09:43 CHIAHSIN CEMENT<00699> - Announcement (2) Supply of the cement Pursuant to the Supply Agreement, CHC agrees to purchase from JCC an average of approximately 60,000 to 100,000 metric tons of cement per month from JCC, of quality conforming specific standards as agreed between JCC and CHC. Such amount of quantity will be reviewed by JCC and CHC quarterly with reference to the market conditions of the cement market. Term of the Supply Agreement For the period commencing from 1 February 2005 to 31 December 2005 and automatically renewed annually until 31 December 2007 unless terminated by seven days' advance written notice given by one party to the other party expiring at the end of each term. Price A fixed price agreed between the parties which shall be reviewed quarterly by the parties with reference to the prevailing market price of the same products but in any event not less than the average selling price of the same products to other customers of the Group, who are independent from the Group, for the six months preceding such quarter. Term of payments Payment shall be made by CHC to JCC by telegraphic transfer remittance within seven days after each shipment. Conditions The Supply Agreement is conditional upon the passing of the ordinary resolution to be taken by poll by the Independent Shareholders at the EGM to approve the Supply Agreement and the Transactions including the Proposed Caps. The Proposed Caps The Directors, with reference to, among other factors, the annual production of cement of the Group and the overall demand of cement in Taiwan market, estimate that the Proposed Caps in respect of the Supply Agreement for each of the three financial years ending 31 December 2007 to be US$35,123,000 (equivalent to approximately HK$273,959,400), US$38,316,000 (equivalent to approximately HK$298,864,800) and US$38,316,000 (equivalent to approximately HK$298,864,800) respectively. The Proposed Caps set out above are based on the assumptions and with reference to the facts that (i) the production capacity of the Group is able to meet the demand of CHC under the Supply Agreement and (ii) the estimated market share of the cement products sold by the Group to CHC in Taiwan remains approximately the same for the three financial years ending 31 December 2007, and (iii) the decrease of the sales of cement by the Group to the PRC market due to the austerity control measures to the cement market in the PRC, together with 3% buffer for each of such financial years. According to the information published by Taiwan Cement Manufacturers' Association , the demand of cement in Taiwan in 2001, 2002 and 2003 was approximately 16,692,000 metric tons, 17,586,000 metric tons and 14,848,000 metric tons respectively. The Directors therefore estimate that the demand of cement in Taiwan will be sufficient to meet the supply of cement by the Group and the Proposed Caps are determined accordingly. The terms of the Supply Agreement have been negotiated on an arm's length basis. The Directors, excluding the independent non-executive Directors who will be further advised by the independent financial adviser to be appointed, consider that the terms of the Supply Agreement are fair and reasonable and of normal commercial terms and that the Supply Agreement is in the interests of the Company and the Shareholders as a whole. II. INFORMATION ABOUT THE GROUP AND CHC The Group is principally engaged in the production and sale of cement under the registered brandname `Chia Hsin'. It is one of the leading suppliers of cement in the high growth areas in the coastal and eastern parts of the PRC, namely Jiangsu Province, Zhejiang Province, Fujian Province, Guangdong Province and the Shanghai municipality. The Group did not make any sales of cement to CHC before. CHC is a company established in Taiwan and is principally engaged in the sale and purchase of the cement. III. REASONS FOR ENTERING INTO THE SUPPLY AGREEMENT For the six moths ended 30 June 2004, the Group's unaudited turnover and the unaudited net profit attributable to the Shareholders amounted to US$44,092,000 and US$12,295,000 respectively. In order to further develop the business of the Group, the Group has been exploring more business opportunities for the overseas markets. In addition, faced with the short-term impact brought by the austerity control measures to the cement market in the PRC, the Group has been taking steps to utilise its international network to actively develop the overseas market which the Directors consider will generate better returns to the Shareholders and accordingly