second Minsheng Loan and the property and other assets provided by Ms. Liu as security under the Entrusted Loans and the Second Minsheng Loan are collectively referred to as the "personal Guarantees").

The Company undertakes that it shall use its best endeavours to liaise with the Vendor and the relevant banks to procure the release of the Personal Guarantees as soon as practicable after Completion.