11:53 CHINA EAST AIR<00670> - Announcement (10) Property leasing Property Leasing Agreement On 12th May, 2005, the Company entered into a Property Leasing Agreement with CEA Holding, CEA Northwest and CEA Yunnan, pursuant to which the Company will lease from CEA Holding, for use by the Enlarged Group in its daily airlines and other business operations: (i) a maximum of altogether 33 land properties owned by CEA Holding through, and registered in the name of, CEA Northwest, covering an aggregate site area of approximately 692,539 square metres located primarily in Xi'an, Xianyang andYongdeng , together with a total of 225 building properties and related construction, infrastructure and facilities occupying an aggregate floor area of approximately 269,148 square metres; and (ii) a maximum of altogether seven land properties owned by CEA Holding through, and registered in the name of, CEA Yunnan, covering an aggregate site area of approximately 420,768 square metres primarily located in Kunming, together with a total of 81 building properties and related construction, infrastructure and facilities occupying an aggregate floor area of approximately 457,722 square metres. Term Subject to approval being obtained from the Independent Shareholders at the AGM, the Property Leasing Agreement will become effective from the Effective Date for a term of three years. If the Company notifies CEA Holding of its intention to renew the agreement by at least 60-day written notice, the agreement will be renewed with the same terms for a further period of three years. Pricing Under the Property Leasing Agreement, the Company shall pay annual rentals in an aggregate amount of approximately RMB55,400,000 to CEA Holding. Such rentals are determined on the basis of property valuation reports issued in April 2005 by * and *(China Consultants of Accounting and Financial Management Co. Ltd.) (independent qualified PRC property valuers, not being connected persons of the Company) in respect of the properties under the Property Leasing Agreement, and are calculated based on market rates or the depreciation and maintenance charges in respect of the relevant properties, provided that such depreciation and maintenance charges shall be no higher than the market rates. Chesterton Petty Limited, the Company's independent property valuer, has reviewed the Property Leasing Agreement, and has confirmed that the rentals payable by the Company are no higher than prevailing market rates. The rentals are payable half-yearly in advance, and are subject to review and adjustments provided that the adjustments shall not exceed the applicable inflation rates published by the relevant local PRC authorities. Reasons for and benefits of the transaction The Enlarged Group's civil aviation business as expanded following completion of the Proposed Acquisition will comprise businesses being currently operated by CEA Northwest and CEA Yunnan. Accordingly, properties currently held, occupied and/or used by CEA Northwest and CEA Yunnan associated with their civil aviation businesses shall be leased to the Company, such that the Enlarged Group will be able to continue to use such properties in its daily airlines and other business operations. The Company therefore entered into the Property Leasing Agreement with CEA Holding, CEA Northwest and CEA Yunnan, which secures the Enlarged Group its right to use and take possession of the relevant properties at rentals which are no higher, and thus no less favourable, than prevailing market rates. Historical figures Before completion of the Proposed Acquisition, the Company, in its business operations, is not required to, and therefore does not, enter into arrangements to lease properties of CEA Northwest and CEA Yunnan. Accordingly, no relevant or comparable historical figures are available or readily ascertainable.