China Southern Announces Very Substantial Acquisition & Connected Transactions Regarding Northern Airlines/Xinjiang Airlines

Business Wire, Nov 15, 2004

On-going Connected Transactions

Certain transactions will be entered into between the Company and connected persons of the Company within the meaning of the Listing Rules, which will constitute On-going Connected Transactions of the Company under the Listing Rules upon completion of the Acquisition. Further details of such transactions are set out in section 2 of this announcement. The Board, including the independent non-executive Directors, considers the On-going Connected Transactions to be on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Listed Group and its shareholders as a whole.

Each percentage ratio (other than the profits ratio) for (i) the Lease Agreements and (ii) the Catering Agreement is on an annual basis less than 2.5% and therefore each of them falls under continuing connected transactions exempt from the Independent Shareholders' approval requirement. Pursuant to the relevant rules and regulations of the PRC, however, each of the Lease Agreement 1, Lease Agreement 2, Lease Agreement 3 and Catering Agreement is conditional upon approval by the Independent Shareholders.

Financial Services Agreement

The Company and the Finance Company entered into the Financial Services Agreement on 12 November, 2004. The Provision of Deposit Service constitutes a non-exempt continuing connected transaction under Rule 14A.35 of the Listing Rules and requires the Company to comply with the reporting, announcement and the independent shareholders' approval requirements.

The first financial services agreement, first signed on 22 May, 1997 for a term of three years, was extended for six years in 2000 to 22 May, 2006. The Stock Exchange is looking into the matter of whether the Company had complied with the requirements of the Listing Rules during the extended period of the first financial services agreement and the Company will publish further announcement in this respect. Further details of the Financial Services Agreement are set out in section 3 of this announcement.

The Board, including the independent non-executive Directors, believes that the terms of the Financial Services Agreement and the Provision of Deposit Service to be on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Listed Group and its shareholders as a whole.

Independent Shareholders' approval and independent financial adviser

An Independent Board Committee has been formed to advise the Independent Shareholders with respect to the Sale and Purchase Agreement, the Financial Services Agreement and the transactions contemplated thereunder.

ICEA has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Sale and Purchase Agreement, the Financial Services Agreement and the transactions contemplated thereunder.

Dispatch of shareholders' circular and closure of the register of members