China Water Industry Group Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Water Industry Group Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, a licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in the Cayman Islands with limited liability)

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(Stock Code: 1129)
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GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES, TERMINATION OF THE EXISTING SHARE OPTION SCHEME, ADOPTION OF THE NEW SHARE OPTION SCHEME, RE-ELECTION OF DIRECTORS AND

NOTICE OF ANNUAL GENERAL MEETING

A notice convening the annual general meeting of China Water Industry Group Limited to be held at Boardroom III-IV, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 3 June 2011 at 9:30 a.m. is set out on pages 28 to 31 of this circular. Whether or not you are able to attend the annual general meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit at the branch share registrar of the Company in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the annual general meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the annual general meeting or any adjourned meeting (as the case may be) should you so wish.

for identification purpose only

29 April 2011

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
TERMINATION OF THE EXISTING SHARE OPTION SCHEME AND
ADOPTION OF THE NEW SHARE OPTION SCHEME . . . . . . . . . . . . . . . .	6
GENERAL MANDATE TO ISSUE SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .	7
GENERAL MANDATE TO REPURCHASE SHARES . . . . . . . . . . . . . . . . . . . .	8
RE-ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
ANNUAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
DOCUMENTS AVAILABLE FOR INSPECTION. . . . . . . . . . . . . . . . . . . . . . . .	10
RESPONSIBILITY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
APPENDIX I – EXPLANATORY STATEMENT . . . . . . . . . . . . . . . . . . . . .	11
APPENDIX II – DETAILS OF RETIRING DIRECTORS. . . . . . . . . . . . . . .	14
APPENDIX III – SUMMARY OF THE PRINCIPAL TERMS OF THE
NEW SHARE OPTION SCHEME. . . . . . . . . . . . . . . . . .	16
NOTICE OF ANNUAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . .	28

– i –

DEFINITIONS

In this circular, the following expressions have the meanings respectively set opposite them unless the context otherwise requires:

“AGM” the annual general meeting of the Company to be held at Boardroom III-IV, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 3 June, 2011 at 9:30 a.m.;

“AGM Notice” the notice convening the AGM as set out in this circular;
“Articles” the articles of association of the Company, to be amended from time to time;
“associates” has the meaning ascribed thereto under the Listing Rules;
“Auditors” the auditors for the time being of the Company;
“Board”
the board of Directors or a duly authorised committee thereof;
“business day”

any day on which the Stock Exchange is open for the business of dealing in securities;

“Company” China Water Industry Group Limited, a company incorporated under the laws of Cayman Islands with limited liability, the Shares of which are listed on the Main Board;

“connected person” has the meaning ascribed thereto under the Listing Rules;
“Date of Grant”

in respect of any particular Option, the business day on which an offer of the grant of an Option is made to a Participant in accordance with the New Share Option Scheme;

“Directors”

the directors of the Company from time to time and “Director” shall be construed accordingly;

“Employee”

any employee of the Company, any Subsidiary or any Invested Entity, including (without limitation) any executive director of the Company, any Subsidiary or any Invested Entity, who is in employment of the Company, any Subsidiary or any Invested Entity;

– 1 –

DEFINITIONS

“Existing Share Option Scheme”
the Company’s existing share option scheme adopted on 17 January, 2002;
“Financial Year” financial year of the Company being the period of 12 months from 1st January to 31st December in the next year;
“Grantee” any Participant who accepts the offer of the grant of any Option in accordance with the terms of the New Share Option Scheme or (where the context so permits) a person entitled to any such Option in accordance with the terms of the New Share Option Scheme in consequence of the death of the original Grantee;
“Group”
the Company and the Subsidiaries from time to time and “member of the Group” shall be construed accordingly;
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong;
“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China;
“Independent Financial Adviser” the independent financial adviser for the time being of the Company;
“Invested Entity” any entity in which the Group holds any equity interests;
“Latest Practicable Date” 19 April 2011, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information included herein;
“Listing Committee” the listing sub-committee of the directors of the Stock Exchange;
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;
“Main Board”
the stock market (excluding the option market) operated by the Stock Exchange which is independent from and operated in parallel with the Growth Enterprise Market operated by the Stock Exchange. For the avoidance of doubt, Main Board excludes the Growth Enterprise Market operated by the Stock Exchange;

– 2 –

DEFINITIONS

“New Share Option Scheme” the new share option scheme proposed to be adopted by the Company at the AGM, a summary of the principal terms of which is set out herein;
“Offeree” a Participant to whom any offer of the grant of an Option is made;
“Option” an option to subscribe for Shares granted pursuant to the New Share Option Scheme;
“Option Period” a period of 10 years commencing on the Date of Grant and expiring on the last day of the said 10-year period;
“Participant” any person belonging to any of the following classes of participants:

any Employee;

any Executive or Non-Executive Director (including Independent Non-Executive Directors) of the Company, any Subsidiary or any Invested Entity;

any supplier of goods or services to any member of the Group or any Invested Entity;

any person or entity that provides research, development or other technical support to the Group or any Invested Entity;

any shareholder of any member of the Group or any Invested Entity or any holder of any securities issued by any member of the Group or any Invested Entity;

any adviser (professional or otherwise) or consultant to any area of business or business development of any member of the Group or any Invested Entity; and

any joint venture partner or counter-party to business operation or business arrangements of the Group,

– 3 –

DEFINITIONS

Who the Board considers, in its sole discretion, have contributed or may be convertible to the Company, and for the purposes of the New Share Option Scheme, the Options may be granted to any company wholly owned by one or more persons belonging to any of the above classes of Participants;

“Scheme Period”

period commencing on the date on which the New Share Option Scheme becomes unconditional and expiring on the earlier of:

the date on which 10 years from the date on which the New Share Option Scheme becomes unconditional expires; and
the date on which the New Share Option Scheme is terminated under Clause 14;
“Shareholder(s)”
“Shares”
“Stock Exchange”
“Subscription Price”
“Subsidiary”
“%”

holder(s) of the Shares;

shares of HK$0.10 each (or of such other nominal amount as shall result from a sub-division or a consolidation of such shares from time to time) in the capital of the Company and “Share” shall be construed accordingly;

The Stock Exchange of Hong Kong Limited;

the price per Share at which a Grantee may subscribe for Shares on the exercise of an Option as described in Clause 6, subject to adjustment in accordance with the New Share Option Scheme;

a company which is for the time being and from time to time a subsidiary (within the meaning of section 2 of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong, as modified from time to time) of the Company whether incorporated in Hong Kong, British Virgin Islands, the People’s Republic of China or elsewhere and “Subsidiaries” shall be construed accordingly; and

per cent.

– 4 –

LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability) (Stock Code: 1129)

Executive Directors: Mr. Li Yu Gui (Chairman) Mr. Yang Bin (Chief Executive Officer) Ms. Chu Yin Yin, Georgiana Mr. Li Wen Jun Mr. Tang Hui Ping

Independent Non-executive Directors: Mr. Chang Kin Man Mr. Wu Tak Lung Mr. Gu Wen Xuan

Registered Office: Butterfield Fulcrum Group (Cayman) Limited Butterfield House, 68 Fort Street P.O. Box 609 Grand Cayman KY1-1107 CAYMAN ISLANDS

Head office and principal place of business in Hong Kong: Room 1207, 12th Floor, West Tower, Shun Tak Centre No. 168-200 Connaught Road Central, Hong Kong

29 April 2011

To the Shareholders

Dear Sir or Madam,

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES, TERMINATION OF THE EXISTING SHARE OPTION SCHEME, ADOPTION OF THE NEW OPTION SCHEME, RE-ELECTION OF DIRECTORS AND NOTICE OF ANNUAL GENERAL MEETING

INTRODUCTION

The purpose of this circular is to provide you with information in respect of the ordinary resolutions to be proposed at the AGM to approve (a) the proposed adoption of the New Share Option Scheme; (b) the Issue Mandate; (c) the Repurchase Mandate; and (d) the re-election of Directors.

