11:11 CHINA UNICOM<00762> - Announcement (6) Accordingly, the New CDMA Lease provides that the proportion of the Constructed Capacity Related Costs to be borne by the New Operating Entity shall be calculated by reference to the actual number of cumulative CDMA subscribers of the New Operating Entity at the end of the month prior to the occurrence of the costs divided by 90%, as a percentage of the total amount of Capacity constructed on the Network. The Constructed Capacity Related Costs referred to above mean those costs of operating and managing the CDMA Network which relate directly to the constructed Capacity on the CDMA Network, including the rental fees for the exchange centres and the base stations, water and electricity charges, heating charges and fuel charges for the relevant equipment etc., as well as the maintenance costs of a non-capital nature. Purchase Option Under the New CDMA Lease, Unicom New Horizon has granted the New Operating Entity an option to purchase the CDMA Network (the Purchase Option). The Purchase Option may be exercised at any time during the term of the New CDMA Lease and within one year after the termination or expiry (without renewal) of the New CDMA Lease. The purchase price shall be negotiated between Unicom New Horizon and the New Operating Entity, on the basis of the appraised value of the CDMA Network determined in accordance with applicable PRC laws and regulations and taking into account prevailing market conditions and other factors, provided that the acquisition price will not be greater than such price as would, taking into account all lease fee payments made by CUCL, Unicom New Century and Unicom New World to Unicom New Horizon under the New CDMA Lease or any Old CDMA Lease and all discounts for delay, enable Unicom New Horizon to recover the Network Construction Costs, together with an internal rate of return on its investment of 8%. The exercise of the Purchase Option will be subject to the New Operating Entity complying with the applicable stock exchange requirements relating to that transaction. Title to the CDMA Network will remain vested in Unicom New Horizon until the CDMA Network assets are transferred to the New Operating Entity following exercise of the Purchase Option. Guarantee and Indemnity In consideration of the New Operating Entity's entering into the New CDMA Lease, Unicom Group has unconditionally and irrevocably guaranteed the due and punctual performance by Unicom New Horizon of its obligations under the New CDMA Lease. Unicom Group has also agreed to indemnify the New Operating Entity for any loss and damage as a result of any defect in, or any loss of or damage to, any of the equipment caused by any negligence, default, act or omission of Unicom New Horizon or Unicom Group under the New CDMA Lease or in connection with the CDMA Network. The aggregate liability of Unicom Group for any claim shall not exceed the total amount of lease fee payments made by CUCL, Unicom New Century and Unicom New World to Unicom New Horizon under the New CDMA Lease or any Old CDMA Lease as well as the total purchase price paid for the CDMA Network. Transfer of Rights and Obligations Each of Unicom New Horizon and Unicom Group irrevocably agrees that the A Share Company may transfer its rights and obligations under the New CDMA Lease to the New Operating Entity. Termination of the New CDMA Lease The New Operating Entity may terminate the New CDMA Lease by not less than 180 days' prior written notice with effect from the end of the Initial Term or any Additional Term. In addition, Unicom New Horizon or the New Operating Entity may terminate the New CDMA Lease if the other party commits any continuing or material breach of the New CDMA Lease. Unicom New Horizon is not otherwise permitted to terminate the New CDMA Lease. Reasons for the CDMA Lease Arrangement The Board believes that operation of the CDMA Network by way of leasing will enable the Company to effectively reduce the investment risks involved in developing the CDMA business. In particular, it will avoid the significant initial capital expenditure required during the initial stages of CDMA business development. It will also enable the Company to deploy the extensive coverage of the CDMA Network without having to incur the costs of purchasing the network at the outset. In addition, where the Company considers necessary, it has the right to purchase the CDMA Network from Unicom New Horizon to operate as its own facilities instead of leased facilities. Historical information For the years ended 31 December 2002, 2003 and 2004, the lease fee paid by the Group to Unicom New Horizon under the Old CDMA Leases amounted to RMB892 million (HK$841 million), RMB3,515 million (HK$3,313 million) and RMB 6,589 million (HK$6,210 million), respectively. The old lease fee above was calculated in accordance with the Old CDMA Leases and is not a sufficient basis for forecasting the new lease fee under the New CDMA Lease. Cap Amount For each of the financial years ending 31 December 2005 and 2006,