China Boqi Environmental : CONTINUING CONNECTED TRANSACTION - NO. 5-6 YANGXI FACILITIES MAINTENANCE SERVICE AGREEMENT

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China Boqi Environmental (Holding) Co., Ltd.

中 國 博 奇 環 保 ( 控 股 ) 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2377)

CONTINUING CONNECTED TRANSACTION

NO. 5-6 YANGXI FACILITIES MAINTENANCE SERVICE AGREEMENT

HIGHLIGHT

On 25 January 2022, Beijing Boqi entered into the No. 5-6 Yangxi Facilities Maintenance Service Agreement with Yangxi Electric, pursuant to which Beijing Boqi provides maintenance services in respect of the No. 5-6 Yangxi Facilities to Yangxi Electrics from 1 January 2022 to 31 August 2027 with amount of service fee of RMB33.92 million.

LISTING RULES IMPLICATIONS

As of the date of this announcement, Yangxi Electric is a wholly-owned subsidiary of Guangdong Huaxia Electric, which is owned and controlled by, through various intermediaries, Mr. Zhu Yihang (朱一航). Mr. Zhu Yihang is a brother and thus, an associate of Mr. Zhu, who is a non-executive Director and substantial Shareholder. Mr. Zhu and his associate(s) held an aggregate of 152,170,529 Shares, representing approximately 15.13% of the total issued Shares, as at the date of this announcement. Yangxi Electric is deemed to be a connected person of our Company under Chapter 14A of the Listing Rules. Therefore, the transactions under the No. 5-6 Yangxi Facilities Maintenance Service Agreement with Yangxi Electric constitute continuing connected transactions of our Company.

The highest applicable percentage ratio in respect of the Annual Cap for the transactions contemplated under the No. 5-6 Yangxi Facilities Maintenance Service Agreement is less than 5% and the maximum Annual Cap is expected to be more than HK$3 million. Therefore, the transactions contemplated under the No. 5-6 Yangxi Facilities Maintenance Service Agreement will be subject to reporting, announcement and annual review requirements but will be exempt from independent Shareholders' approval requirements pursuant to Rule 14A.76 of the Listing Rules.

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Pursuant to Rule 14A.52 of the Listing Rules, the term of an agreement governing the continuing connected transaction must not exceed three years except in special circumstances where the nature of the transaction requires it to be of a longer contract term. Therefore, the Company has engaged Gram Capital to explain the reasons for a longer period required for the term of No. 5-6 Yangxi Facilities Maintenance Service Agreement and to confirm that it is normal business practice for an agreements of this type to be of such duration. Please refer to the section headed "Opinion from Gram Capital" below in this announcement for further details.

Mr. Zhu may be regarded as having a material interest in the transactions contemplated under No. 5-6 Yangxi Facilities Maintenance Service Agreement and therefore he has abstained from voting at the meeting of the Board convened for the purpose of approving the said transactions. Save as disclosed above, none of the Directors has a material interest in the transactions contemplated under No. 5-6 Yangxi Facilities Maintenance Service Agreement.

BACKGROUND

On 25 January 2022, Beijing Boqi entered into the No. 5-6 Yangxi Facilities Maintenance Service Agreement with Yangxi Electric. The major terms of the No. 5-6 Yangxi Facilities Maintenance Service Agreement are set out below:

Parties:	(1)	Beijing Boqi
	(2)	Yangxi Electric
Term:	From 1 January 2022 to 31 August 2027
Subject:	Provision of maintenance services in respect of the No. 5-6 Yangxi Facilities
	by Beijing Boqi
Scope of service:	The scope of maintenance services includes but not limited to:
	(1)	Maintenance facilities: all maintenance facilities of desulfurization,

denitration and public systems (including ammonia area); desulfurization wastewater treatment system and its supporting equipment; desulfurization wastewater drug handling/preparation, etc.; glass flake and spray layer repair (single repair ≤ 50m2);

(2) Electrical facilities: all on-site power boxes, distribution boxes, maintenance power boxes and other primary and secondary equipment; outsourced work for low-voltage motors of 37kW and below (including coil replacement, rotor dynamic balance, shaft spraying repair, etc.); 10kV system panel (responsible for the primary electrical part only), 380V system panel, DC system panel and battery, UPS panel, dry-type transformer, local transfer motor equipment, local maintenance box, ventilation, cables, and cable fire protection facilities, cable tray, cable trench and grounding system; lightning protection facilities;

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1. Thermal control facilities: all thermal control facilities for desulfurization, denitrification, and public systems (including ammonia area); all thermal control facilities for desulfurization and wastewater treatment system and its supporting equipment systems; desulfurization and denitrification CEMS system equipment;
2. Comprehensive facilities: fire-fighting water system and fire-fighting underground pipe network system; scaffolding erection and disassembly, thermal insulation disassembly and assembly, sporadic paint anticorrosion; daily inspection and maintenance of hoisting machinery, elevator equipment and shafts, and cooperation with the special equipment inspection department to complete the annual inspection; air conditioning and lighting maintenance;
3. Sanitation and cleaning: sanitation and cleaning of all equipment (including steel frames, pipes, etc.); sanitation and cleaning within the area (excluding ground cleaning and greening, watering and weeding); and
4. Other work within the scope of service of Beijing Boqi.