This circular contains the explanatory statement and gives all the information reasonably necessary to enable you to make a decision on whether to vote for or against the resolutions proposed at the AGM.

for identification purpose only

– 5 –

LETTER FROM THE BOARD

The Notice setting out the details of the resolutions to be proposed at the AGM is set out on pages 28 to 31 of this circular.

Adoption of the New Share Option Scheme is subject to the passing of an ordinary resolution by the Shareholders to approve its adoption and to authorise the Directors to grant Options thereunder and to issue and allot Shares pursuant to the exercise of the subscription rights under the Options granted pursuant to the New Share Option Scheme at the AGM. The adoption of the New Share Option Scheme will also be conditional upon the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, any Shares which may fall to be issued pursuant to the exercise of the subscription rights attaching to the Options on the Stock Exchange (which may be subject to conditions and limitations). Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Shares which may fall to be issued pursuant to the exercise of the subscription rights attaching to the Options which may be granted under the New Share Option Scheme.

TERMINATION OF THE EXISTING SHARE OPTION SCHEME AND ADOPTION OF THE NEW SHARE OPTION SCHEME

The Directors proposed to adopt the New Share Option Scheme, the principal terms of which are set out in the Appendix III to this circular. The Existing Share Option Scheme was adopted by the Company on 17 January, 2002 which will expire on 16 January 2012.

The purpose of the New Share Option Scheme is to enable the Group to grant Options to the Eligible Participants as incentives or rewards for their contribution to the Group. The Directors considered that the New Share Option Scheme, which will be valid for 10 years from the date of its adoption, will provide the Company with more flexibility in long term planning of granting of the share options to eligible persons in a longer period in the future, e.g. considering granting share options after the expiry of the Existing Share Option Scheme.

The New Share Option Scheme does not provide for any minimum period for holding of options or any performance target before exercise of options which can provide appropriate incentives or rewards to the Eligible Participants for their contribution to the Group. Under the New Share Option Scheme, the Board will have discretion in determining the Subscription Price (subject to the Listing Rules) in respect of any Option. The Directors are of the view that the flexibility given to the Directors to determine the Subscription Price will place the Group in a better position to reward its employees and retain human resources that are valuable to the growth and development of the Group as a whole.

As at the Latest Practicable Date, there were 270,637,900 options granted but not yet exercised under the Existing Share Option Scheme. Termination of the Existing Share Option Scheme is subject to Shareholders’ approval and conditional upon the adoption of the New Share Option Scheme.

All options previously granted to connected persons of the Company have been compliant with Rule 17.04 and 13.40 of the Listing Rules.

– 6 –

LETTER FROM THE BOARD

Value of the Options

The Directors consider that it is not appropriate to state the value of the Options that may be granted pursuant to the New Share Option Scheme as if they had been granted at the Latest Practicable Date. The Directors believe that any statement regarding the value of the Options as at the Latest Practicable Date will not be meaningful to the Shareholders and to a certain extent would be misleading to the Shareholders, taking into account the number of variables which are crucial for assessing the value of the Options which have not been determined. Such variables include the Subscription Price, the Option Period and all other relevant variables.

Scheme mandate limit and maximum number of Shares issuable

Subject to obtaining of the Shareholders’ approval of the adoption of the New Share Option Scheme, pursuant to Rule 17.03 of the Listing Rules, the total number of Shares which may be issued upon the exercise of all the options to be granted under the New Share Option Scheme and any other share option schemes of the Company must not, in aggregate, exceed 10% of the issued share capital of the Company as at the date of approval of the adoption of the New Share Option Scheme initially. Based on the 3,778,317,664 Shares in issue as at the Latest Practicable Date and assuming that there is no change in the issued share capital of the Company before the AGM, the maximum number of Shares to be issued upon the exercise of Options that may be granted under the New Share Option Scheme under such initial mandate limit is 377,831,766 Shares. The Company may seek approval of the Shareholders in general meetings to refresh the 10% initial mandate limit. Notwithstanding that the mandate limit may be refreshed, the Board shall not grant Options which would result in the maximum aggregate number of Shares which may be issued upon exercise of all the outstanding options granted but yet to be exercised under the New Share Option Scheme and any other share option schemes of the Company which entitle the holders to acquire or subscribe for Shares exceeding, in aggregate, 30% of the issued share capital of the Company from time to time.

GENERAL MANDATE TO ISSUE SHARES

At the annual general meeting of the Company held on 3 June 2010 (the “2010 AGM”), the Shareholders approved, among other things, ordinary resolutions to approve the grant of a general mandate to the Directors to allot, issue and deal with Shares (the “General Mandate”). As at the date of passing such resolutions, there were a total of 2,706,379,000 Shares in issue and thus the Directors were authorised to issue and allot 20% thereof, being 541,275,800 Shares under the General Mandate. 541,272,000 Shares were allotted and issued under the General Mandate as disclosed in the announcement of the Company dated 9 August, 2010.

At the extraordinary general meeting of the Company held on 11 February, 2011 (the “EGM”), the Shareholders approved, among other things, ordinary resolutions to approve the grant of a general mandate to the Directors to allot, issue and deal with Shares (the “Refreshed General Mandate”). As at the date of passing such resolutions, there were a total of 3,247,651,000 Shares in issue and thus the Directors were authorised to issue and allot 20% thereof, being 649,530,200 Shares under the Refreshed General Mandate. During the period

– 7 –

LETTER FROM THE BOARD

from the date of the EGM to the Latest Practicable Date, the Company announced a Top-up placing on 31 March, 2011 whereby the Company would place out a maximum of 324,000,000 Shares. Assuming this number of Shares are fully allotted and issued, 325,530,200 Shares remain to be issued under the Refreshed General Mandate. Such placing has completed on 8 April, 2011. On 3, 15, 28 March, 2011, the Company allotted and issued in aggregate 206,666,664 Shares as a result of the conversion of a convertible note issued by the Company to Abax Nai Xin A Limited, Abax Jade Limited and Center Mark Investment Development Limited.

An ordinary resolution will therefore be proposed at the AGM to grant to the Directors the Issue Mandate, i.e., a general and unconditional mandate to allot, issue and deal with, otherwise by way of rights issue or any option scheme or similar arrangements for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares in the Company or any shares of the Company issued as scrip dividends pursuant to the Articles of Association, additional Shares with an aggregate nominal value not exceeding 20% of the aggregate nominal amount of the issued share capital of the Company at the date of the passing of such resolution. The Issue Mandate, if granted, will remain in effect until the earliest of (i) the conclusion of the next annual general meeting of the Company; (ii) the expiration of the period within which the next annual general meeting of the Company is required to be held by the Articles of Association or any applicable laws of the Cayman Islands or the Listing Rules; and (iii) the date upon which such authority is revoked or varied by an ordinary resolution of the Shareholders in a general meeting of the Company.

As at the Latest Practicable Date, the Company had an aggregate of 3,778,317,664 Shares in issue. Subject to the passing of the ordinary resolution for the approval of the Issue Mandate and on the basis that no further Shares are issued and/or repurchased by the Company between the Latest Practicable Date and the date of the AGM, the Company would be allowed under the Issue Mandate to allot and issue up to 755,663,532 new Shares, being 20% of the Shares in issue as at the Latest Practicable Date.

GENERAL MANDATE TO REPURCHASE SHARES

At the 2010 AGM, an ordinary resolution was passed by the Shareholders granting the existing Repurchase Mandate to the Directors.

