09:43 MAYER HOLDINGS<01116> - Announcement (3) 20% 60% 77.52% 22.48% The Borrower Guangzhou Mayer REASONS FOR AND BACKGROUND OF THE GRANTING OF THE GUARANTEE The principal activities of the Group are processing and manufacture of different kinds of steel sheets and steel pipes which are used by its customers in the manufacture of computing, consumer electronics and communication products, sports equipment, as well as spare parts of household appliances and motor vehicles. The principal business of Taiwan Mayer is processing and manufacture of steel pipes mainly for the domestic market in Taiwan. The current principal business of the Borrower is manufacture of alloy wheel and related accessories in the PRC for the domestic and overseas markets. Prior to the solicitation of the Loan Facilities, the Borrower had entered into 5 loan agreements with the Lender for a total sum of RMB60 million (HKD56.60 million) which is secured by a guarantee granted by a supplier of the Borrower to the Lender in consideration of the grant of guarantees by the Borrower for loans of a total sum of RMB71.5 million (HKD67.45 million) from a bank in the PRC to the supplier (and its associate) of the Borrower. As the repayment dates of the above loans of RMB60 million (HKD56.60 million) to the Borrower are in April 2005 respectively and the Borrower would not intend to grant a guarantee in favour of any other third parties in return for a grant of guarantee in its favour, it intends to obtain the Loan Facilities with the Lender which will be secured by the Guarantee. The Directors consider the granting of the Guarantee would facilitate the obtaining of the Loan Facilities by the Borrower without the need to execute another guarantee in favour of a third party company outside the same group under the control of Taiwan Mayer. The Directors believe that it is not an uncommon industry practice but also a normal and commercial means for a company to provide corporate guarantee to financial institutions to facilitate the granting of loan to an associate of that company. As the Borrower has been informed by the Lender which is a bank in the PRC that it could only accept guarantees granted by a PRC company and Guangzhou Mayer is the only PRC fellow subsidiary of the Borrower within the same group under the control of Taiwan Mayer, the Borrower has requested Guangzhou Mayer to provide the Guarantee. Guangzhou Mayer will receive an annual guarantee fee in cash amounting to 0.75% of the amount of the Loan Facilities which is payable after every six months as agreed between the Borrower and Guangzhou Mayer. The guarantee fee was arrived at after arm's length negotiations and on commercial basis. The Directors further believe that the granting of the Guarantee (which forms part of the terms agreed under the Loan Agreement) will only involve obligation of Guangzhou Mayer upon default of the Borrower. Moreover a back-to-back guarantee will also be granted by Taiwan Mayer in consideration of the grant of the Guarantee by Guangzhou Mayer. Though the Company has no concrete plan at this moment, the board of Directors is studying the feasibility of establishing business co-operation with the Borrower and it is one of the reasons considered by the Directors for providing the Guarantee. The board of Directors, including the independent non-executive Directors, considers that the terms of the Guarantee are on normal commercial terms and are fair and reasonable as far as the Shareholders are concerned. GENERAL The commitment of Guangzhou Mayer under the Guarantee represents approximately 24.40% of the Market Capitalisation. As a result, the grant of the Guarantee will constitute discloseable transaction of the Company under Chapter 14 of the Listing Rules. If, on the date of the execution of the Guarantee, the commitment of Guangzhou Mayer under the Guarantee represents 25% or more of the total market capitalisation of the Company based on the average closing price per Share for the five business days immediately preceding such date and the grant of Guarantee constitutes a major transaction of the Company under Chapter 14 of the Listing Rules, the Company will (i) issue an announcement in