Service fee: Subject to adjustment that may be made in accordance with the No. 5-6 Yangxi Facilities Maintenance Service Agreement, the total service fee is RMB33.92 million, details of which are set out below:

				Total fee to be
				received during
No.	Item	Unit price	Amount	the entire term
		(RMB)		(RMB)
1.	Routine	455,864 per	68 months	30,998,752
	maintenance fee for	month
	the No. 5-6 Yangxi
	Facilities (Note 1)
2.	C-level inspection	192,124.80 each	10 times	1,921,248
	and maintenance	(subject to		(subject to actual
	for each of the	actual costs		costs incurred)
	No. 5-6 Yangxi	incurred)
	Facilities (Note 2)

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				Total fee to be
				received during
No.	Item	Unit price	Amount	the entire term
		(RMB)		(RMB)
3.	Adjustment	Nil	Nil	1,000,000
	provision for labor			(subject to
	costs for routine			adjustment
	maintenance for			mechanism
	the No. 5-6 Yangxi			stated below)
	Facilities in the
	third stage between
	January 2025 and
	August 2027 (Note 3)
	Total			33,920,000

Notes:

1. The routine maintenance fee primarily includes labor costs, ancillary facilities and equipment fee, management fee, consumable material costs etc. The labor costs are determined with reference to the prevailing market price of labor unit of Yangjiang and the estimated number of on-site worker based on the Group's other existing projects for provision of similar maintenance services
2. The C-level inspection and maintenance is determined with reference to the terms of other existing maintenance service agreements in relation to the provision of services to power plants for the maintenance of desulfurization and denitrification facilities that have been entered into by our Group.
3. The amount of adjustment provision for labor costs for routine maintenance was determined based on requirements set out in the tendering document, which is applicable to all service providers participated in the tendering process.

Payment term:

(1) Monthly payment:

Beijing Boqi shall submit the payment application form for service fee incurred for the previous month before the 10th of each month to Yangxi Electric. Yangxi Electric shall pay Beijing Boqi 90% of the total payment for the previous month as approved by Yangxi Electric and the remaining 10% will be withheld by Yangxi Electric as maintenance warranty (the "maintenance warranty"). The last monthly payment will be made after the parties settle the No. 5-6 Yangxi Facilities Maintenance Service Agreement.

1. Refund of the maintenance warranty:
2. 1. Routine maintenance warranty: Yangxi Electric shall refund routine maintenance warranty (interest-free) annually after the expiration of the annual routine maintenance period and within 30 days after Yangxi Electric confirms that the facilities have no maintenance quality issue. The last refund for the routine maintenance warranty will be made after the parties settle the No. 5-6 Yangxi Facilities Maintenance Service Agreement.

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1. C-levelinspection and maintenance warranty: Yangxi Electric shall refund the C-level maintenance warranty (interest-free) after three months from the completion of a single C-level inspection and maintenance by Beijing Boqi and within 30 days after Yangxi Electric confirms that the facilities have no quality issues.

Adjustment The labor costs for routine maintenance in the first and second stages will

mechanism for not be adjusted. Only the labor costs incurred in the third stage (i.e. from 1

labor costs: January 2025 to 31 August 2027) will be adjusted.

The calculation formula of labor cost adjustment: Fi = M×C×the third-stage monthly maintenance quantity (i.e. 32 months), of which:

Fi = the adjustment price of the labor cost for the routine maintenance in the third stage;

M = the monthly labor cost for the routine maintenance (the maximum shall not exceed 72% of the total monthly routine maintenance fee);

C = the adjustment ratio of labor cost (-10%≤C≤10%, the excess part will not be adjusted);

	the weighted average price of the
	comprehensive labor unit price of the
The adjustment	Yangjiang Project Cost Information in
the first quarter of 2025
ratio of the labor =	- 100%	x 50%

cost	the weighted average price of the
comprehensive labor unit price of the
	Yangjiang Project Cost Information in
	the third quarter of 2021

The comprehensive labor unit price is determined with reference to the "Yangjiang Project Cost Information" during the performance of the No. 5-6 Yangxi Facilities Maintenance Service Agreement. The labor cost adjustment for the routine maintenance in the third phase will be paid on an average monthly basis since the second quarter of the third phase.

Based on the principle of risk sharing, if the weighted average price of the comprehensive labor unit price in the third stage drops year-on-year, Yangxi Electric will deduct the payment to Beijing Boqi according to the above-mentioned labor cost adjustment calculation principle. If Beijing Boqi raises any objection and requests termination of the No. 5-6 Yangxi Facilities Maintenance Service Agreement, it shall be deemed as a breach of contract. Yangxi Electric has the right to deduct the unpaid adjustment of labor costs for the routine maintenance, and Beijing Boqi shall also compensate Yangxi Electric for liquidated damages of 20% of the annual routine maintenance fees. In the event the liquidated damages are not sufficient to compensate Yangxi Electric's losses, and Yangxi Electric has the right to continue to seek additional compensation.

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