An ordinary resolution will be proposed at the AGM to revoke the existing Repurchase Mandate and to grant to the Directors a fresh Repurchase Mandate, i.e., a general and unconditional mandate to repurchase Shares subject to the maximum number of shares of up to 10% of the aggregate nominal amount of the issued share capital of the Company at the date of passing of such resolution. The fresh Repurchase Mandate, if granted, will remain in effect until the earliest of (i) the conclusion of the next annual general meeting of the Company; (ii) the expiration of the period within which the next annual general meeting of the Company is required to be held by the Articles of Association or any applicable laws of the Cayman Islands or the Listing Rules; and (iii) the date upon which such authority is revoked or varied by an ordinary resolution of the Shareholders in a general meeting of the Company.

– 8 –

LETTER FROM THE BOARD

An explanatory statement containing all relevant information relating to the Repurchase Mandate is set out in Appendix I to this circular. The information in the explanatory statement is to provide you with the information reasonably necessary to enable you to make an informed decision on whether to vote for or against the resolution to grant to the Directors the Repurchase Mandate at the AGM.

RE-ELECTION OF DIRECTORS

In accordance with article 112 of the Articles of Association, Mr. Tang Hui Ping, who was appointed by the Board, shall hold office only until the AGM and shall then be eligible for re-election. Mr. Tang Hui Ping being eligible, will offer himself for re-election at the AGM.

In accordance with article 108(A) of the Articles of Association, Mr. Yang Bin, Mr. Chang Kin Man and Mr. Wu Tak Lung will retire from office by rotation and will offer themselves for re-election at the AGM.

At the AGM, each of Mr. Yang Bin and Mr. Tang Hui Ping will offer themselves for re-election as Executive Directors. Mr. Chang Kin Man and Mr. Wu Tak Lung will offer themselves for re-election as Independent Non-Executive Director.

Details of the Retiring Directors which are required to be disclosed under the Listing Rules are set out in Appendix II to this circular.

ANNUAL GENERAL MEETING

The Notice is set out on pages 28 to 31 of this circular. At the AGM, resolutions will be proposed to approve, inter alia, the granting of the Issue Mandate and Repurchase Mandate, the re-election of Directors, the adoption of the New Share Option Scheme and the termination of the Existing Share Option Scheme.

A form of proxy for use at the AGM is enclosed with this circular and such form of proxy is also published on the website of the Stock Exchange (www.hkex.com.hk). In order to be valid, the form of proxy must be completed and signed in accordance with the instructions printed thereon and deposited at the branch share registrar of the Company in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of authority, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting. The completion and return of the form of proxy will not preclude any Shareholder from attending and voting at the meeting if so wished.

– 9 –

LETTER FROM THE BOARD

DOCUMENTS AVAILABLE FOR INSPECTION

A summary of the principal terms of the rules of the New Share Option Scheme is set out in appendix III to this circular. A copy of the rules of the New Share Option Scheme will be available for inspection at the office of the Company at Room 1207, 12th Floor, West Tower, Shun Tak Centre, No. 168-200 Connaught Road Central, Hong Kong, during normal business hours on any business day from the date of this circular to and including the date of the AGM (and any adjournment thereof, as the case may be).

RESPONSIBILITY STATEMENT

This document, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this document is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this document misleading.

RECOMMENDATION

The Directors consider that the adoption of the New Share Option Scheme, termination of the Existing Share Option Scheme, the Issue Mandate, the Repurchase Mandate and the re-elections of Directors are in the best interests of the Company and the Shareholders. The Directors therefore recommend the Shareholders to vote in favour of all the resolutions as set out in the Notice on pages 28 to 31 of this circular.

By Order of the Board China Water Industry Group Limited Li Yu Gui

Chairman

– 10 –

EXPLANATORY STATEMENT

APPENDIX I

This Appendix serves as an explanatory statement as required by the Listing Rules, to be included in this circular concerning the repurchase of Shares by the Company.

1. Exercise of the Repurchase Mandate

As at the Latest Practicable Date, the issued share capital of the Company comprised 3,778,317,664 Shares.

Subject to the passing of the relevant ordinary resolution to approve the Repurchase Mandate at the AGM and on the basis that no further Shares are issued or repurchased prior to the AGM, the Company would be authorised under the Repurchase Mandate to repurchase a maximum of 377,831,766 Shares during the period up to the next annual general meeting in 2012 or the expiration of the period within which the next annual general meeting of the Company is required by law to be held or the revocation or variation of the Repurchase Mandate by an ordinary resolution of the Shareholders in a general meeting of the Company, whichever occurs first.

2. Reasons for Repurchase

The Directors consider that the Repurchase Mandate will provide the Company with the flexibility to make such repurchases as and when appropriate and beneficial to the Company. Such repurchase may, depending on market conditions and funding arrangements at the time, lead to an enhancement of net asset value of the Company and/or its earnings per Share and will only be made when the Directors believe that such a repurchase will benefit the Company and its Shareholders as a whole.

3. Funding of Repurchase

In repurchasing the Shares, the Company may only apply funds legally available for such purpose in accordance with its memorandum and articles of association and the applicable laws of Hong Kong and the Cayman Islands. The Companies Laws (2007 Revision) of the Cayman Islands (the “Laws”) provide that a share repurchase by the Company may only be made out of profits of the Company or out of the proceeds of a fresh issue of shares made for the purpose of the repurchase or, if so authorised by the articles of association of the Company and subject to the provisions of the Laws, out of capital. Any premium payable on a repurchase over the par value of the Shares repurchased must be provided for out of profits of the Company or out of the Company’s share premium account or, if so authorised by the articles of association of the Company and subject to the provisions of the Laws, out of capital.

4. Impact on Working Capital or Gearing Position

There may be material adverse impact on the working capital or the gearing position of the Company (as compared with the position disclosed in the Company’s audited accounts for the year ended 31st December, 2010) in the event that the Repurchase Mandate is exercised in full. However, the Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital or gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

– 11 –

EXPLANATORY STATEMENT

APPENDIX I

5. Undertaking of the Directors

The Directors have undertaken to the Stock Exchange to exercise the powers of the Company to make repurchases pursuant to the proposed resolution in accordance with the Listing Rules and all applicable laws of the Cayman Islands, and in accordance with the regulations set out in the memorandum and articles of association of the Company.

6. Effect of Takeovers Code

If, on the exercise of the power to repurchase Shares pursuant to the Repurchase Mandate, a Shareholder’s proportionate interest in the voting rights of the Company increases, such an increase will be treated as an acquisition for the purposes of the Takeovers Code. As a result, a Shareholder or a group of Shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 and Rule 32 of the Takeovers Code. As at the Latest Practicable Date, Mr. Yang Bin, executive Director and Mr. Li Jian Ping, the two largest shareholders of the Company, jointly indirectly held 450,479,000 Shares, representing approximately 11.93% of the entire issued share capital of the Company through their controlled corporations, namely Boost Skill Investments Limited, Favor Jumbo Investments Limited and Sure Ability Limited. Assuming full exercise of the Repurchase Mandate, Mr. Yang Bin and Mr. Li Jian Ping will hold jointly 450,479,000 Share, representing approximately 13.25 % of the entire issued share capital of the Company. The Directors are not aware of any Shareholders, or a group of Shareholders acting in concert, who may become obliged to make a mandatory offer in accordance with Rule 26 and Rule 32 of the Takeovers Code in the event that the Directors exercise the power to repurchase Shares pursuant to the Repurchase Mandate.

7. Directors, their associates and connected persons

None of the Directors nor, to the best of the knowledge of the Directors having made all reasonable enquiries, any associate of any of the Directors has any present intention, in the event that the Repurchase Mandate is approved by the Shareholders, to sell Shares to the Company.

