11:55 CHINA EAST AIR<00670> - Announcement (13) Annual caps Having considered the historical figures and taking account of (i) the anticipated possible increase in the Enlarged Group's working capital requirements due to expected expansion and developments of its business following the Proposed Acquisition and the continual increasing demand for air transportation in the market and (ii) the consequential possible increase in its cash inflows and outflows, the maximum aggregate annual amounts in respect of the deposit and other financial services as contemplated under the Financial Services Agreement for the three financial years ending 31st December, 2005, 2006 and 2007 are not expected to exceed RMB1,050,000,000, RMB1,100,000,000 and RMB1,150,000,000, respectively, taking into account the anticipated gradual and organic growth of the Enlarged Group's business over these years. Accordingly, these amounts have been set as the proposed annual caps for this Continuing Connected Transaction. The Directors believe that these proposed annual caps will be able to provide the Enlarged Group with sufficient flexibility for its expected future financial arrangements with the Finance Company. Import/export agency services Import and Export Agency Agreement The Import & Export Company is a company approved by the PRC Ministry of Commerce and is licensed to engage in the business of import and export of aircraft and related aviation equipment and materials in the PRC. On 12th May, 2005, the Company entered into an Import and Export Agency Agreement with the Import & Export Company, pursuant to which the Import & Export Company will from time to time as its agent provide the Enlarged Group with agency services for the import and export of aircraft and related raw materials, accessories, machinery and equipment required in the daily airlines operations and civil aviation business of the Enlarged Group. Term Subject to approval being obtained from the Independent Shareholders at the AGM, the Import and Export Agency Agreement will become effective from 1st July, 2005 for a term of three years, subject to renewal. Pricing Under the Import and Export Agency Agreement, the Company shall pay commissions and expenses to the Import & Export Company for the services it provides at prescribed rates which are no less favourable than those offered by the Import & Export Company to independent third parties. Reasons for and benefits of the transaction The Directors believe that the entering into of the Import and Export Agency Agreement will be beneficial to the Enlarged Group and its business developments, and in turn is believed to be conducive to the interests of the Company's shareholders. This is because the Import & Export Company is a PRC qualified company, licensed and experienced in providing import and export agency services in respect of aircraft and related aviation equipment and materials in the PRC. Compared with the few other independent third-party service providers in the market, through its cooperation with the Group for the last consecutive eight years, the Import & Export Company has secured a better understanding of the Enlarged Group's operations, as is evident from the proven track record it attains. Accordingly, the Directors believe that the Import & Export Company will be able to deliver timely services to accommodate the operating needs of the Enlarged Group, catering for its day-to-day business and administrative schedule. With the Import and Export Agency Agreement in place, the Enlarged Group will be able to benefit from, as is believed, better organised, efficient and cost-effective import and export agency services required, at prescribed rates which are no less favourable than those offered by the Import & Export Company to independent third parties. Historical figures The historical figures of the total commissions and expenses paid by the Group to the Import & Export Company for its agency services provided in respect of each of the three financial years ended 31st December, 2002, 2003 and 2004 are approximately RMB20,160,000, RMB21,390,000 and RMB34,270,000, respectively.