11:56 CHINA EAST AIR<00670> - Announcement (15) Annual caps Based on such historical figures, and the expected expansion and developments of the Enlarged Group's business following the Proposed Acquisition, the total amounts payable by the Company to the Maintenance Company under the Maintenance Services Agreement for the three financial years ending 31st December, 2005, 2006 and 2007 are not expected to exceed RMB30,000,000, RMB36,000,000 and RMB43,200,000, 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. In arriving at these proposed caps, the Company has also taken account of the expected growth of the Enlarged Group's air transportation business in the coming years which will in turn require an increasing volume of maintenance, repair and overhaul services and procurement of related equipment and materials required from the Maintenance Company. Catering services Catering Services Agreements The Catering Companies are companies principally engaged in the business of providing catering and related services for airline companies, and have established operating centres at various airports located in Shanghai, Xi'an, Kunming, Jinan and Qingdao. On 12th May, 2005, the Company entered into several Catering Services Agreements with the Catering Companies, pursuant to which the Catering Companies will from time to time provide the Enlarged Group with in-flight catering services (including the supply of in-flight meals and beverages, cutlery and tableware) and related storage and complementary services required in the daily airline operations and civil aviation business of the Enlarged Group. The Catering Companies shall provide their services in accordance with the specifications and schedules as from time to time specified by the relevant member(s) of the Enlarged Group to accommodate its operation needs. Term Subject to approval being obtained from the Independent Shareholders at the AGM, each of the Catering Services Agreements will become effective from 1st July, 2005 for a term of three years, subject to renewal. Pricing Under the Catering Services Agreements, the service fees payable to each of the Catering Companies for its services provided shall be based on prevailing market rates available from independent third-party service providers under comparable conditions. Such service fees shall be determined based on arm's length negotiations, and shall be no less favourable than those offered by the relevant Catering Company to independent third parties. Such service fees are payable monthly in arrears, within 60 days of the receipt of invoices issued by the relevant Catering Company. The parties will perform an annual review of the then prevailing service fees before the 31st of December in each calendar year, and agree on any required adjustments to the service fees in respect of the next calendar year. Reasons for and benefits of the transaction The Directors believe that the entering into of the Catering Services Agreements will be beneficial to the Enlarged Group and its business operations, and in turn is believed to be conducive to the interests of the Company's shareholders. This is because the Catering Companies are companies specialised in the provision of catering and related services for airline companies, and more importantly have local operating centres at various airports located in Shanghai, Xi'an, Kunming, Jinan and Qingdao, covering the focal operating areas of the Enlarged Group's airlines and aviation business as expanded following the Proposed Acquisition. Indeed, the Catering Companies have been providing catering services to the Group, CEA Northwest and CEA Yunnan, and will have good understanding of the Enlarged Group's culture and operations. The Catering Companies, through their operating centres, will therefore be able to provide fast and high-quality catering services in response to requirements, normal or special, as may be specified from time to time by the relevant member(s) of the Enlarged Group to accommodate its day-to-day operation needs, and to, for example, cater for its different flight schedules (including regular, chartered and temporary flights). Further, the various operating centres of the Catering Companies are equipped with advanced facilities and required infrastructure for the provision of catering and related services, and are believed to be able to provide reliable and efficient services.