No connected person (as defined in the Listing Rules) of the Company has notified the Company that he/she has a present intention to sell Shares to the Company nor has he/she undertaken not to sell any of the Shares held by him/her to the Company in the event that the Company is authorised to make repurchases of Shares.

8. Share repurchase made by the Company

No repurchases of Shares have been made by the Company during the last six months (whether on the Stock Exchange or otherwise).

– 12 –

EXPLANATORY STATEMENT

APPENDIX I

9. Share Prices

During each of the past twelve months preceding the Latest Practicable Date, the highest and lowest trading prices of the Shares on the Stock Exchange are as follows:

Month	Highest Price	Lowest Price
	(HK$)	(HK$)
2010
April	0.255	0.198
May	0.195	0.121
June	0.135	0.100
July	0.129	0.098
August	0.160	0.125
September	0.133	0.124
October	0.134	0.120
November	0.161	0.125
December	0.145	0.126
2011
January	0.155	0.127
February	0.158	0.126
March	0.158	0.135
April (up to be Latest Practicable Date)	0.132	0.128

– 13 –

DETAILS OF RETIRING DIRECTORS

APPENDIX II

The following sets out the details of the directors who will retire and, being eligible, offer themselves for re-election at the AGM pursuant to the Articles of Association:

BIOGRAPHICAL INFORMATION

Executive Directors

Mr. Yang Bin (“Mr. Yang”) , aged 37, was appointed as Executive Director of the Company in December 2008 and the Chief Executive Officer in June 2009. Mr. Yang is a substantial shareholder of the Company and is currently an Executive Director of iMerchants Limited (Stock code: 08009), an associate of the Company and the shares of which are listed on the Growth Enterprise Market of The Stock Exchange. Mr. Yang was graduated from the college of Jiu-jiang, Jiangxi Province, the PRC. He has also completed his studies in Economy Administration in Distance Learning College of The Party School of the Central Committee of the Communist Party of China. Mr. Yang joined the Company in 2007 as a deputy general manager in charge of the Operation Division of the Company. He has over 10 years’ working experience in water industry. Before joining the Company, Mr. Yang was a General Manager Assistant of Jiangxi Shangrao City Water Supply Company* (江西省上饒市自來水公司) where he was mainly responsible for marketing and promoting water supply business to the urban residents of Shangrao City, the People’s Republic of China (the “PRC”)as well as designing and constructing water supply piping network.

Mr. Tang Hui Ping (“Mr. Tang”) , aged 56, was appointed as an Executive Director in January 2011. He is currently an Chief Internal Auditor and Deputy General Manager since 2009. Mr. Tang holds a Bachelor’s Degree in Accountancy from the South Central University of Finance & Economic, Politics & Law, China and a Master’s Degree in Business Administration from the Oklahoma City University, United States of America. He is a member of Certified Management Accountant of Australia in 2000. Mr. Tang has more than 27 years extensive experience in the finance & accounting field in the PRC, Hong Kong and Canada.

Independent Non-executive Directors

Mr. Chang Kin Man (“Mr. Chang”) , aged 47, was appointed as the Independent Non-executive Director of the Company in June 2006. Mr. Chang is currently an Independent Non-executive Director of Birmingham International Holdings Limited (stock code: 2309) which is listed on the Main Board of the Stock Exchange, and iMerchants Limited (stock code: 8009), an associate of the Company and which is listed on the Growth Enterprise Market operated by the Stock Exchange. He is a certified public accountant in Hong Kong and a fellow member of The Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants. Mr. Chang holds a Bachelor’s Degree in Economics and a Master’s Degree in Applied Finance. Mr. Chang has extensive experience in corporate finance and in accounting field. He worked for an international accounting firm and a number of public listed companies for more than 15 years.

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DETAILS OF RETIRING DIRECTORS

APPENDIX II

Mr. Wu Tak Lung (“Mr. Wu”) , aged 45, was appointed as the Independent Nonexecutive Director of the Company in June 2006. Mr. Wu is currently an Independent Non-executive Director of AUPU Group Holding Company Limited (stock code:477) and Neo-Neon Holdings Limited (stock code: 1868) which are listed on the Main Board of the Stock Exchange, and AKM Industrial Company Limited (stock code: 8298) and iMerchants Limited (stock code: 8009) which are listed on the Growth Enterprise Market operated by the Stock Exchange. Mr. Wu is a fellow member of The Association of Chartered Certified Accountants, The Hong Kong Institute of Chartered Secretaries and The Taxation Institute of Hong Kong. Mr. Wu is also a full Member of the Hong Kong Securities Institute and an associate member of The Hong Kong Institute of Certified Accountants. Mr. Wu received a Bachelor’s Degree in Business Administration from the Hong Kong Baptist University and a Master’s Degree in Business Administration from the University of Manchester and the University of Wales. Mr. Wu is a Vice-President of The Association of Chartered Certified Accountant and President of The Taxation Institute of Hong Kong. He is also a Vice-President of Hong Kong Guangdong Youth Exchange Promotion Association, a Council Member of Kiangsu and Chekiang Shanghai Resident (HK) Association and an Honorary Associate of the School of Business of the Hong Kong Baptist University.

As at the Latest Practicable Date, each of Mr. Tang , Mr. Chang and Mr. Wu does not have any interest in the share capital of the Company within the meaning of Part XV of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong). Save as being Directors, each of Mr .Yang, Mr. Tang, Mr. Chang and Mr. Wu does not have any relationship with any other Directors, senior management or substantial or controlling shareholders of the Company (as defined under the Listing Rules).

There is no service contract between the Company and each of Mr. Yang, Mr. Tang , Mr. Chang and Mr. Wu and none of them are appointed for a specific term. Each of their appointment is subject to retirement by rotation and re-election in accordance with the Articles of Association. For the year ended 31 December, 2010, Mr. Yang, Mr. Tang, Mr. Chang and Mr. Wu received an emolument of HK$350,000, HK$364,000, HK$120,000 and HK$144,000, respectively. The emoluments of Mr. Yang, Mr. Tang, Mr. Chang and Mr. Wu are determined by the Board with reference to the remuneration benchmark of the industry and the prevailing market conditions.

In relation to the re-election of, there is no information to be disclosed pursuant to any of the requirements of Rules 13.51(2)(h) to 13.51(2)(v) of the Listing Rules and there are no other matters that need to brought to the attention of the Shareholders.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

The following is a summary of the principal terms of the rules of the New Share Option Scheme proposed to be adopted at the AGM.

1. PURPOSE OF THE NEW SHARE OPTION SCHEME

The purpose of the New Share Option Scheme is to enable the Company to grant Options to selected Participants as incentive and/or rewards for their contribution and support to the Group and any Invested Entity and/or to recruit and retain high-calibre Employees and attract human resources that are valuable to the Group and any Invested Entity. The basis of eligibility of any of the Participants to the grant of Options shall be determined by the Board from time to time on the basis of the Board’s opinion as to his contribution or potential contribution to the development and growth of the Group.

2. CONDITIONS

The New Share Option Scheme shall take effect subject to:

(a) the passing of the necessary resolution to adopt the New Share Scheme by all the Shareholders in general meeting;
(b) the granting by resolution of all the Shareholders in general meeting of a general mandate to the Board to issue Options;
(c) the Listing Committee granting approval of the listing of, and permission to deal in any new Shares which may be issued upon exercise of the subscription rights attaching to the Options to be granted under the New Share Option Scheme not exceeding 10% of the total number of Shares in issue as at the date of approval of the New Share Option Scheme.

