09:57 PICO FAR EAST<00752> - Announcement (3) the facility), (ii) long term employment growth for the on-site staff (which is important for the recruitment, retention and motivation of the staff managing the hall) and (iii) clients and customers can be reassured that repeat business is a key factor of their business relationship with the hall manager. The arrangements under the Management Agreement (whereby Chongqing Nanping will utilize the Centre for its business operation and in return pay the Sinking Fund and a rental fee in cash to CCCIC, as the owner of the Centre) are effectively similar to a lease arrangement. The Company therefore has engaged Castores Magi to review the duration of the Management Agreement. Castores Magi is an independent business valuer and has experience in reviewing the terms and arrangements of various business contracts for a number of companies listed on the Stock Exchange, such as reviewing the terms of (1) a long-term lease agreement for a property in the PRC of a listed company in Hong Kong in 2002 for the purpose of determining the commercial value of the said property; and (2) over 200 medium to long-term consignment and property licence agreements of another listed company in Hong Kong in respect of a number of properties situated in different locations in the PRC in 2001 for the purpose of business valuation. In assessing the reasonableness of the duration of the Management Agreement, the terms of the management contract pertaining to the HKCEC Extension were selected and reviewed by Castores Magi for comparison purposes as the management arrangement in respect of the HKCEC Extension is considered similar to that under the Management Agreement. Based on the public information in relation to the management contract of the HKCEC Extension extracted from the Hansard Reports of the meetings of the Legislative Council dated 8 December 1999 and 5 January 2000, the major terms of the HKCEC Extension management contract are summarized as follows: 1) the construction of the HKCEC Extension was funded by the government and did not require the private exhibition hall operator to contribute to the cost; 2) the operation of the HKCEC Extension is managed by a management company with a contract period of 20 years commencing from June 1997; 3) the management company has to manage the HKCEC Extension on a self-financing basis and no subsidy would be provided by the government nor the TDC in respect of the daily operating cost of the HKCEC Extension; and 4) the management company is required to pay the TDC an annual fee in the amount of certain percentages of the gross revenue from the operations of the HKCEC Extension. Having considered the similarities between the HKCEC Extension management contract and the Management Agreement, in particular, the time span of the comparable management contract of the HKCEC Extension, Castores Magi is of the opinion that the duration of the Management Agreement is of normal business practice. Fee arrangements under the Management Agreement Chongqing Nanping will pay to CCCIC a Sinking Fund and a rental fee in cash in each subsequent January. The Sinking Fund is an annual fee charged at a pre-determined fixed percentage of the annual total operating income of the Centre and the rental fee shall be calculated at pre-determined progressive rates of the annual total operating income of the Centre. The rates of the Sinking Fund and the rental fee were agreed by Chongqing Nanping and CCCIC under the Management Agreement based on arm's length negotiations between Chongqing Nanping and CCCIC after taking into account the expected return of CCCIC, as the hall owner, and the expected profitability of Chongqing Nanping in managing the business of the Centre. This will be the first time that the Group will enter into a hall management contract where the underlying business model does not involve capital investment by the Group in the hall. Furthermore, the Directors do not have access to the detailed terms offered by the Group's competitors in market. It is therefore not practicable for the Company to make any comparison of the detailed terms of the Management Agreement to similar agreements in other market terms. If the annual operating income is more than RMB70 million, the rental fee should be calculated based on the same basis as explained above save that the incremental rental fee in respect of the annual operating income in excess of RMB70 million shall be calculated at a rate to be agreed between Chongqing Nanping and CCCIC which shall not be less than the highest progressive rate presently agreed under the Management Agreement. If no agreement can be reached between the parties to the Management Agreement in respect of the rental fee percentage for operating income in excess of RMB70 million, the relevant percentage will be subject to formal arbitration in the PRC. The amount payable by Chongqing Nanping to CCCIC under the Management Agreement will be recorded by Chongqing Nanping as its expenses. Save for the depreciation expenses of the Centre, finance interest related