09:32     MELCO INT'L DEV<00200> - Announcement (2)                           

    BACKGROUND                                                                
    As disclosed in the announcement and circular of Melco                    
    respectively dated 1 April 2004 and 23 April 2004, Mocha Slot             
    Group Limited, the immediate holding company of Mocha Slot,               
    (as lessor) has entered into the Equipment Lease Agreements               
    with SJM (as lessee) for a period of ten years from the date              
    of commencement of operation of the relevant electronic gaming            
    machines at the Original Sites. Pursuant to the Equipment                 
    Lease Agreements, Mocha Slot Group Limited has agreed to lease            
    such number of electronic gaming machines and other equipments,           
    as may from time to time be deemed necessary and required by              
    SJM, for operation of the Original Sites and to provide the               
    related auxiliary management services for a monthly fee being             
    the aggregate amount of a fixed monthly rent of MOP$8,000 for             
    each Original Site and 31% of the net win from each electronic            
    gaming machine leased thereunder after deducting the aforesaid            
    fixed monthly rental.                                                     
                                                                              
    Due to the opening of the Additional Site on 24 March 2005 and            
    for the purpose of regularizing the relationship between Mocha            
    Slot Group Limited and SJM under the Equipment Lease                      
    Agreements in accordance with the terms of the Gaming                     
    Concession Contract, Mocha Slot has, at the request and with              
    the approval of DICJ, the gaming authority in Macau, entered              
    into the Service Arrangement with SJM, which replaced the                 
    Equipment Lease Agreements. The Service Arrangement comprises             
    four service agreements in identical terms entered into                   
    between Mocha Slot and SJM in relation to the provision of                
    Services to the Original Sites and the Additional Site                    
    (collectively the "Existing Sites"). The principal terms of               
    the Service Arrangement are as follows:                                   
                                                                              
    THE SERVICE ARRANGEMENT                                                   
                                                                              
    Date(s)   :   21 March 2005 in respect of the three service               
    agreements regarding the Original Sites; and 22 March 2005 in             
    respect of the remaining service agreement regarding the                  
    Additional Site.                                                          
                                                                              
    Parties   :   Mocha Slot, as service provider SJM, as service             
    recipient                                                                 
                                                                              
    Service period   :   An initial period of five years                      
    commencing from the respective dates of the agreements,                   
    subject to early termination by either party unilaterally                 
    giving to the other not less than one year's notice. Subject              
    to any earlier termination as mentioned in "Termination" below            
    and/ or the approval of the Macau Government, after expiration            
    of the initial five year period, the service period can be                
    extended for equal periods of five years each.                            
                                                                              
    According to Rule 14A.35(1) of the Listing Rules, a continuing            
    connected transaction must not exceed three years unless there            
    are special circumstances for a longer duration and such                  
    longer duration is within normal business practice for                    
    contracts of similar type. The Service Arrangement replaces               
    the fixed ten year Equipment Lease Agreements, at the request             
    of the gaming authority in Macau and as expressly contemplated            
    by Melco's shareholder circular dated 23 April 2004 relating              
    to the approval of the Equipment Lease Agreements. However,               
    ultimately the Service Arrangement is an unprecedented                    
    business arrangement approved and endorsed by the Macau                   
    Government and there are no other comparable agreements in the            
    market to which reference can be made regarding whether or not            
    the duration of the Service Arrangement is within normal                  
    business practice. As such, the five year period of the                   
    Service Arrangement is technically non-compliant with the                 
    provisions of Rule 14A.35(1) of the Listing Rules, although               
    the Service Arrangement can be unilaterally terminated by                 
    Mocha Slot at any time by not less than one year's notice. The            
    Directors are of the view that the service period of five                 
    years each is in the interest of the Shareholders since Mocha             
    Slot has incurred or will incur considerable investment costs             
    in providing the electronic gaming machines to SJM under the              
    Service Arrangement, a longer service period is necessary for             
    Mocha Slot to recoup its investment costs.