3. DURATION AND ADMINISTRATION

3.01 The New Share Option Scheme shall be valid and effective for the Scheme Period, after which period no further Options will be granted or accepted but the provisions of the New Share Option Scheme shall remain in full force and effect in all other respects.
3.02 The New Share Option Scheme shall be subject to the administration of the Board (including the Independent Non-Executive Directors) whose decision as to all matters relating to the New Share Option Scheme or its interpretations or effect (save as otherwise provided therein) shall be final and binding on all parties.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

4. GRANT OF OPTIONS

4.01 On and subject to the terms of the New Share Option Scheme, the Board shall be entitled at any time and from time to time during the Scheme Period to offer to grant to any Participant as the Board may in its absolute discretion select, and subject to such conditions (which shall not be inconsistent with the terms of the New Share Option Scheme) as the Board may think fit, an Option to subscribe for such number of Shares (as may be permitted under the terms of the New Share Scheme) as the Board may determine at the Subscription Price.
4.02 An offer of the grant of an Option shall be made to a Participant by letter in such form as the Board may from time to time determine requiring the Offeree to undertake to hold the Option on the terms on which it is to be granted and to be bound by the provisions of the New Share Option Scheme. Such offer shall be personal to the Offeree and shall not be transferable and shall remain open for acceptance by the Offeree for a period of 21 days from the Date of Grant provided that no such offer shall be open for acceptance after the expiry of the Scheme Period.
4.03 An Option shall be deemed to have been accepted when the duplicate of the letter offering the Option and containing acceptance of such offer is duly signed and dated by the Offeree together with a remittance in favour of the Company of HK$1.00 by way of consideration for the grant thereof is received by the Company within the period referred to in paragraph 4.02 above. Such remittance shall in no circumstances be refundable.
4.04 For so long as the Shares are listed on the Main Board, the Board may not grant any Option after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been published in the newspapers or announced pursuant to the requirements of the Listing Rules. In particular, the Board is prohibited from granting any Option during the period commencing 1 month immediately preceding the earlier of (a) the date of the meeting of the Board (as such date is first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of the Company’s results for any year or half-year under the Listing Rules, or quarterly or any other interim period (whether or not required under the Listing Rules); and (b) the deadline for the Company to publish an announcement of its results for any year or half-year under the Listing Rules, or quarterly or any other interim period (whether or not required under the Listing Rules) and ending on the date of the results announcement provided that the period during which no Option may be granted will cover any period of delay in the publication of a results announcement. The Board may not grant any Option to a Participant who is a Director during the periods or times in which Directors are prohibited from dealing in Shares pursuant to the Model Code for Securities Transactions by Directors of Listed Companies prescribed by the Listing Rules or any other code or securities dealing restrictions adopted by the Company.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

4.05 The grant of Options to a connected person or its associates shall be approved by all independent non-executive Directors (excluding any independent non-executive Director who is a Grantee of the Options in question).
4.06 Where the grant of Options to a connected person who is also a substantial shareholder (as defined in the Listing Rules) of the Company or an independent non-executive Director or any of their respective associates would result in the Shares issued and to be issued upon exercise of the Options granted and to be granted (including all the exercised, cancelled and outstanding Options) to such connected person in any 12-month period immediately preceding and including the Date of Grant, and would entitle such connected person to receive more than 0.1% (or such other percentage as may from time to time specified by the Stock Exchange) of the Shares in issue for the time being and the aggregate value (based on the closing price of the Shares as stated in the daily quotations sheet issued by the Stock Exchange at the Date of Grant) of which is in excess of HK$5,000,000 (or such other amount as may from time to time specified by the Stock Exchange), such grant of Options must be approved by Shareholders in general meeting. All connected persons of the Company shall abstain from voting in favour in such general meeting in connection with obtaining the aforesaid approval. Any vote taken at the meeting of the Shareholders to approve the grant of such Options must be taken on a poll and the Company must comply with the requirements under rules 13.39(5), 13.40, 13.41 and 13.42 of the Listing Rules.

5. SUBSCRIPTION PRICE

5.01 The Subscription Price shall be a price notified by the Board to the Offeree (subject to any adjustments made in paragraph 9) and shall be at least the highest of:
(a) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the Date of Grant which must be a business day;
(b) the average closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the Date of Grant; and
(c) the nominal value of a Share.
5.02 Without prejudice to the generality of the foregoing, the Board may grant Options in respect of which the Subscription Price is fixed at different prices for different periods during the Option Period provided that the Subscription Price for each of the different periods shall not be less than the Subscription Price determined in the manner set out in paragraph 5.01 above.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

6. EXERCISE OF OPTIONS

6.01 An Option shall be personal to the Grantee and shall not be transferable or assignable and no Grantee shall in any way sell, transfer, assign, charge, mortgage, encumber or create any interest in, over or to any Option in favour of any third party. The Company may, after having reasonably satisfied itself that the Grantee shall have committed a breach of this paragraph, revoke any Option granted to such Grantee (to the extent that it has become exercisable and not already exercised by notice). Such revocation shall be final and binding on such Grantee.
6.02 An Option, to the extent it has not expired, may be exercised in whole or in part (but if in part only, in respect of a board lot in which the Shares are traded on the Main Board from time to time or an integral multiple thereof) in the manner as set out in paragraphs 6.03 and 6.07 below the Grantee (or, as the case may be, his legal personal representative(s)) giving notice in writing to the Company stating that the Option is thereby exercised and the number of Shares in respect of which it is exercised (the “ Exercise Notice ”). Each Exercise Notice must be accompanied by a remittance for the full amount of the aggregate Subscription Price for the Shares in respect of which the Option is exercised. Within 28 days after receipt of any Exercise Notice and the remittance of the full amount of the relevant aggregate Subscription Price and, where appropriate, receipt of the Independent Financial Adviser’s or the Auditors’ certificate pursuant to paragraph 9 below Clause 10, the Company shall accordingly allot and issue the relevant number of Shares to the Grantee (or his legal personal representative(s)) credited as fully paid and issue to the Grantee (or his legal personal representative(s)) a share certificate in respect of the Shares so allotted.
6.03 Subject as hereinafter provided in the New Share Option Scheme and any restrictions which may be imposed by the Board or applicable under the Listing Rules and notwithstanding the terms of grant thereof, the Option, to the extent it has not expired, may be exercised by the Grantee at any time during the Option Period, provided that:
(a) subject to paragraphs 6.03(b), 6.03(c) and 6.03(d), at the time of exercise of the Option, the Grantee (as an Employee) shall have already been and remains as an Employee for a period of twelve (12) months or more;
(b) in the event that the Grantee ceases to be a Participant by reason other than of his death or (where in the case of an Employee) the termination of his employment or directorship on one or more of the grounds specified in paragraph 7(e) below, the Grantee shall be entitled from the date of such cessation until whichever is the earlier of the date of expiry of the Option Period or the last day of the period of one month following the date of such cessation (where in the case of an Employee, which date shall be the last actual

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

working day with the Company or the relevant Subsidiary or the Invested Entity whether salary is paid in lieu of notice or not) to exercise the Option up to his entitlement at the date of cessation (to the extent not already exercised) or to the extent specified in the Exercise Notice;

(c) in the event that the Grantee ceases to be a Participant by reason of death and (where in the case of an Employee) none of the events which would be a ground for termination of his employment or directorship under paragraph 7(e) below arises, the legal personal representative(s) of the Grantee shall be entitled until whichever is the earlier of the date of expiry of the Option Period or the last day of the 12 months from the date of death to exercise the Option in full (to the extent not already exercised) or to the extent specified in the Exercise Notice;
(d) in the event of the Grantee (as an Employee) ceases to be a Participant by reason of the termination of his employment or directorship on one or more of the grounds specified in paragraph 7(e) below and the Grantee has exercised the Option in whole or in part pursuant to paragraph 6.02 above, but Shares have not been allotted to him, the Grantee shall be deemed not to have so exercised such Option and the Company shall return to the Grantee the amount of the Subscription Price for the Shares in respect of the purported exercise of such Option;
(e) in the event of a Grantee who is not an Employee ceases to be a Participant as and when determined by the Board by resolution for any reason other than his death the Board may by written notice to such Grantee within one month from the date of such cessation determine the period within which the Option (or such remaining part thereof) shall be exercisable following the date of such cessation;
(f) if a general offer (including any takeover) to acquire Shares is made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert with the offeror), the Company shall use all reasonable endeavours to procure that such offer is extended to all the Grantees on the same terms, mutatis mutandis, and assuming that they will become, by the exercise in full of the Options granted to them, Shareholders. If such offer, having been approved in accordance with the applicable laws and regulations, becomes or is declared unconditional, the Grantee (or his legal personal representative(s)) shall be entitled to exercise the Option in full (to the extent not already exercised) at any time within 14 days after the date on which the offer becomes or is declared unconditional or to the extent specified in the Exercise Notice to exercise such Option at any time within 14 days after the date on which the offer becomes or is declared unconditional;

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

(g) in the event a notice is given by the Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind up the Company, the Company shall on the same date or as soon as practicable after it despatches such notice to its members give notice thereof to all Grantees (together with a notice of the existence of the provisions of this paragraph) and thereupon, each Grantee (or where permitted under paragraph 6.03(c), his legal personal representative(s)) shall be entitled to exercise all or any of his Options at any time not later than two business days prior to the date of the proposed general meeting of the Company by giving the Exercise Notice to the Company, accompanied by a remittance for the full amount of the Subscription Price for the Shares in respect of which the Option is exercised whereupon the Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting referred to above, allot the relevant Shares to the Grantee credited as fully paid; or
(h) if, pursuant to the relevant laws and regulations in Cayman, a compromise or arrangement between the Company and its members or creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies, the Company shall give notice thereof to all Grantees (together with a notice of the existence of the provisions of this paragraph) on the same date or as soon as practicable after it despatches to its members or creditors a notice summoning a meeting to consider such compromise or arrangement, and thereupon each Grantee (or where permitted under paragraph 6.03(c), his legal personal representative(s)) shall be entitled to exercise his Options in full (to the extent not already exercised) or in part to the extent specified in the Exercise Notice at any time not later than two business days prior to the date of the proposed meeting for the purposes of considering such compromise or arrangement and the Company shall, as soon as possible and in any event not later than 12:00 noon on the day immediately prior to the date of the proposed meeting, allot and issue such number of Shares to the Grantee which falls to be allotted and issued on such exercise, credited as fully paid and register the Grantee as holder thereof. With effect from the date of such meeting, the rights of all Grantees to exercise their respective Options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all Options shall, to the extent that they have not been exercised, lapse and determine. The Board shall endeavour to procure that the Shares issued as a result of the exercise of Options under this paragraph shall for the purposes of such compromise or arrangement form part of the issued share capital of the Company on the effective date thereof and that such Shares shall in all respects be subject to such compromise or arrangement. If for any reason such compromise or arrangement is not approved by any court in Cayman (whether upon the terms presented to the court in Cayman or upon any other terms as may be approved by such court in Cayman) the rights of Grantees to exercise their respective

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

outstanding Options (which have been suspended in accordance with the foregoing provisions of this paragraph) shall with effect from the date of the making of the order by the court in Cayman Islands disapproving such compromise or arrangement be restored in full and shall thereupon become exercisable (but subject to the other terms of the New Share Option Scheme) as if such compromise or arrangement had not been proposed by the Company and no claim shall be made against the Company or any of its officers for any loss or damage sustained by any Grantee as a result of the aforesaid suspension.

6.04 The Shares to be allotted upon the exercise of an Option will be subject to all the provisions of the Articles for the time being in force and will rank pari passu in all respects with the fully paid Shares in issue on the date on which the Option is duly exercised or, if that date falls on a day when the register of members of the Company is closed, the first business day of the re-opening of the register of members (the “ Exercise Date ”) and accordingly will entitle the holders to participate in all dividends or other distributions (including distributions or any return of capital upon the winding up of the Company) paid or made on or after the Exercise Date other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor shall be before the Exercise Date. A Share allotted upon the exercise of an Option shall not carry any voting rights until the name of the Grantee has been duly entered into the register of members of the Company as the holder thereof.
6.05 The Company shall use all reasonable endeavours to procure that Shares to be issued upon the exercise of an Option shall, upon the issue thereof (or as soon thereafter as reasonably practicable), become listed on the Main Board as well as any other stock exchanges upon which Shares already in issue are listed.
6.06 Unless the Board otherwise determines and states in the offer of the grant of Options to the Grantee, there is no performance target which must be achieved by the Grantee before any of the Options can be exercised.
6.07 There is no general requirement that an Option must be held for any minimum period before it can be exercised but the Board is empowered to impose at its discretion any such minimum period at the time of an offer of the grant of an Option.
6.08 The Options themselves shall have no right to voting, dividend or otherwise save for its exercise into Shares.

7. LAPSE OF OPTION

An Option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:

(a) the expiry of the Option Period (subject to the provision of the New Share Option Scheme);

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

(b) the expiry of any of the periods or dates referred to in paragraph 6.03(b), (c), (g) or (h);
(c) the date of the commencement of the winding-up of the Company;
(d) the proposed compromise or arrangement as referred to in paragraph 6.03(h) becomes effective;
(e) the date on which the Grantee (as an Employee) ceases to be a Participant by reason of the termination of his employment on any one or more of the grounds that he has been guilty of misconduct, or has committed an act of bankruptcy or has become insolvent or has made any arrangement or composition with his creditors generally, or has been convicted of any criminal offence involving his integrity or honesty or (if so determined by the Board) on any other ground on which an employer would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the Grantee’s service contract with the Company or any Subsidiary or any Invested Entity. A resolution of the Board, the board of directors of the relevant Subsidiary or the Invested Entity to the effect that the employment of a Grantee has or has not been terminated on one or more of the grounds specified in this paragraph shall be conclusive and binding on the Grantee, and where appropriate, his legal personal representative(s);
(f) the date on which the Board shall exercise the Company’s rights to cancel the Option as a result of the Grantee’s breach of the provisions referred to in paragraph 6.01 above; or
(g) subject to paragraphs 6.03(a), (b) and (c), 6.04 and 6.05 above, the date the Grantee ceases to be a Participant for any other reason.

8. MAXIMUM NUMBER OF SHARES AVAILABLE FOR SUBSCRIPTION

8.01 The maximum number of Shares which may be issued upon exercise of all outstanding Options granted and yet to be exercised under the New Share Option Scheme and any Other Schemes shall not exceed 30% of the Shares in issue from time to time. No Option may be granted under the New Share Option Scheme and any Other Schemes if this will result in the maximum number of the Shares referred to in this paragraph being exceeded. Options lapsed or cancelled in accordance with the terms of the New Share Option Scheme or any Other Schemes shall not be counted for the purposes of calculating the said 30% limit.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

8.02 Subject to paragraph 8.01, 8.02 and 8.04, the total number of Shares available for issue upon exercise of all Options which have been or may be granted under the New Share Option Scheme and any Other Schemes must not, in aggregate, exceed 377,831,766 Shares representing 10% of the Shares in issue as at the date on which the New Share Option Scheme becomes unconditional (the “ Scheme Mandate Limit ”) unless an approval by Shareholders at general meeting has been obtained pursuant to Clause 9.04. The Company may seek the approval of the Shareholders in general meeting to refresh the Scheme Mandate Limit and a circular shall be issued to the Shareholders.
8.03 The Company may seek the approval of the Shareholders in general meeting for “refreshing” the Scheme Mandate Limit such that the total number of Shares in respect of which Options may be granted under the New Share Option Scheme and any Other Schemes as “refreshed” shall not exceed 10% of the total number of Shares in issue as at the date of the approval of the Shareholders, provided that Options previously granted under the New Share Option Scheme or any Other Schemes (including Options outstanding, cancelled, lapsed or exercised in accordance with the terms of the New Share Option Scheme or any Other Schemes) will not be counted for the purposes of calculating the limit as “refreshed”. For the purpose of seeking the approval of the Shareholders under this paragraph, the Company shall issue to the Shareholders a circular containing the information required under rule 17.02(2)(d) of the Listing Rules and the disclaimer required under rule 17.02(4) of the Listing Rules.
8.04 The Company may seek separate approval of the Shareholders in general meeting to grant Options beyond the Scheme Mandate Limit, provided that the Options in excess of the Scheme Mandate Limit are granted only to Participants specifically identified by the Company before such approval is sought and the Company shall issue a circular to the Shareholders containing a general description of the specified Offerees, the number and terms of the Options to be granted, the purpose of granting such Options to the Offerees with an explanation as to how the terms of the Options serve such purpose and the information required under rule 17.02(2)(d) of the Listing Rules and the disclaimer required under rule 17.02(4) of the Listing Rules.
8.05 The total number of Shares issued and to be issued upon exercise of the Options granted and to be granted to each Grantee (including both exercised and outstanding Options) in any 12-month period up to the Date of Grant to each Grantee must not exceed 1% of the aggregate number of Shares for the time being in issue. Where any further grant of Options to a Grantee would result in the Shares issued and to be issued upon exercise of all Options granted and to be granted to such Grantee (including exercised, cancelled and outstanding Options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the aggregate number of Shares for the time being in issue, such further grant must be separately approved by the Shareholders in general meeting with such Grantee

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

and his associates abstaining from voting. The Company shall issue a circular to the Shareholders disclosing the identity of the Grantees, the number and terms of the Options granted and to be granted (including Options previously granted) and the information required under rule 17.02(2)(d) of the Listing Rules and the disclaimer required under rule 17.02(4) of the Listing Rules. The number and terms (including the Subscription Price) of the Options to be granted to such Grantee must be fixed before the Shareholders’ approval is sought and the date of the meeting of the Board for proposing such further grant should be taken as the Date of Grant for the purpose of calculating the Subscription Price.

9. REORGANISATION OF CAPITAL STRUCTURE

9.01 In the event of any alteration in the capital structure of the Company whilst any Option remains exercisable, whether by way of capitalisation of profits or reserves, rights issue, consolidation, sub-division or reduction of the share capital of the Company (other than any alteration in the capital structure of the Company as a result of an issue of Shares as consideration in respect of a transaction to which the Company is party), such corresponding alterations (if any) shall be made to:
(a) the number or nominal amount of Shares subject to the Option so far as not being exercised; and/or
(b) the Subscription Price subject to the Option so far as not being exercised; and/or
(c) the maximum number of Shares referred to in paragraph 8 to which the Option relates; and/or
(d) the method of exercise of the Option,

as the Independent Financial Adviser or the Auditors shall at the request of the Company certify in writing to the Board either generally or with regard to any particular Grantee to be in their opinion fair and reasonable, provided that:

(i) any such alteration shall be made on the basis that the proportion of the issued share capital of the Company to which a Grantee is entitled after such alteration shall remain the same as that to which he was entitled before such alteration, but no such alteration shall be made to the extent that the effect of which would be to enable any Share to be issued at less than its nominal value; and
(ii) the issue of Shares or other securities of the Group as consideration in a transaction shall not be regarded as a circumstance requiring any such alteration, and in respect of any alteration referred to in this paragraph, other than any made on a capitalisation issue, the independent financial adviser or the auditors must confirm to the Board in writing that the alteration satisfy the requirements of the relevant provisions of the Listing Rules.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

9.02 The capacity of the Independent Financial Adviser or the Auditors in this paragraph is that of experts and not of arbitrators and their certification shall, in the absence of manifest error, be final and binding on the Company and the Grantees. The costs of the Independent Financial Adviser or the Auditors shall be borne by the Company.
9.03 If there has been any alteration in the capital structure of the Company as referred to in paragraph 9.01 above, the Company shall within 28 days after receipt of the Independent Financial Adviser’s or Auditors’ certificate as referred to in paragraph 9.01, inform each Grantee of such alteration and of any adjustment to be made in accordance with the independent financial adviser’s or auditors’ certificate obtained by the Company for such purposes.

10. SHARE CAPITAL

The exercise of any Option shall be subject to the members of the Company in general meeting approving any necessary increase in the authorised share capital of the Company. Subject thereto the Board shall make available sufficient authorised but unissued share capital of the Company to meet subsisting requirements of issue of Shares on the exercise of all outstanding Options from time to time.

11. DISPUTES

Any dispute arising in connection with the New Share Option Scheme (whether as to the number of Shares the subject of an Option, the amount of the Subscription Price or otherwise) shall be referred to the decision of the independent financial adviser or the Auditors who shall act as experts and not as arbitrators and whose decision shall, in the absence of manifest error, be final and binding on the Company and the Grantees. The costs of the independent financial adviser or the Auditors shall be borne by the party/parties against whom the independent financial adviser or the auditors may decide.

12. ALTERATION OF THE NEW SHARE OPTION SCHEME

12.01 The New Share Option Scheme may be altered at any time in any respect by resolution of the Board without the approval of the Shareholders except certain specified provisions of the New Share Option Scheme (relating to the matters referred to in rule 17.03 of the Listing Rules) shall not be altered to the advantage of Grantees or prospective Grantees (as the case may be) except with the prior sanction of a resolution by the Shareholders who are not Grantees in general meeting, with any persons to whom or for whose benefit any Shares may be issued under the New Share Option Scheme and their associates abstaining from voting.
12.02 Any alterations to the terms and conditions of the New Share Option Scheme which are of a material nature or any change to the terms of Options granted shall first be approved by the Shareholders, except where such alterations take effect automatically under the existing terms of the New Share Option Scheme.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX III

12.03 The amended terms of the New Share Option Scheme or the Options must still comply with the relevant requirements of Chapter 17 of the Listing Rules.
12.04 Any change to the authority of the Board or the scheme administrators in relation to any alteration to the terms of the New Share Option Scheme must first be approved by the Shareholders in general meeting.

13. TERMINATION

The Company by ordinary resolution in general meeting or by resolution of the Board may at any time terminate the operation of the New Share Option Scheme and in such event no further Options will be offered but the provisions of the New Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any Options (to the extent not already exercised) granted prior thereto or otherwise as may be required in accordance with the provisions of the New Share Option Scheme. Options (to the extent not already exercised) granted prior to such termination shall continue to be valid and exercisable in accordance with the New Share Option Scheme.

14. CANCELLATION OF OPTIONS

Any Options granted but not exercised may be cancelled if the Grantee so agrees and new Options may be granted to the same Grantee provided such new Options fall within the limits prescribed by paragraph 9 and otherwise comply with the terms of the New Share Option Scheme.

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NOTICE OF ANNUAL GENERAL MEETING

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(Incorporated in the Cayman Islands with limited liability) (Stock Code: 1129)

NOTICE IS HEREBY GIVEN that the Annual General Meeting of China Water Industry Group Limited (the “Company”) will be held at Boardroom III-IV, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 3 June 2011 at 9:30 a.m. to consider and, if thought fit, transact the following ordinary business:

To receive, consider and adopt the audited consolidated financial statements and the reports of the directors and the Independent auditors for the year ended 31 December 2010.
(A) To re-elect Mr. Yang Bin as an Executive Director.
(B) To re-elect Mr. Tang Hui Ping as an Executive Director.
(C) To re-elect Mr. Chang Kin Man as an Independent Non-Executive Director.
(D) To re-elect Mr. Wu Tak Lung as an Independent Non-Executive Director.
(E) To authorise the board of directors to fix the remuneration of the directors.
To re-appoint SHINEWING (HK) CPA Limited as the auditors of the Company and to authorize the board of directors to fix their remuneration.

ORDINARY RESOLUTIONS

To consider and, if thought fit, pass, with or without modifications, the following resolution as an Ordinary Resolution:

“ THAT :

the share option scheme of the Company (“New Share Option Scheme”), the rules of which are contained in the document marked “A” produced to the meeting and, for the purposes of identification, signed by the chairman of the meeting and summarised in the circular of the Company dated 29 April 2011, be hereby approved and adopted and the directors of the Company be and are hereby authorised to do all such acts and to enter into all such transactions, arrangements and agreements as may be necessary or expedient in order to give full effect to the New Share Option Scheme including without limitation:

(a) administering the New Share Option Scheme and granting options under the New Share Option Scheme;

* for identification purpose only

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NOTICE OF ANNUAL GENERAL MEETING

(b) modifying and/or amending the rules of the New Share Option Scheme from time to time provided that such modification and/or amendment is effected in accordance with the provisions of the New Share Option Scheme relating to modification and/or amendment and the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Stock Exchange”);
(c) allotting and issuing from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the exercise of the options granted under the New Share Option Scheme;
(d) making application at the appropriate time or times to the Stock Exchange for the listing of, and permission to deal in, any Shares or any part thereof that may from time to time be issued and allotted pursuant to the exercise of the options granted under the New Share Option Scheme; and
(e) conditional upon the New Share Option Scheme becoming unconditional, the existing share option scheme of the Company which was adopted by the Company on 17 January 2002 be terminated with effect from the date on which this resolution shall become unconditional.”
As special business, to consider, and if thought fit, pass with or without modifications, the following resolutions 5A to 5C as ordinary resolutions:
A. “ THAT :
- (a) subject to paragraph (c) below, the exercise by the directors of the Company during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares in the capital of the Company and to make or grant offers, agreements and options which might require the exercise of such power be and is hereby generally and unconditionally approved;
- (b) the approval in paragraph (a) shall authorize the directors of the Company during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such power after the end of the Relevant Period;
- (c) the aggregate nominal amount of share capital allotted and issued or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the directors of the Company pursuant to the approval in paragraph (a), otherwise than pursuant to (i) a Rights Issue (as hereinafter defined) or (ii) the exercise of the subscription rights under the share option scheme of the Company or (iii) an issue of shares as scrip dividends pursuant to the memorandum and articles of

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NOTICE OF ANNUAL GENERAL MEETING

association of the Company from time to time shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution and the said approval shall be limited accordingly; and

(d) for the purposes of this resolution:

“Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of the Company;
(ii) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable law of the Cayman Islands to be held; and
(iii) the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting.

“Rights Issue” means an offer of shares open for a period fixed by the directors of the Company to holders of shares on the register on a fixed record date in proportion to their then holdings of such shares (subject to such exclusion or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the law of, or the requirements of any recognized regulatory body or any stock exchange in any territory applicable to the Company).”

B. “ THAT :

(a) subject to paragraph (b) below, the exercise by the directors of the Company during the Relevant Period of all powers of the Company to purchase its own shares, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;
(b) the aggregate nominal amount of shares of the Company purchased by the Company pursuant to the approval in paragraph (a) during the Relevant Period shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution and the said approval be limited accordingly; and

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NOTICE OF ANNUAL GENERAL MEETING

“Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of the Company;
(ii) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable law of the Cayman Islands to be held; and
(iii) the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting.”
C. “ THAT conditional upon resolutions nos. 4A and 4B above being passed, the aggregate nominal amount of the number of shares in the capital of the Company which are repurchased by the Company under the authority granted to the directors as mentioned in resolution no. 4B above shall be added to the aggregate nominal amount of share capital that may be allotted or agreed conditionally or unconditionally to be allotted by the directors of the Company pursuant to resolution no. 4A above.”

By Order of the Board China Water Industry Group Limited Li Yu Gui Chairman

Hong Kong, 29 April 2011

Notes:

(1) A member of the Company entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxies to attend and, in the event of a poll, vote in his stead. A proxy need not be a member of the Company. In order to be valid, the form of proxy must be deposited at branch share registrar of the Company in Hong Kong, Union Registrars Limited at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, not less than 48 hours before the time for holding the meeting or adjourned meeting.
(2) In the case of joint holders of shares in the Company, the vote of the senior who tenders a vote whether in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holders, seniority being determined by the order in which names stand in the register of members
(3) Completion and return of the form of proxy will not preclude members from attending and voting in person at the annual general meeting or any adjournment.
(4) As at the date of this notice, the board of directors of the Company comprises Mr. Li Yu Gui, Mr. Yang Bin, Ms. Chu Yin Yin, Georgiana, Mr. Li Wen Jun and Mr. Tang Hui Ping, all being executive directors, and Mr. Chang Kin Man, Mr. Wu Tak Lung and Mr. Gu Wen Xuan, all being independent non-executive directors.

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AI assistant

China Water Industry Group Limited — Proxy Solicitation & Information Statement 2011

49712_rns_2011-04-28_f29afa18-1517-46d2-ae14-6d7c8d2da5ce.pdf

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES, TERMINATION OF THE EXISTING SHARE OPTION SCHEME, ADOPTION OF THE NEW SHARE OPTION SCHEME, RE-ELECTION OF DIRECTORS AND

NOTICE OF ANNUAL GENERAL MEETING

DEFINITIONS

DEFINITIONS

DEFINITIONS

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES, TERMINATION OF THE EXISTING SHARE OPTION SCHEME, ADOPTION OF THE NEW OPTION SCHEME, RE-ELECTION OF DIRECTORS AND NOTICE OF ANNUAL GENERAL MEETING

INTRODUCTION

TERMINATION OF THE EXISTING SHARE OPTION SCHEME AND ADOPTION OF THE NEW SHARE OPTION SCHEME

Value of the Options

Scheme mandate limit and maximum number of Shares issuable

GENERAL MANDATE TO ISSUE SHARES

LETTER FROM THE BOARD

GENERAL MANDATE TO REPURCHASE SHARES

RE-ELECTION OF DIRECTORS

ANNUAL GENERAL MEETING

DOCUMENTS AVAILABLE FOR INSPECTION

RESPONSIBILITY STATEMENT

RECOMMENDATION

1. Exercise of the Repurchase Mandate

2. Reasons for Repurchase

3. Funding of Repurchase

4. Impact on Working Capital or Gearing Position

5. Undertaking of the Directors

6. Effect of Takeovers Code

7. Directors, their associates and connected persons

8. Share repurchase made by the Company

9. Share Prices

BIOGRAPHICAL INFORMATION

Executive Directors

Independent Non-executive Directors

1. PURPOSE OF THE NEW SHARE OPTION SCHEME

2. CONDITIONS

3. DURATION AND ADMINISTRATION

4. GRANT OF OPTIONS

5. SUBSCRIPTION PRICE

6. EXERCISE OF OPTIONS

7. LAPSE OF OPTION

8. MAXIMUM NUMBER OF SHARES AVAILABLE FOR SUBSCRIPTION

9. REORGANISATION OF CAPITAL STRUCTURE

10. SHARE CAPITAL

11. DISPUTES

12. ALTERATION OF THE NEW SHARE OPTION SCHEME

13. TERMINATION

14. CANCELLATION OF OPTIONS

ORDINARY RESOLUTIONS

“ THAT :

B. “ THAT :

By Order of the Board China Water Industry Group Limited Li Yu Gui Chairman

Hong Kong, 29 April 2011

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China Water Industry Group Limited Proxy Solicitation & Information Statement 2011